Image result for valuemax"I may need up to $42 million as a short-term loan. You can have my $70-million Good Class Bungalow as collateral."

That, in brief, may well be how a super-wealthy person in Singapore contacted ValueMax Group.

Singapore-listed ValueMax said in an announcement on Friday night: "The facility has a tenure of one year. Each drawdown of the facility shall be for a period of two months on a revolving basis....The facility is secured by a mortgage granted in favour of the Group over a good class bungalow at a loan-to-value of 60%."

The $42-m facility at 60% of the value of the bungalow means the property is valued at $70 million.

Taking, say, $1,500 psf, a $70-million bungalow would be about 47,000 sq ft in size. That's one sprawling property which is a rarity among good class bungalows. 

Is the bungalow fully paid up? Likely yes, otherwise a LTV of 60% means nothing to ValueMax.

In which case, this client probably is Old Money, who could have bought the property a long time ago when it cost a lot lower than today's valuation. 

This should be the biggest deal ValueMax's money-lending business, VM Credit, has secured since VM Credit was 100% acquired by ValueMax in Sept 2014.

Will it significantly boost ValueMax's profitability? It's hard to say for sure because  there is insufficient information to go on (see discussion below).

(ValueMax is one of Singapore’s oldest and best-established pawnbroking chains. Established in 1988, it provides pawnbroking services, and retail and trading of pre-owned jewellery, gold and luxury timepieces. At its new HQ at Waterloo Centre, it provides private financial services such as mortgage loans for private residential and commercial properties as well as pawnbroking services for high net-worth individuals and companies.)


confused142There are several intriguing elements to this deal, starting with: What is the client going to use so much money for in a short time frame?

Any answer would have some link to who the borrower is. Could he be some tycoon with an instantly recognisable name?

Understandably, for client confidentiality reasons, the ValueMax announcement sheds no light on this. And, when contacted by NextInsight, its management was not at liberty to divulge any information beyond what it had put into its Friday announcement.

One theory is that the money is for use as working capital of the borrower's business. If so, the massive infusion of working capital suggests a troubled business.

That seems unlikely. 

The usage is short-term, since "each drawdown is for two months on a revolving basis".  

Possibly, the money is needed by the borrower while waiting for some large cashpile (perhaps from some transaction) to arrive.  This use of the money might be one-off, or it might be multiple times during the one-year tenor of the facility.

If it's one-off, what comes to mind are property-related transactions, where bridging loans are not uncommon (though not of this gigantic size).

In those cases, bridging loans are used when you want to complete the purchase of a property before receiving the proceeds from the sale of another of your property. It's short-term money and it comes with an interest rate higher than for normal loans.

ValueMax  24.5 cents
52-week range 20-30 cents
Market cap S$131 million
PE (ttm) 12.1
Dividend yield 3.9%
Net asset value 29.6 cents/share
Source: Bloomberg, Company

What could ValueMax charge in interest rate?

One guess is that it's 1% per month (or 12% per annum), which would work out to 1% x 2 months x $42 million = $840,000 in interest, assuming full drawdown of the facility.

That's a nice income (before cost) for ValueMax. And if the drawdown is done multiple times in one year, the interest income would of course be larger.

Still, it is possible that a full drawdown may not be needed.

Why? Because it's hard to imagine anyone requiring $42 million at one pop.

Anyone has other guesses? Post below.


Comments  

0 #3 AG 2016-11-22 08:27
Possibly a big tycoon in an O&G related business. If this is so, the only question then is, how is the borrower going to repay within a year. VM must be prepared to take possession of that GCB.
Quote
0 #2 160 2016-11-15 12:32
Civic, you mean 5% in 1 month? That's very high interest ...
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0 #1 Civic 2016-11-14 17:53
Drawdown is for back to back deals that may yield 5% flat per transaction over one month. So net earnings for borrower is 4% flat per month.
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