Swiber Bankruptcy. What this mean for Investors.

Swiber filed for bankruptcy.

Now what, for shareholders, and even bondholders?

Are you going to get anything back?

There is a hierarchy of claims. It can be simplified to this:

  1. Secured Debt Holders (assets are collaterized for the loans)
  2. Unsecured Debt Holders (IOU without any assets collaterized)
  3. Shareholders

In such bankruptcy cases, bondholders should be in a better position than shareholders to make a claim. But it isn’t necessarily so if the Company does not have enough assets to distribute. Hence, bondholders can still be left with nothing.

The disclaimer is that I am not a corporate lawyer and the purpose of this article is a curious pursuit to figure out if bondholders and shareholders are likely to get their capital back. It is not, in any way, to be regarded as a document to prove your claims, nor to be treated as an advice.

Secured Debt Holders

Let us determine the secured debt holders of Swiber who have the first claim on the assets. We can refer to the latest annual report (31 Dec 2015) released by the Company.

Swiber owed the banks a total amount of US$332m and it was mentioned the following assets were collaterized for these borrowings (note 16).

  1. First legal mortgage over certain vessels and equipment;
  2. Assignment of all marine insurances in respect of the vessels mentioned above;
  3. Assignment of earnings/charter proceeds in respect of the vessels mentioned above;
  4. Lessors title to the lease assets; and
  5. Charge on certain trade receivables.

For items 1 to 3, the value of the vessels was about US$600m as stated in note 13 of the annual report.

For item 4, the financing companies would takeover the lease assets and claim against the remaining lease obligations. Would these lease assets be sold? Not sure.

For item 5, the trade receivables amounted to US$442m.

It seems like there are sufficient secured assets (US$1,042m) to cover the borrowings (US$332m). There are a lot of assumptions though. For one, the market value that the assets are sold can be lower than what was recorded in the books 6 months ago.

Unsecured Debt Holders

Swiber owes the Note holders (or bondholders) at a total value of US$535m. These are unsecured debts.

Below is a screenshot of the debt maturity profile stated in the annual report, under note 17.

Swiber Debt Maturity Profile

The cash level in the Company was about US$100m. It is unlikely the bondholders would be repaid before the secured debt holders. As the cash pile is low, the liquidators have to sell away assets to raise cash, in order to repay it to the bondholders.

Shareholders

The shareholders would be the last recipients if there are excess money after the above parties are fully paid. Else, shareholders may get nothing.

You might think as a shareholder you will receive the NAV per share of S$1.42. It is not accurate to refer to the NAV per share because it is very unlikely the assets are going to worth the value recorded in the books. During liquidation, buyers of these assets know the desperation and would low ball the offers. Asset value can vaporise quickly.

I would prefer to use the Net Net value as a good proxy for a quick liquidation value. Or even CNAV, as we take the assets at half their worth. As you can see from the screen shots below, the Net Net and CNAV are negative. Sad to say, I am afraid there might be nothing left for the shareholders after the entire liquidation exercise.

Swiber Net Net CNAV

 

Final Note

The liquidation process would probably take a few years to complete. Meanwhile, there is nothing much shareholders can do. Just wait for the liquidators to inform you the next course of action. As for bondholders, you might want to check with your wealth managers, or even consult a lawyer, to get professional advice.

 

Full credit to : Alvin Chow@BigFatPurse

July US Fed Rate Hike is coming! Here’s why….

“The first rule of forecasting should be that the unforeseen keeps making the future unforeseeable.”

Since the Brexit incident, a lot of analyst forecast that the July Fed Rate Hike is equivalent to zero and the chances of 2016 rate hike has dropped to 22.9%.  There are some traders even speculate of rate cut.

But I beg to differ.

The concern of Brexit from Fed and the key person Yellen perspective is that the impact to the economic but as we can see from the past 1 month, the economic don’t really impacted much by the effect of Brexit, more on speculation basic. If we talk on the US economic itself, it is advancing to its peak.

The US dollar index just break their mid term resistance on 96.7 and attempt to rally higher. This mean that more bullish speculators trade on that and the bearish speculators has retreated and realized profit.

The stock market has create a new high on its index accompanies by its US economic data which proven one of the strongest month this year. With ADP Nonfarm employment change and Nonfarm Payroll create a new high.  Positive ISM Manufacturing Employment and Core PPI, Continuing Jobless Claim getting better, although CPI didn’t live up to the forecast but it still maintain last month performance.

This is to say, July is the best month for FOMC to rate hike. They can try to increase 10 basic points instead of 25 basic points and see how the global economic react to it but to have the first rate of 2016. My opinion is, this month is the best month to make the move.

The S&P 500 is trying to break 2177 but we can see some distribution symptom happen above 2160 which the bull trying to half their position or exit their trades. Currently the 20MA is reaching higher to 2116 where the support might tested there and the upper BB has widen to 2216. The Q2 earning for most blue chip company didn’t show positive sign,a dip is expected but whether the upward continuous trend will sustain, the pullback support shall be checked and this mostly relied on next thursday 28th July, FOMC rate decision.

 

 

US economy data for July:

CaptureCapture2Capture3

Capture4

 

Happy investing and trading Pal and stay safe!

 

 

What’s wrong with this market rally and why you should be concerned

The post-Brexit has some interesting development where the market not just recovered all the losses but creating a new high. The market is now speculate that more stimulus will be released after Japan Shinzo Abe won the election with majority seats and his policy direction is on more stimulus. On another hand, BOE central bank also more toward stimulus and rate cut after Brexit as a measure to stabilize their economy. They surprise the market on 14th July that they still hold their rate on 0.5% but then the market still continue the upward trend without hesitation until market close it undergo slightly weakening.

Currently the market is trying to reach its upper BB which is around 2177 and once break trying to test 2200 round number. With current market condition, the index is pricing most company in a very expensive way. Who is on the side to push the market higher, this is a question for us to ponder about, with technical traders, currently they are riding the upward trend.

