Last updated - 17 September 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:
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? Mintos has never provided any information about the EAG Finance who provides this guarantee. We strongly suspect that this entity does not have any financial capacity to honour this guarantee, and in any case Mintos seems unwilling to make any claims against guarantors.
Capital Service makes a ridiculous proposal to Mintos investors
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 has now made a proposal to Mintos investors that we consider to be extremely unreasonable. The company is proposing that investors take a 40% loss on their loans, and receive the remaining 60% over the following 8 years. There would be no payments at all for two years. Effectively, they are asking investors to write off more than half their investment, on a present value basis. The company says that this will help them ‘protect jobs and generate profits for shareholders and investors in the future’. We don’t understand why Mintos investors should accept a loss so that shareholders can make profits in the future. In fact, this restructuring plan would generate an immediate huge profit for shareholders, rather than seeing their investment wiped out under an insolvency. We expect most Mintos lenders to reject this offer, and for Capital Service to either significantly improve their offer, or face an insolvency process (the most likely outcome). Mintos has stated that they were not supportive of the Capital Service proposal, and will announce the results of the investor service shortly.
Mogo releases their H1 2020 results
Mogo remains one of the most important loan originators on Mintos. It has provided an interesting business update, and its latest financial report (here). We were most interested in the amount of collections achieved in April, May and June. While (as expected) there was a decline of around 30% in April compared to normal levels, they have since been trending up strongly. New lending was cut dramatically in April, which we think is prudent, and has been trending up again too. Perhaps the most important part of the update was that Mogo had secured a temporary waiver on the breach of certain bond covenants (which presumably would otherwise have been breached). A meeting is planned shortly to agree on longer term changes to the bond terms and covenant levels. We expect these negotiations to be successful but the situation is worth monitoring. Mogo also announced that it had purchased Moldovan lender Sebo, from Finko group, for €2.9m. For the first half of 2020, Mogo announced a loss of €3.9m, which was driven by an FX loss of €4.1m, and significantly higher impairment expenses (52% of revenues, compared to 30% in 2019). Mogo said that it had cut operating expenses by 21% during the second quarter. Overall this level of loss was not a terrible result, but Mogo’s exposure to weak foreign currencies, and rising loan defaults needs to be monitored.
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.
Akulaku tells everyone things are doing just great. Meanwhile they are in default....
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. In this recent article, the Akulaku CEO, William Li describes how well the company has performed through the crisis, with only minimal increases in defaults. They are actually growing market share! Meanwhile, in a statement to Mintos, they say that there are major liquidity problems, which are blamed on COVID-19, currency depreciation, and the falling oil price. So what happened to the $US 68 million of cash they said that they held as at December 2019? We hope it was not held in the same bank as Wirecard… We presume not, but can only point out the information inconsistencies…
Kredit24 and Kiva wind down
In early July, Kredit24 (Kazakhstan) and Kiva (Russia) both announced that they were winding down. We are not really surprised at all, both were very small, and had no real track record or history of success. Mintos sounds optimistic that investors will get all their money back. We hope they are right. Meanwhile, both are suspended.
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):
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 introduced their own ratings – from A (best) to D (default), which we have included as a comparison.
Note- the scores are based on historic results and track record and may not capture the recent impact of COVID-19 on each loan originator
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 - September 2020
Latest rating changes - August 2020
Latest rating changes - July 2020
Latest rating changes - June 2020
Latest rating changes - 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.
Latest rating changes - 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).
Latest rating changes - March 2020
How to deal with the messy situation at Finko?
Finko is one of the largest lending groups on Mintos. Its businesses include Varks, Lendo, Sebo and Dinero. The owners of Finko are also one of the 4 key external shareholders of Mintos.
When these loan originators joined Mintos, the relationship between the various Finko companies was not disclosed. There was also no group guarantee in place. Finko then recently announced that it was going to provide a group guarantee, and released its results for 2019. Those resulted were extremely strong, with a profit of €17.6m. The business also received an equity injection of over €8m. The group guarantee led to us rating Finko as a group, rather than each subsidiary. Based on the financial disclosures for 2019, the group score was 72.
As noted above, the most important subsidiary, Varks, has lost its lending licence, and is now in liquidation. This news means that in our view, the group guarantee now has very little value, due to the loss of profits generated by Varks, and the impact of this event on the whole group. Consequently we have decided to revert back to our previous practice of providing financial information and scores for each remaining subsidiary where we have reliable information available. We note that UkrPozyka and Kiva currently have no financial information available. We also note that the figures provided for the 2019 Varks profit and equity by the Finko CEO are much higher than those we had seen published on the Varks website. We currently have no explanation for this and will not include any 2019 Varks figures in the tables until this is cleared up.
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.