Last updated - 21 November 2020
Mintos lenders can default or close down - choosing the best lenders is important
In 2017, Mintos lender Eurocent failed, and defaulted on its Mintos ‘buyback guarantee’ commitments. Since then there have been defaults and issues with several other lenders. Over the last 3 years we have been providing the scores and data on this page – our Mintos lender ratings. Our goal is to provide investors with key information on each lender, and a rating score to help highlight those that are lowest and highest risk.
To begin with, below we discuss some recent events:
Mintos provides default recovery estimates to investors for the first time
Mintos recently hosted an interesting videoconference where they discussed the situation with each of the lenders in default, and provided recovery rate forecasts too. Check out our new post where we discuss the outlook for recoveries, what went wrong with each loan originator, how much investors can expect to get back, and when.
Cashwagon will liquidate - Mintos expects significant losses for investors
Earlier this year Cashwagon in Vietnam was closed down by local authorities. As part of this process its bank accounts were frozen. The company tried to find new sources of equity and financing, but (unsurprisingly) those efforts have not been successful. The Cashwagon group now plans to go into liquidation. Mintos has announced that it expects to achieve a recovery of less than 50% on Cashwagon balances in Vietnam and Indonesia, and less than 25% on balances in the Philippines.
Finitera plans to sell Kredo and Tigo to Mogo, unlikely to honour Monego commitments
Mintos has announced that the Finitera subsidiaries Kredo (23/100) and Tigo (32/100) will be sold to Mogo by the end of the year. As Kristaps Mors notes in this recent post, there are common shareholders between Mogo and Finitera (and Mintos itself). Once this transaction happens, the only Finitera subsidiary remaining on Mintos is Monego (Kosovo), which has lost its licence, has defaulted on its buyback commitments to Mintos investors, and is in liquidation. Finitera never provided a formal group guarantee over Monego’s responsibilities to Mintos investors, although in December 2019 Mintos announced that Finitera had committed to ‘cover scheduled borrower payments to investors……once these payments have been delayed for longer than 60 days.’
We have previously expressed skepticism over whether Finitera has the financial resources, or the actual intention, to honour this commitment. The Mogo recoveries team have now provided two reasons for why the commitment has not been fulfilled. Firstly, they say that the administrator of Monego has not provided sufficient data to Finitera and Mintos on the loan performance. While this may be true, we don’t see how this would prevent Finitera from buying back loans from investors through the Mintos platform. The second reason provided is more likely to be the real practical reason – the impact of Covid. It appears that this has had reduced the ability of Finitera to honour its commitments in two ways – by increasing the number of loans going 60+ in arrears, and by reducing the financial strength of its wider operations.
The sale of Kredo and Tigo could be a step towards the liquidation of the entire Finitera group. It will be interesting to see what happens to the sales proceeds of Kredo and Tigo. Will it go to shareholders of Finitera, or to cover the promises made to Mintos investors? It seems highly unlikely to us that it will be the latter. As for Kredo and Tigo – these operations will be moving to a larger, more successful operating group. In future they will receive group guarantees from Mogo, at which point we will stop providing standalone ratings scores for each lender.
Finko closes Ukraine subsidiaries and will no longer issue loans on Mintos
Finko group (which is owned by some Mintos shareholders) has been in serious trouble for some time now. Its most profitable subsidiary, Varks, lost its lending licence in strange circumstances. Its Metrokredit subsidiary in Russia also lost its licence. It sold another subsidiary (Sebo) to Mogo. That left it with some small, unviable operations in Russia and Ukraine. Both countries were hit hard by Covid-19. After announcing the windown of Russian (Kiva) operations in July, it was not that surprising to see the announcement in August that Ukrainian operations (Dinero and Ukrpozyka) were being wound down too. So, what are the implications for Mintos investors? Mintos says that the companies have committed to repaying the funds due by July 2021. However, it seems that a high proportion of loans remaining are now non-peforming. The Ukrainian entities only had €1.9m of equity as at December 2019 – compared to €20m of loans outstanding currently on the Mintos platform. We suspect that investors will only recover around 50-60% (at best) of their Finko Ukraine investments, and it will take longer than 12 months.
What about the parent guarantees you may ask? In their recent video, the Mintos recoveries team have stated that the only assets of the parent are shareholdings in other loan originators, all of which are suffering badly from Covid impacts. In their view, triggering the parent guarantee would not generate additional cashflow, and may disrupt the ability of Mintos investors to recover funds from those subsidiaries.
Investors reject Capital Service proposals - Mintos is negotiating better terms
Capital Service is a Polish lender that is facing problems. While it is blaming Covid, the truth is that the management team paid out large dividends over the last few years that left it without sufficient buffer for any downturn. It made an extremely unreasonable restructuring proposal to Mintos investors where it asked them to take a 40% loss on their loans, a 2 year payment holiday, and 8 years to repay all the funds owed. Thankfully, those proposals were rejected.
Mintos has now disclosed that it is negotiating substantially better terms, where investors will not suffer any ‘haircut’ (loss) and with no payment holiday. Mintos admit that if negotiations are not successful, litigation will take several years. Hopefully this will not be necessary and investors can start to receive repayments soon.