The current market development is those big players who are collecting since early this year when the market hit 1800 to 1830 area, the development they are looking for where they are trying to create The “Spring” which is a term coined by Wyckoff. Where the big players passing their position to those technical traders who believe market has breakout and then when they complete their realised profit, they start to loaded short position on an extent that needed, of course it will achieve what they want now with most players are opening long positions which are the demand they needed.

If the market collapse, immediate support is on 2091 which is the 20 days and middle BB, then 2045 the 200MA, then 2010 bottom BB and all the way down to 1828.

The downside risk is too great now.

 

FotorCreated.jpg

 

This prompt a lot of market players said that the current situation very similar with 1987 market crash.

600px-Black_Monday_FTSE.svg600px-Black_Monday_Dow_Jones.svgS&P_500_index_around_the_time_of_the_crash

Anyway the market development for the next few weeks will be interesting with FOMC announcement and interest rate decision coming up.

Have a safe trading and investing pals.

Disclaimer:
The information that contained in this article is to provide general advice and for information and educational purposes only. Any opinions, conclusions or other information expressed here does not constitute financial advice. They are given on a general basis and is subject to change without notice.
Any expression of any trading or investment idea is for sharing only and does not constitute an invitation to trade or investment advice. Readers will need to determine, with or without the assistance of a person licensed to give personal advice, whether any general advice received is appropriate for them given their particular needs, financial situation and investment objectives.
While all reasonable care have be taken to ensure that the information contained here is accurate, it does not guarantee the accuracy or completeness of the information. The blogger for this post will not be held liable for any losses resulting from any errors, inaccuracies or omissions in the information or from the use of the information. All information stated are presented strictly for educational purpose. It should not be viewed as an advice to buy or sell certain securities.
Nothing herein constitutes or should be construed to constitute any:
(i) offer, advice, invitation or solicitation to buy or sell any investments, securities or other financial products,
(ii) invitation or inducement to engage in investment activities or financial promotions of any kind or
(iii) investment advice or recommendation.
The views/opinions expressed are strictly personal and do not reflect the opinions or positions of Amazing Trading Academy.
Note: Investing and trading may result in significant losses – readers are advise to take precautions and be responsible for their investing / trading actions

So My Market Crash Forecast Has Become True, What Next?

So I written an article last month, Market Crash Forecast. Which turned out to be true.

I am surprise that majority market players didn’t really anticipate Brexit and when it happened, it turn into a black swam event. During the start of the Brexit referendum when Bremain is leading, all traders are able to see how majority pump the pound sterling and the stock markets, and ya even the commodities like oil, like Bremain is a sure thing to happen. Then, when Brexit surpass Bremain with a significant lead, things goes haywire. market turmoil happen.

But,

The real fear is not really Brexit event but is more on, what is coming next. What will happen to Eurozone? Which country is the next country to exit? What is the real impact to the economy after British exit the Eurozone, how it affect on the global economic? In a large scale, it is really scary. Because no one really go deep into the calculation impact that due to Brexit or maybe minority has done that but no one able to accurately pin point the exact turn of events in future. FEAR is the market sentiment now.

So let us have a look on the indices. I will only be talking about Equities indices this time.

 

S&P 500

Market hit a high 2127 during Brexit referendum and anticipate a Bremain then event reverse with all the bull rushing to realize profit and the short seller come in to perform a “Bull squeeze” and create an impactful downward momentum and trend all the way to 2000. Then, the short seller realize profit and market reach an equilibrium before the  US market open on Friday.

From the chart we are able to see from daily time frame the index is pushing and close near the 200MA where we are unable to see clear 200MA is acting as support or resistance (at the current moment is more resistance bias). The crucial information we are able to see is that the long term 2040-2050, especially 2048 has break strongly where Brexit day is the day where the Bull support has gone totally vain for the first time in the past three months.

Buy at the weakness, sell at the strength is it working today? We only able to see next week but currently the downward momentum is so great where it can squeeze all the bull out of the game. The bear awakening!

Next week will be an interesting week where those short seller already in the game will try to add position to their winner and the bull decision to support at the current stage or retreat all the way back to 1900-1930 area to support the bull camp again.

If 1900-1930 failed we will all the way see the indices fall to 1800 to 1820 area where early this year support stand. If it failed again, new low will be created. Crucial key level 1773, 1687 and 1630 will be tested. All this might happen in a week time.

FotorCreated.jpg

STI

STI index undergo weakening during Brexit where most players taking early profit and short seller very cautious in advancing. Next week might see an interesting development where 2718 might break and all the way under a freefall zone where the next support only able to see at 2500-2530 level.  To be honest, I won’t be surprise to see a gap down next week.

FotorCreated.jpg

Has the market crash or is just a merely technical correction? Seem like but next week we should be know the clear direction. But my thought process is this, with the current market development, if you want to go and buy stock now, is it the stock price attractive enough? Has the stock price pricing in the future economic development. The demand level now is decreasing unless there is an unexpected positive news arising next week.

Compare to other investment vehicles are there more attractive alternative. As a trader that trades Equities, Forex, Indices and Commodities, I can tell you there are surely are. So if you are buying at this weakness now, you must be able to at least explain, what are so motivating you to buy now.

More likely sell the rumor and buy the news will happen now if market sentiment turn negative. Big players will come and push the market to the lowest point. They have been waiting for ages.

With FOMC coming on next month, I believe the event will still heading to its peak . More to come!

I am going to a vacation soon and slowly hide back to my cave. Also, because I am going on a vacation to this country.

AustralianFlag.jpg

I am thinking to talk about safe havens. Market has favorite these two when Brexit happen.

240_F_100453268_SU4B2LDMCq6jLBYQdGK8o0Emro93DnFW

Yes, Gold and Yen. But personally I don’t think these two are the safe haven.

With Yen fundamentally weak and Japan Financial Minister statement  where he signals readiness to intervene as Brexit boosts yen. It is a foolish move to hoard Yen. My valuation on Yen against USD is on 108 to 110 area where if the intervention happen, it might fall back to that area. Currently Yen against USD fall to an attractive zone where a clear price rejection occur from 101 level below.

