There 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.
|52-week range||20-30 cents|
|Market cap||S$131 million|
|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.