IG Index flotationhit by credit dispute

[AussieVamp2]

By Melanie Bien


9 July 2000

IG Index, the spread betting group which floats this month, has been caught up in a row about whether customers have been allowed to run up thousands of pounds' worth of debt – despite having far lower credit limits on their accounts.

The Independent on Sunday has been contacted by a reader who was allowed to run up debts of more than £20,000 with IG Index. Yet she had requested, and been set, a £1,000 credit limit.

IG Index last week announced it will float on the stock market on 19 July at 240p a share, valuing the business at £125m.

It took the former accountant just six weeks to record the losses, betting on movements in the Dow Jones and Nasdaq indices, and on the share price of online retailer Amazon. Her account has been closed and she is being forced to sell her flat to pay the debt.

"I thought I knew what I was taking on as I know how indices and shares work," she said. "I requested a £1,000 credit limit because I thought I could afford to lose that.

"But if they had told me that I could lose 20 times my agreed credit limit, there is no way I'd have opened an account."

The Financial Services Authority Complaints Bureau has seen a steady rise in complaints, all involving sophisticated, knowledgeable investors. The fear is that the growing popularity of spread betting on sport will generate a new breed of clients who are even less aware of the risks.

"We would be extremely anxious if the number of people involved in [spread betting] were to expand," says David Cresswell, spokesman for the FSA Complaints Bureau. "With articles on spread betting regularly appearing in popular newspapers, the risks are being devalued."

There is little action that the industry regulator can take at present, although a source agreed that wording on contracts can be misleading. "I totally agree that it is not a credit limit at all," she said. "All we can emphasise is that [clients] need to know what they are getting themselves into."

IG Index says that the credit limit operates like a trading limit – once the client goes over it, a margin call is made demanding immediate payment.

"Clients need to prove they can afford to lose money and that they know the risks before they open an account," says Paul Austin at IG Index. "You can lose more than your credit limit but as soon as it has been hit we immediately [alert the client]."

[AussieVamp2]

IG floats successfully
By David Blackwell
Published: July 4 2000 17:32GMT | Last Updated: July 4 2000 19:13GMT



IG Group, the UK bookmaker that caters for the City's gambling habits under the trading name of IG Index, on Tuesday came to the market with a valuation of almost £126m ($191m) - the top end of market expectations.

The flotation at 240p a share means that the handful of original investors in 1974 will have in effect converted a £100 investment into £10m.

Stuart Wheeler, founder, chairman and chief executive, said his main problem had been persuading the investors to sell between 10 and 15 per cent of their holdings.

Mr Wheeler himself will be left with 33 per cent of the shares after selling 10 per cent of his holding for about £5m.

The founders are selling 9.37m shares in total.

The company, advised by Investec Henderson Crosthwaite, is raising just £1.15m net of expenses for itself through a placing of 833,333 shares, taking the total in issue to 52.3m.

The money raised will be added to working capital and will also be available for future acquisitions. But Mr Wheeler said the main aim of the float was to raise the profile of the company, and give it the chance to reward and retain key staff through share options.

Until recently, the bulk of the business was in bets on the FTSE Indices. For example, the company quotes a price of 6,770 to 6,780 and the gambler places a bet - say £10 a point - for either a fall or rise.

However, betting on the Footsie has been overtaken by spread betting on single stocks. Mr Wheeler attributed the growing popularity of this type of bet to the increasing number of private investors.

Not only are there more of them, but there is greater sophistication and awareness of different ways of playing the market.

That has helped the group grow rapidly over the past three years, reporting a rise in profits from £3.5m to £10m in the year to May 31. It is also benefiting from increasing interest in spread bets on sport.

The 119 staff are now handling about 30,000 transactions a week and claim to answer the telephone in an average of 10 seconds. About 100 new clients join each week, although last week 150 were enrolled, thanks to the Euro 2000 football championship and increased press coverage because of the float.

About 2,000 longstanding clients of the company will have the opportunity to buy shares through a clawback arrangement, but none will be available to the retail market.

Dealings commence on July 19.

[AussieVamp2]

IG Index priced above indicative spread
by Phil Cain on 04 July 2000 16:40:00 GMT

UPDATE: IG Index, the pioneering sports and financial spread betting company, announced it will place its shares at 240p a share in its LSE float, valuing the company at £125m.

Stuart Wheeler, IG Index’s chairman and CEO, said the offer had generated strong institutional interest. Before today's announcement Investec Henderson Crosthwaite, IG Index’s sponsor for the flotation, gave an indicative price range of between £100m and £120m. The prospectus will be available online tomorrow and dealings will commence on 19 July 2000.