For gold wise not much demand when it is above 1300. I manage to collect some when the Bremain sentiment is strong but I don’t intend to keep it for too long. It might be continue rally or maybe not. But I guess the ranging between 1200 to 1400 will persist for some time.

I more interested if talking about Safe Haven, to talk about these two currencies.

australian-and-new-zealand-flags.jpg

Aussie and Kiwi.

Capture.PNG

With New Zealand and Australia attractive yield and its currency strength, they are the real king of safe haven. Also, with fundamentally support. They are my favorite now.

Ok, it has been a hectic week for me and I believe for all the traders and investors out there. Let us have a good weekend ahead and ride the market again next week, don’t forget to take a break and enjoy the world. life’s too short not to enjoy it.

Till then, we shall talk again. Happy Investing and Trading Pals!

 

Cash is the King

Today I am being invited to a company IPO talk. The company is in Catalyst board for one of the country and now they are trying to go on mainboard. The reception is good, with warm greeting from the receptionist and the refreshment before their CEO talk is really awesome. Okay, I am a food lover so bear with me here. I am going to my main point very soon.

So I waited like half an hour…. almost feel like waiting too long and want to walk out of the door then a lot of VVIP people started to walk inside. The speech started with COO giving a talk, quite motivating but feeling a bit awkward (not sure how I feel,.maybe generation gap)… I will say then come to a video to share more about his company (the music is quite irritating, in my humble opinion, they can use a better music). Then, their CEO turn to share an inspiration speech like why they do this kind of startup and etc. I would like to apologize here that I am not comfortable to reveal much of their company background and their industry as it is pretty obvious to show which company that I am talking about. Also, my main point of writing this article is not to criticize or giving any feedback but is just act as a bridge to my points that I would like to raise below. So bear with me again for a little more.

So let us cut the story short and goes to the ending of the speech when everyone is getting an IPO form and going to walk out then I got this burning question I would like to ask their CEO but seem like a lot of people are interested to raise their burning questions too. So when I am going to walk out and leave the place, I manage to talk with one of their manager and I raise this question to him.

“Why listing the company during this point of time, where market does not look too good when anytime market is subjected to correction and crash?”

Then, he reply me that no one able to know when will the market crash and if market really so unfortunate to crash at this moment, this give them a more motivating factor to get IPO at this point of time as back to 2009 there is no company IPO.

So I do some googling and found that the statement is not true and valid as for that country, there are a number of  company IPO at that point of time. Just that they numbers of IPO company are not performing as year like 2003 to 2007 as investor risk appetite was sharply reduce (might give hurdle for them to IPO).

Then, he talk about buy and hold strategy….quote Warren Buffet….

“If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”

Well, i just keep quiet, I thanks him for his time to talk with me and then walk away. I will say, Let us just agree to disagree.

But here is my thought with some research, now the market yet to crash but let us see how the IPO company performing in SG for 2016.

Mainboard:

MANULIFE US REIT  :Capture.PNG

Catalyst:

*with sequence

ACROMEC LIMITED :

ANCHOR RESOURCES LIMITED :

SECURA GROUP LIMITED :

GS HOLDINGS LIMITED :

EINDEC CORPORATION LIMITED :

Capture.PNG

reference from: SGX – IPO PERFORMANCE

Out of 6 IPO company this year, only 2 out of 6 is trading above their IPO price now and if you want to know more why these 2 company can trade above their IPO price you may want to check who are their client and their business modal. (:D)

That is to say… even the market not yet crash the economy is already undergo harsh condition where investor risk appetite was sharply reduce. Not much demand at the current moment to push those IPO company share price to a higher price.

Imagine if market is undergo correction or crash (O_O)ll…..

You may argue that different country has different market sentiment. Well, time will tell.

So my take for myself after evaluating their business modal and include equities market future projection, my conclusion is…

I will not buy at this uncertain time.

After I walk out from the conference, I unconsciously say this to myself,

Cash Is The King Now

Disclaimer:
The information that contained in this article is to provide general advice and for information and educational purposes only. Any opinions, conclusions or other information expressed here does not constitute financial advice. They are given on a general basis and is subject to change without notice.
Any expression of any trading or investment idea is for sharing only and does not constitute an invitation to trade or investment advice. Readers will need to determine, with or without the assistance of a person licensed to give personal advice, whether any general advice received is appropriate for them given their particular needs, financial situation and investment objectives.
While all reasonable care have be taken to ensure that the information contained here is accurate, it does not guarantee the accuracy or completeness of the information. The blogger for this post will not be held liable for any losses resulting from any errors, inaccuracies or omissions in the information or from the use of the information. All information stated are presented strictly for educational purpose. It should not be viewed as an advice to buy or sell certain securities.
Nothing herein constitutes or should be construed to constitute any:
(i) offer, advice, invitation or solicitation to buy or sell any investments, securities or other financial products,
(ii) invitation or inducement to engage in investment activities or financial promotions of any kind or
(iii) investment advice or recommendation.
The views/opinions expressed are strictly personal and do not reflect the opinions or positions of Amazing Trading Academy.
Note: Investing and trading may result in significant losses – readers are advise to take precautions and be responsible for their investing / trading actions

“A Smart Financial Centre”

Recently  I encounter this article from MAS and I think is interesting to share.

“The Geeks Shall Inherit the Earth”

Technology is changing the way we live, work, and play.

  • Robots and unmanned drones are becoming more common.
    • Robotic cleaners like iRobot have lightened the load of household chores.
    • Pizza restaurants in cities ranging from Mumbai to Moscow have started to deliver pizzas using drones.
  • Digital payment systems are taking off rapidly, especially in developing countries.
    • Kenya launched in 2007 M-Pesa: a simple and low-cost service that allows users to deposit and transfer funds through SMS text messages.

When the legal profession is organising a conference on technology, you know that something momentous is brewing!  I congratulate the Singapore Academy of Law for its acumen in setting technology as the theme for its conference.

