What are SimpleFinance’s main strategic objectives this year? Where is the company looking to grow?
SimpleFinance is seeing strong growth in every one of its product areas at the current time (trade receivables factoring, tender financing, asset-based lending, cashflow lending, P2P lending). The Company's overall objective is to provide a full range of accessible credit products to SME's (small-medium enterprises), and as a result is constantly looking for new products to offer that match the needs of this segment. A recent example is from our activity in financing government tender loans, we saw that companies also needed financing to fulfil these tenders once they'd been won, so SimpleFinance developed (and has launched) a loan product for this segment. This innovation and product evolution is part of the DNA of the company.
Strategically, we are looking to institutionalise SimpleFinance to increase its origination portfolio in response to strong customer demand, as well as broaden the capital base and lower its cost of capital. Our debut Eurobond is part of that process. We regularly assess other opportunities to raise capital in the market, including via external equity, Ruble-based loans and bonds as well as hard-currency based loans and bonds and we hope to successfully attract investors to those types of instruments in due course.
What is your outlook on the Russian economy at the moment? What is your sense of international investor sentiment towards Russian credits?
From our position, we see the mood of the Russian economy has certainly improved since the beginning of this year, with a "the worst is over" mentality starting to make itself felt. We also see our clients feeling more motivated to increase investment/capex spending. That said, it's important to say that we haven't necessarily seen many concrete financial indicators to show that real growth has yet returned- it certainly seems to be more sentiment than hard numbers so far.
International investors still seem wary about the Russian economy, especially with some of the ongoing rhetoric in various capitals having an effect on the economy and the ruble, not to mention oil price volatility, but the markets seem to show that international investors are starting to return to the equity and debt markets, as well as the ruble, so we hope that this is a positive sign for broader future involvement by international investors
Can you walk us through your debut bond transaction in more depth? What was the strategy or approach taken during the issuance and how did your expectations on deal size and price evolve throughout the process? What were some of the challenges involved?
In addition to raising capital for SimpleFinance's further expansion, this transaction was important for us to further the institutionalisation of SimpleFinance. We wanted to make sure we had the "right" story to be able to achieve a coupon/price that made sense compared our portfolio returns, especially when taking hedging into account, and make it straightforward for us to show consistent growth and regular (quarterly) coupons to help reduce our perceived risk when we consider future potential debt offerings. Due to the rapid growth of the company and above-expected demand we were able to upsize the offering compared to our original expectations, but we were careful not to take on too large an offering for our debut bond.
Challenges in the debt issuance process included the simultaneous necessary system/risk/process upgrades to allow us to better manage and monitor the portfolio for relevant ratios/covenants, the upgrading of audit-related processes to pass "big-4" audits, etc, not to mention to comply with the necessary regulatory oversight of being active in international capital markets.
Yields paid by non-bank financial institutions seem to be quite high on average – but your recent USD30mn issuance priced 5-6% below that average. What were some of the influential factors contributing the transaction’s success?
I think the moderate size of the transaction relative to the origination portfolio size of the company, the short tenor of the bond, combined with the strong performance of SimpleFinance over the last few years, especially the zero defaults in its portfolio to date, and our ability to explain our story and vision in detail to those to whom we presented the bond helped greatly in getting the price to where we needed it to be. To be clear, given our variety of alternative sources of financing, we would not have proceeded if we had not been confident that this price level could be achieved.
What do you see as the biggest challenge facing Russian issuers and borrowers in today’s market?
The issues facing the Russian economy that I alluded to earlier directly translate to Russian issuers, who see higher yields as a result. The high cost of financing for Russian companies directly translates to a reduction in investment and lower growth in the economy. I hope this effect can be mitigated in the future.