Mintos finally gets tough on Aforti, at last
On 7th August 2019 Mintos announced that it was suspending primary and secondary market loan purchases relating to Aforti Holdings of Poland due to non-payment of collections to Mintos. For some reason it decided against starting litigation and instead spent the next 6 months negotiating an agreement with Aforti to recover the funds. Frankly, this felt a little weak at the time, and Aforti took full advantage of this approach. We were delighted to see that Mintos has now issued a notice of default to Aforti, which is the first step any creditor takes in a litigation proceeding. However it’s the additional steps that Mintos took that we are particularly pleased with. It began by notifying the Polish stock exchange (where Aforti has a listing) that they had defaulted on their debts. It also approached other lenders to Aforti, who had not been informed by Aforti of the situation. Why is this significant? It could lead to Aforti losing its stock listing, and (more importantly) could trigger a ‘cross-default’ on their other loans, which means that all of Aforti’s debts could become payable immediately. Essentially this means that Mintos is now going to war, and we fully approve.
Mintos expect to obtain a full recovery on Akulaku loans
We have to confess that we don’t really understand what the issues are at Akulaku, a large Indonesian digital lender. Akulaku raised a huge amount of equity from several funds, including (arguably) the most prestigious VC firm in the world, Sequoia. They also declared that they had $US68 million of cash as of December 2019. Mintos have now announced that they are in negotiations on a repayment plan with Akulaku management, and expect investors to obtain a full recovery during 2021.
Key financial information of each Mintos lender
The table below captures the key financial information for each lender. This can be useful to quickly lookup the profile of each lender, and compare the strengths and weaknesses of each one.
All Figures in EUR million (profits annualised where appropriate). Last update 21 November 2020:
Note: S = Suspended D= Defaulted W = Solvent windown
Our Mintos lender ratings
Our Mintos lender ratings are based on 5 characteristics – profitability, capitalisation, size, track record and the quality of their reporting. We have allocated marks out of 20 for each metric, giving a total score out of 100. Mintos have recently changed their ratings system, which is now a number from 0-10. A W/D indicates that Mintos has withdrawn their rating.
Consider country risk too
Mintos offers loans from many different countries around the world, and some countries are more risky than others. To help investors assess the risk level of each country, we have published a country risk ratings page. This takes into account factors such as currency risks, sovereign risk and the local business environment. We think it is worth considering these risks when building a portfolio allocation, in addition to the LO ratings above.
Latest rating changes - November 2020
We have upgraded the ratings of these subsidiaries, but hope to learn more about how the Denmark and Poland subsidiaries have been able to perform so well. The weaker subsidiaries in Vietnam, Mexico and Kazakhstan did not provide any financial updates. These subsidiaries receive a group guarantee. However, as Mintos has a poor track record when it comes to enforcing group guarantees, we plan to continue rating these subsidiaries on
the basis of their own financials and track record. The Sun Finance group reported a profit of €12.1m in the 9 months to September, which was a strong result.
emerging markets. It also appears to have paid €4.7m of goodwill during Q3 on its acquisition of Kredo and Tigo. This acquisition, and the price paid looks very questionable given the current circumstances of Mogo. Another factor to highlight is that a large proportion of the reported equity consists of subordinated loans. This is lower quality capital than subscribed equity and there has been insufficient disclosures surrounding the terms of the instruments. Tangible shareholders equity (after deducting goodwill and
intangible assets) had fallen to only €0.1m as of Sep 30, which is concerning. Ratings firm Fitch has issued a negative outlook. One positive of their analysis is that Fitch are treating the subordinated debt as equity after presumably having reviewed the terms and structure of the instruments. Mogo announced that it had stopped lending in several countries, and was focusing on debt collection. These are probably sensible actions but they are not decisions that are made when things are going to plan. The continued losses,
uncertain outlook, non-core acquisitions, FX risks and deterioration in the size and quality of Mogo’s capital base means that we have significantly cut Mogo’s score from 72 to 53.
Changes in September & October 2020
Changes in August 2020
Changes in July 2020
Changes in June 2020
Changes in May 2020
We think that failing to execute the guarantee raises questions about all the Sun Finance subsidiaries and the management of the company. Sun Finance has now (finally) provided fresh financial information on its operations in Poland, Denmark, Latvia and Mexico. In some cases these country groups include subsidiaries that Mintos has never provided any information previously. The Polish operations (previously known as Kuki.pl) have shrunk
significantly. However they are no longer heavily loss making, and our score increased 11 to 33. Latvia is clearly the crown jewel within Sun Finance, with a profit of €4.3m in the last 12 months. This profit performance, and stronger balance sheet led to a score increase from 28 to 43. If Latvia is the crown jewel, the Mexico operations are the ugly step-sister. It is tiny but heavily loss making, and our score is only 9/100.
Denmark reported satisfactory results. However our score is only 33/100 as we believe that new regulations will significantly limit the ability of lenders like Sun Finance to operate in the country. Sun Finance has not published any recent financial information from its Vietnam and Kazakhstan subsidiaries. It no longer offers any loans from Russia on Mintos.
Changes in April 2020
In early April we have made too many rating changes to list them all individually, but we will highlight any key ones below. The key themes that led to changes were – macro shocks, regulatory changes, and disclosure quality downgrades for lenders who had not published financials since 2018. Our ‘watchlist countries’ currently are Kazakhstan and Russia (currency depreciation & macro issues due to oil price falls), and Poland (regulatory impact of capping loan rates/charges for the next 12 months).
EstateGuru is an excellent site that offers loans secured on real estate. Rates are high - around 11%. Currently mainly focused on the Baltic region of Europe but with plans to expand into other countries.
Viventor is a similar site to Mintos, just smaller. Some secured loans are available. We also provide Viventor lender ratings.
Bulkestate is a small but growing site focused on loans secured on real estate. It offers loans secured by real estate. Their rates are the highest in Europe for secured loans currently (11-14%)
October is focused on lending to small businesses in France, Spain and Italy. Rates are often a little lower than the other sites we list here, but some investors will like October due to the countries it operates in.
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