A sector where I believe technology is going to be fundamentally transformative is financial services.  In fact, there is a new buzzword: “FinTech” – financial technologies or the integration of finance and technology.  Two things are happening.

First, non-financial players are using technology to offer innovative solutions that mirror the services traditionally offered by financial institutions (“FIs”).

  • Payments – Apple, Google, Paypal, Amazon, and Alibaba have payment solutions that replace physical wallets and credit cards.
  • Lending – Zopa, Lending Club, and Funding Circle offer peer-to-peer lending solutions that match lenders and borrowers on their online platforms.
  • Investment – “robo-advisers” like WealthFront use data analytics to dispense online personal financial advice and investment management services.

Indeed, these non-financial firms look set to disrupt the financial industry.

  • As a senior banker in the US puts it: “People need banking, not banks”.

The second thing that is happening is that FIs are fighting back.

  • As disintermediation threatens FIs, they are being pushed into a rethink of their business models.
  • Rising costs, shrinking margins, and the weight of new regulatory requirements are pressing FIs to look into more cost-efficient ways of running their businesses.
  • They are increasingly turning towards innovation and technology for solutions.
  • In an ironic way, the FinTech insurgency is forcing change among the incumbent FIs.

Leveraging on their size and networks, FIs are using technology much more intensely to enhance their product offerings and service delivery.

  • Example: US insurance companies, Progressive and Allstate, are using telematics to develop usage-based motor insurance, also known as Pay-As-You-Drive (or Pay-How-You-Drive).
  • Instead of rewarding past good driving behaviour, these insurers are able to price premiums contemporaneously with current driving habits.

What does all this mean?  As a powerpoint slide used by a FinTech company in Silicon Valley rather immodestly proclaims: “the geeks shall inherit the earth!”.  It is no doubt an exaggeration.  But the message is clear:

  • In the years ahead, countries, businesses, and people who know how to use technology and innovate will have a keen competitive advantage.

Why This Time is Different

Now, have we not heard this story before – that technology will transform banking and then nothing changed fundamentally?  Indeed there have been false starts in the past.

  • In the 1990s, we thought that electronic money would replace cash and cheques.  That has not happened.
    • In most parts of the world, including the US, Japan, Europe, and Singapore, notes and coins in circulation outside banks has been increasing steadily every year.
  • In 2000, some of us were quite sure that Internet-only banks would eventually replace brick-and-mortar branches.  This too has not happened.

The most obvious evidence that both beliefs were manifestly wrong occurs year after year, when lines of Singaporeans form at bank branches to obtain new notes for “angpows”, to be given out during the Chinese New Year celebrations.

  • But this year, however, we saw “e-angpows” being given out for the first time.
  • Could this be a sign of things to come?

Technology takes time to proliferate.  More importantly, it is the interaction among related technologies that often creates transformation – and that takes time.

There is reason to believe that this time is different: that technology will indeed transform financial services in a way that has not happened before.  It has much to do with the concept of mobility.

First, mobility of technology.

  • Mobile devices, such as smartphones and tablets, have become common-place.
  • People do not just connect and surf from their home computers anymore – they also do so from their mobile devices, while on the go.  This has profound implications for how financial services are offered and consumed.

Second, mobility of ideas.

  • Today, online platforms provide a variety of social networking and peer-to-peer services.  And people are increasingly comfortable using these services.
  • These services have compressed time and space: interaction is real-time and information exchange transcends physical boundaries.
  • They allow information, knowledge and ideas to be shared widely across communities and geographies.

Third, mobility of payments.

  • In the past, it used to take several days and cost quite a bit to pay someone in another country or currency.
  • Today, online payment services have made it possible for people and businesses to transfer funds safely at very low cost.
  • This has not only allowed e-commerce to flourish, but also enabled faster and more efficient cross-border financial services, like lending and borrowing.

We are looking at a financial services industry that will be increasingly driven and powered by technology.

The Big Trends in Technology Affecting Finance

What are the big trends in technology affecting the financial industry?  Let me cite six technologies that appear potentially transformative:

  • digital and mobile payments
  • authentication and biometrics
  • block chains and distributed ledgers
  • cloud computing
  • big data
  • learning machines

First, mobile and digital payments.

Payment services are increasingly being enabled by mobile applications and near-field communications (NFC).

  • Gone are the days of the clunky cash register.
  • Today, accepting payments can be as simple as attaching a small dongle, no bigger than a matchbox, to a tablet or smartphone.

This is only the beginning.

  • Payments at stores and restaurants may increasingly not even require physical touch points, and could take place entirely over the Internet, using the customer’s smart device to effect payments.
  • Further out, we can look to a future of seamless payments, where technology automatically recognises the customer, checks out the goods, and charges to the customer’s account as he walks out of the store.

Second, authentication and biometrics.

Authenticating one’s identity is critical to gaining access to a variety of financial services and performing many financial transactions.  As authentication technology progresses, we can look forward to more secure and efficient solutions to authenticate identity.

Biometric authentication is making good advances.

  • In the future, we may not have to remember complex passwords or worry about password compromise.
  • Fingerprint, iris, facial and voice recognition, and even palm vein and heartbeat recognition systems are being explored for authentication purposes.
  • Biometric ATMs have been deployed in several parts of the world, including the UK, Japan, China, Brazil, and Poland.
  • Banks in Singapore have launched mobile applications that utilise the TouchID function of the iPhone for fingerprint authentication.
  • Some have also been exploring the use of voice biometrics in their phone banking and call centre services.

For users who are concerned about their privacy or have physical challenges, token-based authentication offers an alternative means of security:

  • Tokens embedded within mobile devices, or perhaps on wearable technology, are viable options.
  • And where stronger security is required, these could be used together with biometrics to provide multi-factor authentication.

Third, block chains and distributed ledgers.

Digital currencies – like Bitcoins – have attracted much interest.

