Asos shares plunge as it confirms talks with lenders over borrowing

Shares in the fast-fashion firm Asos have plunged after it confirmed it is in talks with lenders over changing the terms of a £350m borrowing facility to give it more flexibility in tough times.

In a statement, the online clothing retailer said it was in the “final stages” of agreeing changes to its financial covenants for its revolving credit facility, giving it “significantly increased financial flexibility against the uncertain economic backdrop”.

The statement added: “Asos retains a strong liquidity position and this is a prudent step in the current environment.”

Shares in the London-listed company fell by almost 12% in early trading on Monday, bringing losses over the year to 80%, as the company prepares to announce its full-year results on Wednesday.

Monday’s statement came in response to reports at the weekend that it had approached banks – including Barclays, HSBC and Lloyds Banking Group – to alter its borrowing facility.

Sky News cited sources in the City saying the lenders had hired AlixPartners and the law firm Clifford Chance to advise them on the situation.

The leading credit insurer Allianz Trade, formerly known as Euler Hermes, has also reduced its support for the online retailer, according to the Sunday Times.

Credit insurers provide cover to Asos’s suppliers in the event it fails to pay them. Allianz Trade’s move could force the clothing seller to pay for products upfront, potentially hurting cashflow.

“This happened towards the end of August and there has been no adverse impact on trading relationships with our suppliers,” Asos said.

The company benefited from locked-down shoppers staying at home during the coronavirus pandemic as the company’s shares soared and it posted record-breaking profits.

However, it warned last month that the cost of living crisis was affecting shoppers and they had experienced a “significant increase” in returns in the UK and elsewhere in Europe. It warned that full-year profits were likely to be at the bottom end of its guidance.

In a trading update, the company said: “Having seen good growth in June and July, sales in August were weaker than anticipated. This reflected the impact of accelerating inflationary pressures on consumers and a slow start to autumn/winter shopping.”

The firm said its expected profit was likely to be between £20m and £60m.

Asos’s customer base of young people in their 20s has been hit particularly hard by the cost of living crisis as rental prices in the UK and elsewhere in Europe have soared, alongside price rises for essential goods.

Other online retailers have also struggled this year, such as the fashion retailer Missguided, which ran into trouble in May and was forced to call in administrators after failing to secure a rescue bid.

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