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Funding Circle SME Income mulls fundraising

Funding Circle SME Income is looking to raise more funds as it has nearly invested all the proceeds of its IPO
June 23, 2016

Funding Circle SME Income Fund (FCIF) is considering an equity raising, most likely in the form of a C share issue, as it has invested nearly 90 per cent of its assets.

Funding Circle SME Income was the first investment trust to be launched by a peer-to-peer loan platform, in 2015, after raising £150m from a group of institutional investors. It focuses on loans to small businesses in the UK, US and Europe, enabling investors to get exposure to these by buying shares in a vehicle managing the loans, rather than lending directly on a peer-to-peer lending platform.

In a Friday 17 June announcement, Funding Circle SME Income said it was considering a capital raising "subject to prevailing market conditions". The news was announced alongside a £100m loan from the European Investment Bank to finance UK small- to medium-sized enterprise (SME) loans via Funding Circle. According to the company, the loan will help Funding Circle SME Income meet its total return target of 8-9 per cent once fully invested.

The trust has announced a maiden dividend of 1p per share, payable in July, ahead of the 0.75p expected at its initial public offering (IPO). After that, dividends will be paid quarterly at a rate of 1.5p-1.75p - a yield of 6.2-7.2p based on the trust's current share price.

The trust is one of a number invested in peer-to-peer loans. P2P Global Investments (P2P) was the first investment trust focused on this area following its launch in May 2014. Since then a number of other trusts focused on this area have come to market, recent examples including Honeycomb Investment Trust (HONY) in December last year.

Funding Circle SME Income differs from other trusts focused on this area in that it has no management or performance fees at the listed fund level. In the year to date it has fallen 4.06 per cent against an AIC debt sector average return of 0.14 per cent.

Broker Liberum said: "Funding Circle SME Income has made steady progress since IPO and is on track to meet all of its key targets. The new debt facility should enable the company to achieve the targeted total return of 8-9 per cent once fully invested and levered.

"A potential capital issue may be challenging given the 4.7 per cent discount the shares trade on and the average discount of 8.5 per cent for the wider peer group, which highlights that sentiment is still relatively weak for the sector."

Numis said it was "positive that the initial dividend is ahead of expectations, and implies that the ramp-up and portfolio performance has been ahead of expectations".