Friday, March 18, 2016

My First Investment Into Crowdfunding For SMEs

Just a few days ago, I made my first investment into something which I have been looking closely at for quite some time now. I decided to get into it because I believe it is safe enough and the returns are relatively good at 13.5%.

In just 26 hours, $1 million was actually raised by this particular company. They are going to raise another $1 Million so investors still have a chance to invest in it. What exactly is this investment on?

Here are the details:

Issuer Summary

Date of Listing: March 17, 2016
Amount: S$500,000
Tenor: 12 months
Repayment Type: Callable
Repayment Term: Quarterly
Target Interest Rate: 13.50% p.a.
Purpose: Asset Purchase

About the company: 

The Company is a well-known brand started in early 2002 by a very experienced entrepreneur with over 25 years of experience in the IT industry. It was established with the objective to be a one-stop digital lifestyle store by offering a comprehensive suite of digital lifestyle products and high quality pre- and post-sale services.

Revenue Source: 

The Company generates revenue through a multi-channel point-of-sales strategy using both offline (retail) and online (e-commerce) channels to transact physical merchandise. Their products consist of a wide range of exclusive computing and mobile equipment (such as laptops, tablets, smartphones, accessories, cases, headphones, and stylus) from top IT brands and the Company's private label.

Purpose:

The purpose of this funding is to finance the purchase of inventory as well as for general working capital.

Corporate Guarantor: 

Her parent company (an SGX-listed company) will provide a corporate guarantee for the notes.


This investment is brought to you by Moolahsense. They got the company on board their platform where the company started this funding campaign to raise cash. When we invest in this company, we are actually lending money to the company to expand their business in return for interest.


Risks of this investment:

Many of you might be worried about the risk involved when investing through crowdfunding platforms. While risks are always present in every investment, we can reduce it by doing our homework. The risk of notes/bonds investment is when the company defaults on its payment. Looking at its financials, the company has a operating profit of $330K and cashflow from operations of $5.1 Million in the current financial year. It also has an average cash balance of $1.4 Million. This particular investment is also guaranteed by the parent company which is a SGX listed company.

I am sure the company name is familiar to most people here in Singapore but due to some confidentiality, I will not be able to mention the name of this company in this post. If you are interested to find out about the investment, you will need to sign up for an account with Moolahsense and view the opportunity in their platform. If you already have an account with Moolahsense, you can login to view this opportunity straight away.


WHAT IS A CALLABLE NOTE? 

This particular investment is a callable note. In a Callable note, an issuer has an option to early redeem the note on a quarterly basis. If the note is not early redeemed, the issuer pays a quarterly interest. The principal will be fully repaid on the quarter that the redemption is early called or at the maturity date.

SAMPLE Scenario (only intended for illustration). 

Assume that you invested $10k in a campaign at a final note rate of 13.5% p.a. in a Callable note.


This is a short term investment which I have also participated in. I believe it is a good opportunity with decent returns for the short term.

To invest in this short term note, check out the investment opportunity on their website here.

P.S: There have been comments on concerns regarding the investments. I have gathered the facts as below:

1. For a company which is 100% owned by a Holding company, no Director will provide the Guarantee

2. Investors need to understand, this is Credit Line to the borrower and not an Equity investment where repayments happen base on cash flows generated by operations in the borrower company

3. Corporate Guarantee of a listed company certainly has some meaning. Even today the company has a market capitalization of 16 mil

Some further facts:
1) Grp Equity is 5 mil as per latest SGX filing

2)  Company is making operating profit in FY15

3) For Parent company, majority revenues comes from borrower. As the borrower financial profile has certainly shown improvement over the last FY, dividends shall accrue back to parent company.

4) about RTO being a red flag >>> not so relevant for a 12 month credit investment (vs an equity investment)

Hope this clarifies. While i understand there are still risks involved, I calculated and invested base on the risk i would be willing to take. Readers are advised not to invest more than what they can lose in any investments.

Disclaimer: This article is not to endorse any products or investments or to give any advise on any investment matters. I have written base on my experience and what I have done. Readers are strongly 
advised to do their own due dillengence before investing. 