  • Payments using Bitcoins are much faster and potentially cheaper than conventional bank transfers and, its advocates argue, just as safe.
  • Whether digital currencies will take off in a big way remains to be seen.
  • But it is a phenomenon that many central banks are watching closely, including MAS.
  • And if they do take off, one cannot rule out central banks themselves issuing digital currencies some day!

But the bigger impact on financial services, and the broader economy, is likely to come from the technology behind Bitcoins – namely the block-chain or, more generally, the distributed ledger system.

  • A block chain is essentially a decentralised ownership record.
  • It allows a document or asset to be codified into a digital record that is irrevocable once it has been committed into the system.
  • The digital record can be accessed and verified by other parties in the system without going through a central authority.
  • The potential benefits of such a distributed ledger system include:
    • faster and more efficient processing;
    • lower cost of operation; and
    • greater resilience against system failure.

There are many potential applications of distributed ledger systems in the financial sector:

  • Ripple in the US offers a solution, based on distributed ledgers, for real-time gross settlement, currency exchange, and remittance.
  • The same solution could potentially allow regulators to plug into the network to conduct surveillance of risks and to track transactions to detect money laundering or terrorist financing.

In fact – and this would be of interest to the lawyers gathered here – distributed ledger systems could potentially be applied in any area which involves contracts or transactions that currently rely on trusted third parties for verification.

  • Honduras is developing a land title registry system based on distributed ledgers
  • Other potential applications talked about include registry of intellectual property rights, supply chain management, electronic voting systems, medical records, etc.

Fourth, cloud computing.

Cloud computing is an innovative service and delivery model that enables on-demand access to a shared pool of computing resources.  It provides economies of scale, potential cost-savings, as well as the flexibility to scale up or down computing resources as requirements change.

There is a view among some quarters that “MAS does not like the cloud”. This is an urban myth, not true.

  • Well, MAS did have concerns about cloud computing previously.
  • This was because cloud services were at the time not sufficiently secure to safeguard the sensitive information that FIs held.
  • But cloud technology has evolved considerably and there are now solutions available to address these concerns.
    • For example, FIs can now implement strong authentication and data encryption to protect their data in the cloud.
    • MAS has been in dialogue with both FIs and cloud service providers
    • Providers have now become more aware of our security considerations while we have gained a deeper understanding of the safeguards they have put in place.
  • I am pleased to say that several FIs in Singapore have successfully rolled out cloud solutions in the past two years.

Fifth, big data.

The world is exploding with information.

  • Data generated by online social networking and sensor networks, and data collected by governments and businesses amount to a universe of digital information that is growing at about 60% each year.
  • There is also a global trend – including in Singapore – towards “open data” in which data are freely shared beyond their originating organisations
  • At the same time, the cost of storing and processing data has been falling dramatically.
  • These trends have created the opportunity to use data to understand the world around us with a clarity and depth that was not possible before.

Some FIs are investing in and using this big data to derive useful and actionable insights.

  • JP Morgan Chase and MasterCard, to cite two examples, are using big data techniques to derive insights from consumer spending patterns.
  • Visa is using big data techniques to detect fraud in financial transactions.

Sixth, learning machines.

This might well be the most impactful technological change of the future – computers that can think.

  • Traditional computing machines and algorithms are programmed to carry out specific tasks in response to defined circumstances according to the software programme that is written into them.
  • We are now moving into the age of cognitive machines which are designed to learn from the data that they hold and be able to, in a sense, programme themselves to perform new tasks.
  • They continuously adapt to new data as well as feedback and inputs gathered from their experiences, including interactions with humans.

We are already beginning to see examples in the financial industry:

  • In equity, commodity, and FX markets, some traders are using self-learning algorithms
    • they not only analyse historical data, predict price movements and make trading decisions, but continually upgrade and adjust their trading strategies in the light of new evidence and market reactions.
  • In lending, learning machines have been used to construct models for consumer credit risk and improve the prediction of loan defaults.

The legal minds assembled here might want to reflect on where the legal liabilities arising from the actions – or inactions – of such learning machines lie.

The six technologies that I have outlined have the potential to transform the financial industry globally.  There could well be others that I have not mentioned.

The important thing for our FIs is to be alert to these and other technology trends, understand their possible implications, and seize the opportunity to apply relevant technologies safely and efficiently – to boost productivity, gain competitive advantage, and serve consumers better.

Smart Nation Needs a Smart Financial Centre

At the national level, Singapore has set its sights on becoming a Smart Nation – one that embraces innovation and harnesses info-comm technology to increase productivity and improve the welfare of Singaporeans.  The Smart Nation Programme under the Prime Minister’s Office has brought together stakeholders from the government and the industry to identify issues and develop solutions with this objective in mind.

Government agencies have been rolling out a steady pipeline of Smart Nation initiatives.

  • The Housing Development Board has trialled a new system that utilises home sensors to monitor elderly folks who are staying alone and alert caregivers should an emergency arise.
  • The Land Transport Authority is studying the use of autonomous vehicles that can self-drive with the help of environmental sensors and navigation systems.
  • The Urban Redevelopment Authority has been utilising geospatial information and data analytics for urban design and land-use planning.

A Smart Nation needs a Smart Financial Centre.  Indeed, the financial sector is well placed to play a leading role given that financial services offer fertile ground for innovation and the application of technology.

MAS will partner the industry to work towards the vision of a Smart Financial Centre, where innovation is pervasive and technology is used widely to:

  • increase efficiency,
  • create new opportunities,
  • manage risks better, and
  • improve people’s lives.

MAS will seek to achieve this vision together with the industry through two broad thrusts:

  • a regulatory approach conducive to innovation while fostering safety and security; and
  • development initiatives to create a vibrant ecosystem for innovation and the adoption of new technologies.

Smart Regulation for a Smart Financial Centre

First and foremost, a smart financial centre must be a safe financial centre.  Technology can be a double-edged sword.  If not managed well, it can potentially lead to a variety of risks in the financial industry:

  • financial crime and illicit transactions;
  • loss of data or compromise of confidentiality;
  • glitches that damage reputation, disrupt business, or worse, cause systemic crisis.

