The recent hoo-hah of the 13.5% crowdfunding

So i just read some articles regarding the recent 13.5% crowdfunding campaign and i think that it is quite interesting to share my thought here.

For the heads up you can read at this few places first: BigFatPurse, Let’s Crowd Smarter and SGYI.

A lot of argument going on for the feasibility for this 13.5% annual interest rate campaign, it is quite interesting to read and to my surprise there are a lot of readers there (especially SGYI) have such high financial literacy really impress me.

But in this article I am not going into should we or should we not go into this crowdfunding as those arguments are mostly cover by those articles above. The things I would write in this article is some interesting perspective like what if….

So before i jump into my new perspective idea to look into this issue, let’s summaries what is this campaign about. Recently, MoolahSense has this campaign:

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.

Then, there are arguments going on with the feasibility on this campaign as the fundamental of the company seem can’t support this debt which promise such high return with interest rate.

But, but…but…

What if this is a marketing strategy of MoolahSense? Ok, so what do i mean right? Get a bit confusing…how did this become a marketing strategy?

MoolahSense is a recent startup of P2P lending company. if you check on their website, their campaigns can’t consider less but also not yet up to hundred. Recently, the participant of this “hoo-hah” apple retailer company put them into this shiny “spotlight”.

My perspective into this matter is, what if the 13.5% annual interest campaign is a win-win situation for both MoolahSense and the apple retailer company. That 13.5% annual interest investment might sounds a lot if the company who borrow this have to repay with a full year with the investors’ capital invested.

But then..do take note the keyword: CALLABLE NOTE

This is what i found in the website,

Capture.PNG
Take note on the Callable portion

Callable – The issuer has an option to early redeem the note on a quarterly basis. If the note is not redeemed, the issuer pays interests on a quarterly basis and the principal will be repaid on the quarter that the redemption is early called or if not called, at the maturity date. 

Before investing in a campaign, you can easily check the issuer’s indicated tenor on the MoolahSense Dashboard. The repayment dates will be indicated in the contract note and under the Offers Table on your Dashboard.

This mean that if the issuer decided to redeem for the first quarter, they have to pay for 3.375 for the first quarter with the capital invested or the 3.375 interest rate of your capital invested for the first quarter and another 3.375% interest plus your capital invested for the second quarter. (as illustrated above for the callable notes section).

For this crowdfunding, the apple retailer has to pay the MoolahSense 3% on the crowdfunding fund.

MoolahSense currently charges issuer a flat rate of 3%p.a. on the request amount PL. MoolahSense administrative fee = 3% x PL .The actual amount PA received by issuer will be net of platform charges.

PA = PL – (3% x PL )

My thinking is what if MoolahSense propose this:

For the 3% commission, they will not immediately redeem from the company but perhaps as a loan to the company and only redeem after 12 months (since they source the crowdfund up to 2 millions). This make the 13.5% that the company promise down to 10.5%. The commission then can be repay perhaps after 1 year so it reduce the burden of the company to pay back higher interest rate while it can act as their marketing strategy and the best part is they can get back their commission (not like they can’t), just with a slight delay. Wait, this is not the end yet, currently there are 3 campaigns going on for them which fully invested. 2 with callable notes with 1 monthly installment.

For the callable notes, if they just need the capital for 6 months and able to pay back to the investors after 6 months, this means that the interest rate now is only worth 5.25%! Which is pretty reasonable.

How about the 12-month equal installment? Let’s see at the MoolahSense website,

Capture.PNG

the 13.5% actually act as a nominal interest rate for the monthy equal payment, this meant that let say for every $10,000  you invested, you will get back $ 895.52 every month. If we sum up is $10,746.24,  this is far less than what we think of a total sum of $11,350! The interest rate actually is close to 7.47%, with a kind gesture of MoolahSense of the late payment of commission, the real interest rate for the company is actually as low as 3.47%!

That’s some interesting perspective from me on their collaboration which i am thinking that pretty possible and if that’s the case mostly it won’t create much issue for the investor as with the launch of the new products from Apple seem like they able to generate sufficient revenue to cover up the interest but if in reality that’s not how it is going on…then i guess time will tell it is a happy ending or sad ending.

Cheers…until next time!

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