This article is written in collaboration with Moolahsense. All ideas portrayed are independent by SG Young Investment.

58 comments:

  1. Replies
    1. Hi Dividend Knight,

      Sorry but i can't reveal the company name

      Delete
    2. Your guess is as good as mine, and I have skipped this company because it wouldn't even post their documents like others do. Furthermore, its debt/equity ratio is frightening! There is an article in yesterday's Sunday Times on this company.

      Delete
  2. Bro, no offense but i suggest do more research before you jump into this. The parent company is loss making for two years, and may be delisted if it reports another year of loss. The latest filing shows -ve equity. The corporate guarantee is worthless. One qn u should ask if y r the directors unwilling to give a personal guarantee n hide behind a corp guarantee? This is a red flag.

    ReplyDelete
    Replies
    1. Hi,

      Thanks for the heads up. I did see the loss for the previous financial year but the latest one they are positive. For the -ve equity, let me take a look. Thanks!

      Delete
    2. I think their losses go as far back as 2013 of you digged out their annual reports logged with SGX. Loan is badly structured by providing corporate guarantee. If the directors is so confident of the loan, why don't they give personal guarantee?

      Delete
  3. I am new to investing through crowfunding platforms but I am liking your posts about MoolahSense. I reckon P2P Lending is still relatively new in Singapore but it's good that you are bringing more attention to it!

    Cheers,
    TFS

    ReplyDelete
    Replies
    1. Hi TFS,

      Yes P2P lending is definitely new in Singapore but I suppose MAS will regulate it soon. It will be a more sustainable platform for SMEs to raise cash in the future.

      Delete
  4. Just checked their most recently reported financials (31 Dec 2015) on SGX. It's not negative equity.

    ReplyDelete
    Replies
    1. Hi,

      Yes you're right, the group is still on positive equity although the company alone is negative equity

      Delete
  5. For 1H 2016, they made a major loss compared to 1H 2015.

    ReplyDelete
    Replies
    1. Hi Philip,

      Yes there is a major loss in 1H 2016. The next major sales will be later part of this year which should benefit the company. So I guess their purpose to raise cash now is to prepare for this campaign in the later part of this year.

      Delete
  6. I think the borrower had been making losses since 2013 if you dig up their annual reports. The loans are quite badly structured. Corporate guarantee is only good if the company is strong and making money. If the borrowers is so confident, why don't they provide provide personal guarantee like the other loans?

    ReplyDelete
    Replies
    1. Hi LJ,

      Yes I saw the losses too. That is why the company would need more money to purchase the inventory for the next sales. I will be getting more information from there.

      Delete
  7. the above company tried for a RTO late 2014 but failed

    that was already a big red flag

    good luck to u

    ReplyDelete
  8. also to add, base on SGX latest filing
    at end dec 2015

    company level equity was negative 1,258,000

    ReplyDelete
  9. u see trade payable spike up by 3.5mil... meaning they already owning suppliers a lot of $$$ and not paying them

    secondly, u see inventories at 11mil

    yet equity of left side 5 mil........

    IT goods that are outdated are worth far less than book value

    if inventories are only worth half its worth... say 5 mil

    equity will be equal to zero

    ReplyDelete
    Replies
    1. Hi Felix,

      Thanks for all the information. I'm trying to get more information from the company to find out more about this currently.

      Delete
  10. Congratulations, a fool and his money are soon parted.

    ReplyDelete
  11. This loan looks like a trap to catch those untrained in financial analysis.

    If company defaults, their parent will default too since it is just a shell. Then the entire company will be delisted from sgx for 3 years of losses. Who are you going to go after? At most, the company just liquidates. Meanwhile, the directors get away with no financial or reputational impact at all.

    I suggest you speak to MS to get the Epi's backers to issue a personal guarantee to all lenders straight away. I can assure you Epi's controlling shareholder is wealthy enough to issue a guarantee on $2m, if they want to.

    ReplyDelete
    Replies
    1. Hi,

      Thank you for your suggestion. As mentioned, for a company which is 100% owned by a Holding company, no Director will provide the Guarantee

      Delete
    2. But the holding company is majority controlled by one guy. You see now he is hiding behind legal structure and taking no responsibility on this loan. If business recovers, he is the greatest beneficiary; if it fails, he walk away and lenders suffer full loss. He can give guarantee if he wants..

