A tangled rescue mission for Amazing Loans

About a third of its customers are behind in loan repayments, the company loses money, and liabilities exceed assets. Even so the company's major funder is keen to surrender to the takeover charms of its barely solvent customer.

The interests of related parties also bear on the proposal under which Amazing Loans, an ASX listed entity, aims to take over Investment Evolution Global, an unlisted public company with scattered investments in financial services and stacks of cash.

Amazing Loans - which lost $4.5 million in the December 2007 half and suffered a deficiency in net assets of $396,000 — released a summary of its results on Friday but is yet to issue a full financial statement. The Australian Stock Exchange suspended trading in the company's shares yesterday.

Despite its state of affairs the company is pressing ahead with a scrip-based takeover of Investment Evolution Global.

Amazing Loans shares traded yesterday around 14 cents but an independent expert's report in a document released on February 12 says the company may have a deficiency in net assets of as much as six cents a share.

Amazing Loans is offering three of its shares and three options for every two IEG shares.

IEG was incorporated in July 2007 to participate in a range of financial services businesses but after raising $28.4 million of seed funding it has remained pretty much a cash box.

Amazing Loans reported last week that it had acceptance for its offer from investors who controlled 82 per cent of IEG.

The story of why shareholders in a cashed up business would accept shares that may be worthless from a loss-making lender is all about related party interests.

Amazing Loans was incorporated in April 2005 and started trading two months later. It was listed on the ASX in April the following year. Its biggest shareholder was and is executive chairman Paul Mathieson.

Mathieson's 151.8 million shares give him a 20.1 per cent stake in the company.

Amazing Loans is a provider of unsecured personal loans to low-income earners and people with poor credit histories. It lends between $2000 and $20,000. Terms are four years, repayments are weekly and the interest rate is up to 47.9 per cent.

Despite the high rates and default fees of $30 when the many borrowers in arrears miss their weekly repayments, Amazing Loans has struggled to make money out of the business.

At the end of December the company had a $28.8 million loan book. More than 30 per cent of the 9048 loan accounts were in arrears. As stated above, the loss for the December half was $4.5 million.

For the year to June last year the company reported pre-tax profit of $4.23 million. Interest and fee revenue was $5 million. Other revenue of $12 million was earned on the sale of intellectual property and the revaluation of an investment.

The company's auditor noted that without the other revenue the company would have reported a loss of more than $5 million.

The bad debt expense went up from $274,000 in the 2006 financial year to $1.7 million in 2007.

In the June 2007 accounts the auditor Moore Stephens reported that it had "identified material uncertainty regarding the continuation of Amazing Loans as a going concern".

The company had been operating with a funding facility provided by Ron Medich Properties. In September Amazing Loans entered into an unsecured funding facility for $15 million with IEG. Funds drawn on the Medich facility were repaid.

In December Amazing Loans announced that it had signed a term sheet for a funding facility of up to $100 million from an undisclosed source. A condition of the funding facility, which has not been finalised, is that Amazing Loan completes its acquisition of IEG.

IEG's major shareholder is Paul Mathieson, who holds 40 per cent of the shares in the unlisted public company.

Bryce Hoare, the chief operating officer of Amazing Loans, owns 13 million Amazing Loans shares and 6.3 per cent of IEG.

BDO Kendalls, which provided the independent expert's report for Amazing Loans' takeover offer for IEG, said the offer was not fair but was reasonable because the advantages of the takeover outweighed the disadvantages.

One of the curious features of the offer for IEG is that, according to BDO Kendalls, it overvalues IEG.

This only makes sense when it becomes clear that under the terms of the scrip offer IEG shareholders, of whom Paul Mathieson is the largest with a 40 per cent stake, will end up with 77 per cent of ordinary shares and 95 per cent of the options in the merged entity.

The related party deals do not stop there. The $9 million intellectual property rights sale that Amazing Loans reported in its account last June was for the sale of franchise rights to Amazing Loans distribution in regional Australia and overseas to a company, ALF.

IEG is making a takeover bid for ALF's parent ALFH - a company in which Amazing Loans has a substantial shareholding.