The first priority on our journey towards a Smart Financial Centre is therefore to continually strengthen the industry’scyber security.

As more financial services are delivered over the Internet, the frequency, scale, and complexity of cyber attacks on FIs have increased globally.  Hackers and cyber criminals are constantly probing IT systems for weaknesses to exploit.

There are two reasons for concern:

  • First, the connectedness among FIs mean that a serious cyber breach in one institution can potentially escalate into a more systemic problem.
  • Second, repeated cyber breaches could diminish public confidence in online financial services and reduce people’s willingness to use FinTech in general.

MAS and the financial industry in Singapore take cyber security seriously.

  • FIs are expected to:
    • implement controls and measures to preserve the confidentiality of sensitive data
    • maintain the integrity and availability of their systems
    • conduct regular vulnerability assessments and penetration tests to evaluate the robustness of their cyber defences
  • MAS conducts regular onsite inspections of key FIs’ technology risk management processes and controls to check that they meet these requirements.
  • FIs have also established Cyber Security Operations Centres to enhance their cyber surveillance and gather cyber intelligence.

But cyber threats will not go away.  Like a cat and mouse game, both hackers and cyber defenders have been enhancing their tools and techniques along with advances in technology as well as in response to one another.

  • As part of this evolution, a new wave of next-generation cyber security solutions is emerging, in areas such as trusted computing, security analytics, threat intelligence, active breach detection, and intrusion deception.
  • The financial industry needs to keep abreast of these developments.

While seeking to ensure cyber security, MAS’s regulatory approach towards fostering innovation and the adoption of new technologies will take three forms.

First, innovation owned by FIs.

In matters of innovation, time to market is critical. FIs are free to launch new ideas without first seeking MAS’ endorsement, as long as they are satisfied with their own due diligence.

  • A recent case that went on this approach was a mobile banking application that utilised fingerprint authentication for balance enquiries.
  • The bank went ahead, did not need MAS approval.

What does this approach entail?

  • FIs’ board and management should take the responsibility to ensure that the risks of new innovative offerings are well identified and managed.
  • The compliance people should ideally be involved early in the innovation process. However, they should avoid second-guessing MAS by taking an overly conservative stance that might nip innovation in the bud.
  • If the FI encounters a specific issue on which it needs MAS’ guidance, we will be happy to help.
  • But the FI must offer its own assessment of the risks in what it proposes to do and take ownership for its decisions.
  • It cannot rely on MAS to do its due diligence.

Second, innovation in a “sandbox”.

Sometimes, it is less clear whether a particular innovation complies with regulatory requirements.  In such cases, FIs could adopt a “sandbox” approach to launch their innovative products or services within controlled boundaries.

  • The intention is to create a safe space for innovation, within which the consequences of failure can be contained.
  • FIs can seek MAS’ guidance and concurrence on the boundary conditions – for example, the time period, customer protection requirements, etc.

Third, innovation through co-creation.

MAS has a long tradition of active consultation with industry on proposed new rules or initiatives.  More recently, we have engaged industry players more directly to co-create rules and guidance – in other words, to jointly come up with proposals.

  • An example is the Private Banking Industry Code – developed by industry practitioners but in close consultation with MAS.
  • Such co-creation is particularly relevant for developing rules or guidance on new technologies whose benefits and risks are not fully known and where a more flexible approach may be desired.

A further possibility in co-creation might be MAS and the industry working together to develop common technology infrastructure that meets regulatory requirements. The aim is to clarify and address issues and uncertainties upfront during the course of development.

MAS is not seeking a zero-risk regime. And we understand that failure is part of the learning process.

  • If things do go wrong with an innovative product or service, and there will no doubt be some failures, the FI will need to review its implementation and draw lessons.
  • MAS will examine the facts to assess if there is any systemic or deeper issue that needs to be addressed, and determine if any action needs to be taken.

Development Initiatives for a Smart Financial Centre

Besides providing a conducive regulatory environment, MAS will work closely with the industry to chart strategies for a Smart Financial Centre.  Let me sketch some of the initiatives we have embarked on:

  • a Financial Sector Technology & Innovation scheme to provide financial support;
  • a multi-agency effort to guide the development of efficient digital payments systems;
  • a technology-enabled regulatory reporting system and smart surveillance;
  • supporting a FinTech ecosystem; and
  • building skills and competencies in technology.

First, the Financial Sector Technology & Innovation or “FSTI” scheme.

I am happy to announce that MAS will commit $225 million over the next five years under the “FSTI” scheme to provide support for the creation of a vibrant ecosystem for innovation.

FSTI funds can be used for three purposes:

  • innovation centres:  to attract FIs to set up their R&D and innovation labs in Singapore.
  • institution-level projects: to catalyse the development by FIs of innovative solutions that have the potential to promote growth, efficiency, or competitiveness.
  • industry-wide projects: to support the building of industry-wide technology infrastructure that is required for the delivery of new, integrated services.

Several FIs have already set up their innovation centres or labs in Singapore, some under the FSTI:

  • DBS, Citibank, Credit Suisse, Metlife, UBS,
  • as well as a couple of others that are in the pipeline.

Some examples of FSTI-supported institution-level projects that are ongoing include:

  • a decentralised record-keeping system based on block chain technology to prevent duplicate invoicing in trade finance;
  • a shared infrastructure for a know-your-client utility;
  • a cyber risk test-bed; and
  • a natural catastrophe data analytics exchange.

We look forward to see more such innovation projects coming on-board.

Second, digital payments.

Changes in the payments scene in Singapore have picked up pace in recent years:

  • Our retail banks have released their own flavours of mobile wallets or mobile payment applications:
    • DBS PayLah!, UOB Mobile Cash, OCBC Pay Anyone, StanChart Dash, Maybank Mobile Money
  • With the launch of Fast And Secure Transfers or “FAST” in March 2014, we now have a ready infrastructure that allows customers of the participating banks to make domestic fund transfers to one another almost instantaneously from their computers or mobile devices.