      Be careful what u r doing.. is your post advising the loan or the platform? U can get into big trouble with MAS if a scandal emerges from this. Can blog but need to be super careful.

      Delete
    3. Hi Kevin,

      Thank you for your concerns. However, i am not in anyway advising anyone to get into any investment without any due dillengence. I have written base on the risk i am willing to take and what I have done only. As with some investments which are more speculative in nature, the amount we put in should be what we are willing to lose. For myself, i have only put in about 1% plus of my whole investment portfolio into this.

      Delete
    4. Hi all,

      I would like to add on a few points:

      The Company has been around for the past 14 years, is a well-known brand and a listed entity with no brushes with compliance. On balance, its franchise value far exceeds the $1-2 million of notes procured, which it has stated clearly with the purpose to stock inventory.

      On having a PG by Listed Company, it is certainly not the norm. Take for instance, no directors of any listed company has posted their personal guarantee on corporate bonds, nor is this even customary in bank loans for listed companies.

      Holding company structure, with operating subsidiaries certainly not unusual. Temasek, Capitaland and all the big companies use it

      It is speculative to say that the company is a shell. It can be defamatory also. These kind of investments may not be suitable for everyone but for those who deem the risks as acceptable, they provide an attractive fixed yield opportunity to invest in local SMEs.

      Delete
    5. See for yourself that parent company has negative equity (company level, not consolidated) in the latest filing.

      http://infopub.sgx.com/FileOpen/1H2016%20SGX%20Announcement20160127_FINAL_for_release_to_SGX.ashx?App=Announcement&FileID=387478

      What good is a guarantee issued by a company with negative equity and so little cash? Note this is company level and not consolidated figures, since the guarantee is issued by parent company.

      Temasek is different because the Singapore government is behind it. Capitaland definitely won't have -ve equity holding company.

      Who is behind the company? The founder wouldn't even guarantee loan to his own company. Head's he win, tails you lose. Bad deal, bro. Bad deal.

      Delete
  12. U have been duped into endorsing this. MS is earning 5% fee on 2m which is 100k for a few days work, but u bear the loss if company default.

    ReplyDelete
    Replies
    1. Hi,

      I believe MS don't want any defaults to happen too. Reputation is important in this business so they do access the companies they allow on their platforms and try their best to resolve any problems which may arise.

      Delete
  13. Though I have doubt about this loan in particular, I do believe that crowdfunding is a viable investment instrument for retail investment. However, most of us are more familiar with stock & share and may be new to credit analysis. I recommend you check out Crowdsmarter's website that blog exclusively on local crowdfunding investment. http://letscrowdsmarter.com

    By the way, I am not the owner of the website

    ReplyDelete
    Replies
    1. Hi LJ,

      Thanks for the info. I will certainly read up more on it.

      Delete
  14. Hi all,

    Thank you for all your comments and identifying the risks in this investment. I have read up and gathered the facts and here are the information I got:

    1. For a company which is 100% owned by a Holding company, no Director will provide a Corporate Guarantee

    2. Investors need to understand, this is Credit Line to the borrower and not an Equity investment where repayments happen base on cash flows generated by operations in the borrower company

    3. Corporate Guarantee of a listed company certainly has some meaning. Even today the company has a market capitalization of 16 mil

    Some further facts:
    1) Grp Equity is 5 mil as per latest SGX filing

    2)  Company is making operating profit in FY15

    3) For Parent company, majority revenues comes from borrower. As the borrower financial profile has certainly shown improvement over the last FY, dividends shall accrue back to parent company.

    4) about RTO being a red flag >>> not so relevant for a 12 month credit investment (vs an equity investment)

    Hope this clarifies. I understand there are still risks involved, I calculated and invested base on the risk i would be willing to take. Readers are advised not to invest more than what they can lose in any investments.

    ReplyDelete
    Replies
    1. With all due respect and i will be curt here - you're ignoring their financials, or rather you not have written about any proper due diligence.

