Saturday 19 March 2016

Increasing my P2P portfoilo

This week something historic happened in Singapore's crowdfunding scene -  a company related to an SGX-listed company sought to raise debt via crowdfunding. It was none other but Epicentre- once famous for selling Apple products.

You can read the article here.

Epicentre Crowdfunding

It is quite unprecedented for Epicentre to raise funds this way. Prior to this, the company relied on unsecured bank loans which yielded 3+% - 4+%. However, now it is relying on callable and equal monthly installment loans for working capital and purchase of inventory.

Looking through Epicentre full year and recent 1H results, my guess estimates is that the company is likely to generate 500k annually in operating cash flow before working capital changes. With a balance sheet of current cash (4.5mil), trade receivable (6.5 mil) against trade receivables and debts of about 20 mil, my sensing is that Epicentre is likely to roll over debts (bank or P2P). Fortunately for them, they have now secured a new "revolving credit facility" with Moolahsense. This allows them to tap onto a new platform for capital.

What I have done

After a through analysis, I have decided to put my money into its equal monthly installment debt. No doubt the effective yield is smaller, however there are two advantages.

Firstly, "optimal deployment of cash". As of now, I am holding a high level of cash as I am unable to find bargains in the stock market. Deploying some of these cash in such equal installment monthly bonds, I am able to yield a decent return on my "warchest"; and over time will hopefully have the cash again in my warchest when the stock market tanks. It is worth noting even if the stock market tanks, I will only buy with each level of decrease and hence money parked in these equal monthly bonds can be viewed as my last line of "bullets" (hopefully the war does not happen in 6-8 months time).

Secondly, equal installment bonds are less risky than callable because the company has to make monthly repayments instead of a principal lump sum at end of period. Essentially, capital preservation is one factor.

Local crowdfunding scene

Unfortunately, unlike last year, the crowd funding scene has heated up. As a result, now I do not have the luxury of thoroughly analyzing the companies before investing. Epicentre was the exception as financials of the company was readily available, I had prior knowledge of the company for following them in 2013-2014 and had adequate time due to the size of capital raised.

All being said, it seems there is a pent up demand by retail investors to seek high returns and a lack (but increasing) number of P2P loans. At this juncture, I will like to remind readers it is very important to do due diligence in your P2P investments especially when it is still an unregulated financial landscape. Also, please diversify; while i state my P2P loan as one component, I have lent out to 6 different SMEs.

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