But there is a lot more we need to do on the digital payments front.

First, payments at stores and restaurants.

  • This is almost a Uniquely Singapore phenomenon
    • Many of our stores and restaurants have multiple Points-of-Sale (“POS”) at their payment counters.
    • This not only clutters valuable real estate but also makes life difficult for customers and merchants.
  • As more stores and restaurants introduce self-checkout facilities to improve productivity, we need a unified POS – a single terminal, preferably mobile – that will:
    • allow merchants to enhance efficiency by simplifying front-to-back integration; and
    • enhance the shopping or dining experience of customers.

Second, reduce the use of cash and cheques.

  • It costs as much as $1.50 to process each cheque.
  • The cost of cash is less obvious but just as real: in transportation, collection, delivery and protection.
  • We need to promote greater adoption of new payments technologies, including:
    • electronic Direct Debit Authorisation; and
    • fund transfers using mobile numbers or social networks

MAS and the Ministry of Finance have been co-leading a multi-agency effort to address these issues and guide the development of efficient digital and mobile payment systems.

  • The aim is to make payments swift, simple and secure.
  • The vision is less cash, less cheques, fewer cards.

Third, regulatory reporting and surveillance.

As the financial system becomes increasingly complex and inter-connected, MAS needs to sharpen its surveillance of the system with more timely, comprehensive and accurate information to identify and mitigate emerging risks.

The vision is an interactive, technology-enabled regulatory reporting framework which will:

  • reduce ongoing reporting costs through the use of common data standards and automation;
  • enable the dissemination of anonymised information to industry analysts and academics for deeper analysis of the financial system and its risks.

We are still in early days on this initiative and will work with the industry on how best to take this forward.

Fourth, supporting a FinTech ecosystem.

The effort to grow a Smart Financial Centre must go beyond the financial industry, to help nurture a wider FinTech ecosystem.  We need a strong FinTech community that can:

  • generate ideas and innovations that FIs could adapt and adopt; and
  • provide a platform for collaborations with the industry to produce innovative solutions for defined problems and needs.

For those of you who are not aware, we have a pretty vibrant FinTech start-up community that is growing over at the “Launchpad” in Ayer Rajah Industrial Estate.  MAS looks forward to engaging FinTech start-ups more actively – to better understand emerging innovations as well to help them design their solutions bearing in mind the regulations and risk considerations that apply to the financial industry.

Fifth, building skills and competencies in technology.

Technology will disintermediate and make obsolete many jobs in the financial sector, but it will also create new ones.   Finance professionals will need new capabilities.  And the industry will need skills and expertise from other disciplines traditionally not associated with finance.

MAS and the financial industry must work together to prepare for the changes ahead on the jobs and skills front.  Building capabilities and opportunities in FinTech will be a key area of focus in the financial sector’s SkillsFuture drive.

  • MAS will work with the financial industry, the Institute of Banking and Finance, training providers, and the universities and polytechnics to provide learning pathways relevant for a Smart Financial Centre.
  • We will also provide FIs funding and other support for training opportunities, to help our people acquire specialist capabilities in the relevant areas of FinTech.

Conclusion

Let me conclude.  I have said much about technology and FinTech.  The larger picture is really about promoting a culture of innovation in our financial industry.

  • Such innovation is not always about high-tech.
  • It is about designing better work processes and creating new business models that will deliver higher growth, more enriching jobs, and better services for the consumer.
  • Technology is very likely to be a key enabler for all this, and we must make a concerted effort to understand it and use it effectively.

Thank you.

 

Full credit to: Keynote Address by Mr Ravi Menon, Managing Director, Monetary Authority of Singapore, at Global Technology Law Conference 2015 on 29 Jun 2015

Asset-Rich And Cash-Poor?

Recently I found out this term “Asset-Rich and Cash Poor” and it describe majority of Singapore residents. Even Straits Times (<< click here to read more) publish an article that many Singaporeans risk retiring income-poor.

According to Manulife Asset Management, Singapore residents are generally quite well off. We have a household wealth of around S$250,000. However, three-fifths of that wealth is tied up in property or idling in low-interest bank deposits.

We always hear people saying Singapore residents are asset rich but cash poor. Although not always the case, many people “over consume” when it comes to their homes. Real estate can be good investments for income but, unless we have and are willing to rent out spare rooms, our homes are consumption items.

To be objective when it comes to view property it simply as an asset or liability is not easy for many people. Many people claim that property is an asset but this is only apply when you have pay finish the loan.

I always like the concept from Rich Dad Poor Dad book that argue on whether property is an asset or liabilities,

It seems like every financial “expert” says, “Your house is your biggest asset.” When I wrote Rich Dad Poor Dad, I said that your house was a liability. That was like spraying water on a hornets’ nest. The so-called experts lambasted me. At the time, the real estate market was skyrocketing. Everyone called me a contrarian, out to sell books. Today, after one of the worst housing crashes in US history, they aren’t laughing anymore.

Recently, I’ve been writing a series of posts on what I’m calling Rich Dad Scams, lies that are fed to people by the rich to keep them poor and in the middle class. Today, I’m going to write on one of the biggest Rich Dad Scams of all, “Your house is an asset.”

Money in, money out

Your financial planner, real estate agent, and accountant all call your house an asset. But in reality, an asset is only something that puts money in your pocket. If you have a house that you rent out to tenants, then it’s an asset. If you have a house, paid for or not, that you live in, then it can’t be an asset. Instead of putting money in your pocket, it takes money out of your pocket. That is the simple definition of a liability.

This is doubly true if you don’t own your home yet. Then it’s the bank’s asset, and it is working for them, but it’s not earning you anything.

So what is an asset?

In business terms, assets are your pros and liabilities are your cons. You need assets to offset your liabilities. Once you get away from the Rich Dad Scams, it’s easier to think in those terms, to think like an entrepreneur. But what exactly are assets?