      For a loan to be repaid and for interest to be paid, there are items that you should be looking at. Historical operating cash flow (which hasn't been fantastic), not a $6m equity (equity doesn't mean anything much for a short loan). Look at their operating profit margin. Its <0.3% and that is dangerous in a competitive retail industry especially for a company that owns stores. Look at their receivables - how much of that has been converted into actual cash and how much of that is ageing badly? How much of that has been impaired over the past two years? A corporate guarantee is yes, legally enforceable in court - but well, how much legal fees are you willing to part with in order to sue them and how much fees are you willing to pay a liquidator to get back your money? Although their bank borrowings are unsecured, how much resources does a bank have versus you when they are going after the company? Their bank borrowings as of FY15 is $7.1m versus cash of $5.2m. If they go bankrupt tomorrow, you're not going to get your money back.

      Delete
    2. Hi,

      I will try to answer your concerns as below:

      First, do distinguish between the primary obligor and the guarantor. The primary obligor in this case is the subsidiary company, whose a major contributor of revenue to the Group. The guarantor is a listed company that has access to capital markets.

      Second, the point about receivables is referenced at the Group (holding company) level, and most of the receivables are due from its subsidiaries. The Company has not reported any history of significant impairments.

      Third, for the bank borrowing versus cash at the Group level, note that the Group has inventory of ~$12 million. Hence, assets can adequately cover/exceed liabilities.

      Fourth, on potential claims, the note is pari-pasu with all unsecured lenders, including financial institutions. So the legal recourse would be similar for creditors of similar category. In the unlikely event that claims are necessary, according to the platform, they will organize a 3-staged recovery process on behalf of affected investors. Costs of recovery will be claimed against the issuer, otherwise split pro-rata amongst note holders. As a reference, note that if you are an equity holder, such resolution are not even ordinarily available.

      Delete
  15. On a side note, their main authorized products are gonna setup their flagship store in SG soon. Hence, they might lose some market share.

    ReplyDelete
    Replies
    1. Or i would say lose a lot of market share.. The authentic Apple store experience.

      Delete
    2. i beg to differ. Even if Apple were to setup their flagship store, they will not kill off their main distributors like Epicentre just like that. Think about it, Epicentre has already sunk much of its own costs over the years to setup its distribution channels, strong local branding etc., and it would be folly for Apple to assume it can achieve similar, if not better results through just one flagship store in SG. If you kill off your distributor, you are shooting your own foot and risk losing your distributor channels too in other countries.

      the smarter way for Apple would be to continue to rely on its strong distributor channels already established in SG.

      Delete
  16. Need time remember to do your homework first before putting your money
    Once u put your money in, all is too late
    Pretty sure if u had done your homework in detail earlier, u would never touch this counter
    Even if u offer me 20% interest, i would not find this investment attractive at all

    Good luck kid, u will need it

    ReplyDelete
    Replies
    1. dude, this is not trading lah.

      Delete
    2. can la. 1.135 is better than barcelona's odds of winning the la liga.

      Delete
  17. $1 million! within just 26 hours, truly I can't believing! But it sounds great! Attractive amount!

    ReplyDelete
  18. Among all the comments here, one thing has been missing and that is cash flow generation ability of the company. From its AR, Epic is able to generate about 500k of cashflow from operating activities before working capital changes. Two things can be interpreted from this.

    Firstly, interest of its creditors (including Moolahsense) can be repaid. BUT, secondly, it may be difficult to repay the principal sum unless Epicentre rolls over the debt with new bank loans or from Moolahsense new issuing.

    Balance sheet wise, Current cash holdings is 4.5 mil with 6.5 mil receivables vs trade payable of 13 mil and current borrowings of 5.1mil. Hence any liqudation of inventories at 30% or less, all creditors will get their principal back. However, inventories are liquadated at more than 30% discount, creditors may not get their entire interest+principal back.

    TO SGYI: Just curious, You are invested in the quarterly callable bond?

    ReplyDelete
    Replies
    1. Hi Choon Yuan,

      Thanks for your analysis. You are right in looking at the cash flow for repaying of debts. Good to differentiate lending out and investing in its stock equity.

      I am invested in the equal monthly instalment so i get a portion of my money back every month.

