By Ben Marquand
Sub-prime mortgage lender Kensington Group has announced its intention to float on the London Stock Exchange. Trading will start in the week beginning 20 November.
The move marks the entrance of non-standard mortgage lenders into the UK’s stock market and has been welcomed by most lenders in the sector.
Michael Bolton, marketing manager at Future Mortgages said: “It is the first acknowledgement by the City that this is a maturing sector because it has been prepared to offer a proper valuation. Although there are still some things that need to be done to put ‘the house in order’, it is a step in the right direction.”
Based on the indicative offer price range of 225p to 315p, the market capitalisation of Kensington at flotation is expected to be in the region of £130m to £170m.
Shares will be offered to both institutional investors and to eligible employees, in accordance with an employee offer document. Kensington hopes that the flotation will raise between £80m and £100m for the company.
This will come from a combination of new shares and the sale of existing shares held by some of its current shareholders. Ocwen, the US sub-prime lender, will sell its entire 38% stake in the company when it floats.
John Maltby, chief executive of Kensington, said: “We will be using the money raised by the float to strengthen our balance sheet and remove some of our current constrictions.”
Kensington was one of the first specialist lenders to enter the non-conforming mortgage market in the UK, when it began trading in 1995. Since then the market has grown strongly. The latest Datamonitor figures show that there are now 8.3 million people in the UK who would be refused a mortgage loan if they were to apply to a mainstream lender, and only 18% of these currently have a mortgage.
“It was always our long-term plan to float, but we are still focused on the non-conforming market. We believe that there is still plenty of room for growth in this market and the float will not change our business focus,” said Maltby.
The move has sparked speculation that a number of similar companies in the sub-prime sector may soon follow suit if the float is a success. Tony Yorke, head of corporate communications at i group, said: “It is very good news for them and for everyone else. It will be a ringing endorsement of the sector if it all goes well, and our feeling is that if they do well then we could do well. We have made it no secret that we are following the float with keen interest.”
However, David Tweedy, managing director at Platform Home Loans, does not believe that everyone in the market will follow this path.
“There are other options available apart from flotation, such as joint ventures or acquisitions and any of these would be viable options in the future for other non-conforming lenders,” he said.