The simple definition of an asset is something that puts money in your pocket. This is accomplished through four different categories, one of which is real estate. When I say real estate, I don’t mean your personal residence, which is a liability. What I mean is investment real estate, which is a great investment because it puts money in your pocket each month in the form of rent.

There are three other primary assets: business, paper, and commodities. If you are an entrepreneur or a business owner, your business is an asset. Paper assets are stocks, bonds, mutual funds, and so on. Finally, commodities include gold, and other resources like oil and gas, and so on.

My wife and I started out making our money in real estate, putting our money to work in properties that we could rent them out and see ongoing returns. After that, we diversified, so now we have some money in all of four of these asset areas.

Invest for cash flow, not appreciation

The Rich Dad Scam that your home is an asset was prevalent when I first wrote Rich Dad Poor Dad. That was in 1997, and everyone’s home values were climbing. It was easy to assume that your house was an asset because it was potentially making money for you in the long run through appreciation. People bought into the scam hook, line, and sinker, taking out home equity loans to buy cars, vacations, TV’s, and more. Today, those same people are so underwater that many of them are defaulting and going into foreclosure. Most people aren’t saying their home is an asset any longer.

A lot of Americans got a fast, ugly financial education when the real estate market turned around. They realized very quickly that their homes were not assets.

The difference between my poor dad and my rich dad was a financial education. And that’s not a classroom and books education, that’s a nuts-and-bolts, street-smart education, a way of looking at money that is true and that works, not just what the rich want you to believe.

Rather than invest for appreciation, my rich dad taught me to invest for cash flow and to treat appreciation like icing on a cake. I encourage you to do the same.

Having say that I am not against the idea to own a property but just always a good way to ask myself a question, am I accumulate more liabilities or asset? If property help me to gather more cash flow then it will be an asset but if it leech me too much of my cash then at this point of time it is still a liability to me.

Of course, no one want more liabilities, the more the liabilities, the higher the expenses, the tougher for you to achieve financial freedom.

Also, for those who are keen to get a property, there is a reference you should be aware of, that is 3-3-5 rules.

**[ 

What is 3-3-5 rule?

There are some general guidelines to check whether a property is affordable to you. For the sake of easy memorization, let’s call it the 3-3-5 rule.

Rule 1: 30% of property price

Your initial capital should at least be 30 percent of the property’s asking price, in order to pay for the downpayment, transaction costs and other miscellaneous expenses.

Rule 2: 1/3 of monthly salary

Your monthly mortgage payment should not exceed one-third of your monthly salary.

Rule 3: 5 times of annual income

The purchase price of the property cannot exceed five times of your annual income.

Using the 3-3-5 rule, the property purchasing power of my two groups of readers can be summarized in the table below.
affordability-table

For Daniel he can only afford to buy a property priced below $360,000. Since he relies only on a single income to support his property, he has higher risk than the couple. His approach should be more conservative.

As for Joshua and Esther, their budget cannot go beyond $500,000 because of the limitation in their initial capital. If they want to increase their budget, they should find ways to save more before plunging into the market.

Why you need to be conservative?

Sounds tough, doesn’t it?

To buy an investment property, you’d rather be conservative than aggressive. To support your home, you’d better be safe than sorry.

If you have problems even paying for 30 percent of the property, you can’t really afford it.

If the value of your target property far exceeds five times of your annual income, you are either buying an overpriced property or buying a property out of your reach financially.

Many people buy their home without thinking carefully. They are tempted to use the government housing grant or subsidy for first-time buyers.

You may not aware of the fact that this small amount of subsidy, say, $30,000 or $40,000, can easily be offset by the fall in your property’s value when the bear market comes after your purchase. You are left to pay the outstanding loan from an overpriced property.

Interest rates can go up. Property prices can go south. Jobs can be lost.

Do you have the holding power to go through the next property cycle? Would you still be able to service your housing mortgage under all circumstances? Do you have the cash reserve to top up the difference in case your property’s value drops below the market price?

If you can’t give a definite answer, you are not ready yet.

In a sea of comments, let me clarify three points here:

1. Income level and savings out of reach?

The characters in the case study probably fall into the ‘high-income’ group. And the income gap between the rich and the poor is getting wider in Singapore. Read the article “Ultra-rich club gets bigger and wealthier” in today’s Straits Times and My Paper.

Nonetheless, how much you earn may be out of your control, but how much you can save is completely determined by you.

2. The 3-3-5 rule unrealistic?

Some readers think that practising the 3-3-5 rule is infeasible in today’s property market.

I understand that it is unpleasant to find out that you can’t really afford your dream home after taking the 3-3-5 test. If I were a developer or an agent, I would definitely come up with a 1-2-10 rule so that everyone could happily jump into the market and buy something.

We are having the ‘boiling frog’ phenomenon here: When people are in a high-price environment for too long, they will gradually think that it is normal and acceptable to pay high prices. Similarly, when people are in a prolonged boom of the property market, they will forget what is a ‘value-for-money’ home, or why it is necessary to calculate the ROI of an investment property.

When market prices are climbing rapidly, salespeople will tell customers that it is impossible to go back to the low prices in the past. However, history has proved time and again that they are wrong. Cycles do repeat themselves over the past few decades.

And it is when market prices have been corrected sharply that people begin to realize that many buyers have overpaid for their properties bought during the last peak of the property cycle. These buyers are going to pay the price of holding their overpriced properties ‘for the long-term’ to wait for break-even, while missing the opportunities to buy when prices become reasonable again.

3. Use your own judgment

Developers can sell at future prices and sellers can market at unreasonably high prices. But as buyers, it doesn’t mean that we have to take whatever we are offered. Before we commit to any big purchase, we have the right to exercise our individual judgment to determine whether the product prices are reasonable.

Finally, let me end this with a good quote:

It is not it can’t be done. It is people who don’t know that it can be done, or they choose to believe that it can’t be done. 

] **

 

**Cited from PropertySoul

Hope you enjoy reading this article and give you some insight for your financial planning. Until then, see ya!

 

 

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!