      Delete
  19. https://moolahsense.com/?utm_source=sgyi&utm_medium=blog&utm_campaign=sgyi_blog_mar

    it links to you as a reference, u are getting paid to promote this rubbish to innocent investors

    you better put a disclaimer in your blog before people lose $$ and sue you

    ReplyDelete
    Replies
    1. Hi Felix,

      I have put a disclaimer in the post. In no way am i advising people to invest without doing their own due dillengence. I am writing on what i have done and assessed the risks which I am willing to take. My profits from other investments are more than enough to cover the full amount I put into this crowdfunding.

      Delete
  20. Crowdsmarter had examine some of our comments here and posted a follow-up on the EpiCentre loans.

    http://letscrowdsmarter.com/epicentre-p2p-part-2/

    ReplyDelete
  21. Bigfatpurse is also commenting on the Epicentre campaign

    http://www.bigfatpurse.com/2016/03/crowdfunding-epicentre-how-did-they-manage-to-raise-so-much-so-fast/

    ReplyDelete
    Replies
    1. Hi LJ,

      Yup i saw both posts. Many have said why would Epicentre raise money through crowdfunding instead of raising through their equity arm or through other means? Maybe a lot of people did not know that raising cash through equity is the most costly form of fund raising and no company would raise equity just for inventories and capital spending. For bank loans, it is certainly not as simple as most people think it is. Business owners will understand this point thus p2p lending is an alternative cheaper way for them to raise cash. Do note the interest given is armortised thus if they had indicated 13.5%, the actually cost on the company is actually only 7%+. For callable financing, the interest may even be lesser since the company can choose to call back and repay the full principal earlier without giving all its interest.

      Delete
  22. What does a poker gambler and Magic card gamer know about credit and lending?

    ReplyDelete
  23. the 2 blog posts were very good read, hope that SGYI will read them and do some reflection.

    next time if you want to get paid to write a post its fine, but make sure to do your homework first

    ReplyDelete
    Replies
    1. Thanks for all your comments Felix. As I said before, investing is all about managing risks. No one should invest all their money into one single investment and hopes they will make money. This is setting up for disaster. I believe when you play poker you would not bet all your money into one single game too because there are risks of losing it.

      Delete
  24. http://forums.hardwarezone.com.sg/stocks-shares-indices-92/poll-do-you-use-p2p-lending-5330170.html

    ReplyDelete
    Replies
    1. P2P will get more popular in Singapore. It is a regulated and established front in the west such as US and Canada. MAS has done a public consultation earlier and will soon come out with the regulations to regulate this area.

      Delete
  25. The world is having a revolution. What used to be power in the hands of the 1% is in the hands of the 99%. From the sharing economy to the way corruption and abuse of power that investigative journalism have uncovered. All of it is through the Internet.

    Leverage on the crowd. The 99%.
    You are changing how the 1% is dealing with you. After all, the 1% need the 99%. Not the other way around.

    ReplyDelete
  26. There is no point censoring comments here , everyone can see you made a mistake and you trying to suppress it

    ReplyDelete
    Replies
    1. Hi Darren,

      All investments comes with risk. I have only invested just 1% of my total investment capital into this. Even if I lose everything it is still a very small risk. So far, they have been making prompt payments and I've already got back more than half of the money I invested in. This reduces the risk to only less than 0.5% for me now.

      Delete
  27. Hello SGYI,

    I've also recently invested a super small amount in crowdfunding. I realized that people in general are quite skeptical about fintech. Do you think crowdfunding will change the way lending is done in Sg?

    http://www.livingafreelifetoday.com/blog/debut-investment-crowdfunding-platform-moolahsense/

    ReplyDelete
    Replies
    1. Hi LF,

      Welcome to the crowdfunding arena. Yes fintech is still quite new now and I think will develop even further in the near future. Crowdfunding will be more for the SMEs while big businesses will still go to the banks or other ways because the interest is much lower.

      Delete
  28. OK.

    Let's have an update.

    Did you get the capital plus interest back in your bank account?

    ReplyDelete
    Replies
    1. Hi Richard Parker,

      Yes the full capital plus interest was given back to me.

      Delete