The company’s trading income in the year to May 2000 was £23.6m, up 94% on the previous year. In the same period its pre-tax profit was up 187% to £10.1 and had generated £6.6m in cash, up from a narrowly negative balance the previous year. Only £2.3m of the cash raise was “free”, because the rest was used to hedge bets with treasury bills.

The public offering, amounting to half of the 9m 17% of shares on offer, will be open only to employees and people who have used IG Index’s services over the past two years. According to Wheeler the offer was not big enough to justify an open retail offer, because shareholdings would be too small if the equity was distributed too widely. Wheeler said that priority would be given to good customers.

The offering will raise £1.15m, which will be used to provide working capital to fund expansion in the UK and abroad, which may mean the acquisition of its competitors.

Finance director Tim Howkins said the company was persuing a “pedestrian internet strategy” and had no intention of becoming a dotcom. Nevertheless, it remains the only spread betting company with a fully functioning internet site. According to Wheeler, around 10% of IG Index’s business is done online, saying that its customers “would do more if we were not so good on the phone”.

IG Index intends to use its internet site as a way to communicate with a new client base in mainland Europe and later in the Far East without the expense of establishing overseas offices. The company currently does around 95% of its business in the UK. Howkins said US regulatory disapproval mean that there is no way for the company to start business in the US.

Howkins said IG Index had recently agreed to piggyback on the interactive services of financial site UK-Invest and sports betting company Coral. But, according to Howkins, the company has “no idea what this [revenue share] will amount to”. Howkins also said IG Index is in the “process of implementing” a WAP service.

In the case of Coral, IG Index will feature on its interactive TV offering as well as its internet site, eurobet.co.uk. According to Wheeler, IG Index’s approaches to interactive TV operators had met with rejection, because its client base was too small, or had produced offers that were too expensive to be justifiable.

With an estimated market share of 50%, IG Index believes it is still the market leader in financial spread betting despite growing competition. Last week Zetters, the LSE-listed betting company, said it would introduce a financial spread betting service. Existing players include City Index, Financial Spreads, Cantor Fitzgerald and Spreadex. But to date IG Index is the only financial spread betting company with an online presence.

In the fledgling sports spread-betting sector IG Index believes it is in second place to Sporting Index, with a market share of around 30%. William Hill, City Index and Spreadex come in close behind. Like other sports spread betting companies, IG Index believes that spread betting has the edge over fixed odds because it still makes for an exciting punt even when a match is one-sided.

Spread betting companies, like IG Index, are also under threat from those selling contracts for difference (CFDs), which carry similar risk and tax benefits to spread betting. Wheeler said that IG Index would tackle such competition head on by establishing a separate company called IG Market, to provide CFD trading primarily to overseas clients. CFD competitors include GNI and CMC, the latter trading under the brand name deal4free.com.

Wheeler calculated that £100 invested when the company started would be worth around £10m when the company comes to market. But he added that that no existing shareholder had sold more than 15% of their holdings.

Wheeler, who founded the company in 1974, is selling 10% of his holding, which at the offer price will bring in around £5m. He has agreed not to sell any shares for a year, at which point he is entitled to sell another third of his shares. After floatation, the Wheeler will own 33% of equity. When asked whether he may retire in the near future, Wheeler said: “I am so exited by the business I will be here for a few years.”

[AussieVamp2]

125,000 to 1 gamble comes good as IG floats
BY ROGER NUTTALL
A handful of punters who trusted their money to spread-betting king Stuart Wheeler are about to bring off a winning bet at odds of 125,000 to 1.

The coming flotation of Wheeler's IG Index values the company at £125million and will enrich people as various as the Lord Lieutenant of Northamptonshire and Wheeler's long-serving credit controller.

Most of them bravely backed Wheeler when he stumbled on a way to gamble tax-free on the price of gold 26 years ago.

"The first backers put up £5,000 each for 10 per cent of the company," said Wheeler yesterday.

"But £4,900 of that was a loan, so you could say they risked only £100."

At the float price, those who took a £100 chance now own an investment worth £12.5million.

Few, in fact, are selling. "We have had a problem finding shares to put on the market," said Wheeler. "Nobody is selling more than 15 per cent of his or her holding."

That incudes Wheeler, whose education at Eton, Oxford and the poker tables of Las Vegas has paid off with a stake in his brainchild worth £42million after selling £5million.

The second-biggest holder is Lady Juliet Townsend, sister of Wheeler's late chairman Lord Birkenhead. She, too, is selling 15 per cent of her holding and will keep shares worth £11.25million. That should finance a few more years' research into the history and architecture of Northamptonshire, to which she was devoted even before she became Lord Lieutenant two years ago.

The lack of shares should mean a flying start on July 18, the first day of dealing. But it effectively shuts out private investors; almost all the 9,366,000 shares on sale will go to institutions or IG clients.