Hedge Fund Short Marché ESG Darlink Ready Real


Mexico’s largest payday lender has had a difficult year. Wall Street short sellers are betting it will get worse.

B de CV has recently raised funds from bond funds and the US government, taking advantage of its position as a lender to the poor in Mexico to take advantage of the rapidly growing trend in socially responsible investing. Hedge funds, including Millennium Management LLC and Bybrook Capital LLP, have questioned the company’s accounting and bet bond prices will drop by around $ 2 billion, according to people familiar with the matter. declined to comment

A spokesperson for Credito Real said the company has made great strides in reassuring investors. She said management was now adopting a strategy that “now focuses more clearly on payday lending and a new emphasis on transparency.”

In recent years, investments in the environment, society and governance have started, making it easier for companies claiming ESG attributes to raise funds. The financial controversy of Credito Real shows that such credit does not insulate investors from market losses.

Credito Real “was a very popular name, but that didn’t mean people spent time evaluating them,” he said, buying Credito Real bonds for years before they sold this spring. . A Swiss bank trader said. “There was a search for returns, they were on the investment bank’s recommendation list and people just kept buying.”

Credito Real was founded by the wealthy Mexican family Berrondo, who manage a 25% stake, according to the company’s 2020 annual report. It gives personal loans to low-income government officials, retirees, and small businesses that traditional banks don’t offer. Credit rating agencies have given companies relatively high ratings because public employers take payday loan repayments directly from wages. This is intended to ensure stable cash flow to lenders.

Analysts said the portfolio managers bought Credito Real bonds based on these ratings, high 9.5% interest rates and the company’s ESG benchmarks. According to data from Bloomberg LP, Jeffrey Gundraf’s US fund firm Doubleline Capital and European banks Crédit Agricole SA and UBS Group AG were among the largest holders of Crédit Agricole bonds earlier this year. It was a. A spokesperson for UBS declined to comment. Double Line and Crédit Agricole did not respond to requests for comment.

It also acquired the US International Development Finance Corporation (DFC) and lent $ 100 million in January, partly because of the “positive impact on development in Mexico” of investments in women-owned businesses.

But in April, Credito Real disclosed a $ 33 million delinquent SME loan that Mexican press said had gone to the family of wealthy lender Carlos Cabal Peniche. The loan amount was approximately 200 times that of the company’s average SME loan.

The lender also Forty-six percent of assets reported as loans consist of accrued interest, which is an unusually high percentage. Despite a 12% increase in average loans Credito Real, held in 2020, received less interest income than the previous year.

Short sellers including investment bank Stifel Financial,

State agencies are refraining from paying Credito Real’s salary loans and have adopted the change as evidence of the strain on the company’s finances. Some of the company’s bonds fell to $ 1.68. Bearish investors believe that if they find it difficult to borrow new money to repay bonds that expire in February, they will fall further.

“Bad business decision [were] Carlos Ochoa Valdes, CEO of CreditoReal, said on a conference call with analysts in April. “So what we’re aiming for now is [for] This is to strengthen all origination procedures. The company is focused on refinancing the bonds in February, he said.

Credito Real chief Carlos Ochoa Valdes said the loan formation process needs to be strengthened.

Real estate loan

Millennium investment manager Matt Dratch said on a phone call in April that the new disclosure “means there were few collections.” A hedge fund analyst made similar comments on a conference call hosted by Bank of America Corp for Credito Real..

He was expelled in June, people familiar with the matter said.

Executives of non-bank lenders in Mexico have coined slang to describe late payments on payday loans because they are so common in Mexico. “Jine tear” literally means to ride a horse. But the delays have increased well beyond the usual 60 or 90 days He said he had hurt lenders who needed stable liquidity to pay interest on bonds issued in the international market during the pandemic.

Some Wall Street analysts remain stable on Credito Real’s debt. “Credit is facing challenges, but it is not on the verge of default and could turn around,” Natalia Caulfield, analyst at JP Morgan Chase, said in a May report. It was.

The American DFC has a similar point of view. “Credito Real is a very transparent, responsive and highly valued partner,” said a spokesperson for DFC.

Credit rating agencies are taking a more conservative approach. Fitch Ratings downgraded its rating to Double B in June due to poor loan quality, refinancing risk and corporate governance, and the outlook was negative.

“The company’s disclosure of public information is weaker than international best practices and lacks sufficient detail on some accounts, particularly the issuer’s approach to reporting accrued interest,” Fitch downgraded. Said in the ad.

Investors will propel ESG funds to new heights in 2020, with special attention from federal agencies. The WSJ explains why regulators are considering ethical and sustainable investment funds. Photo illustration: Alex Kuzoian (Video of 10/16/20)

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