Epicentre Holdings Limited (SGX: 5MQ) made a highly unusual financing choice last week. Instead of approaching banks for help (to get a loan or to get a bond deal in place), Epicentre decided to take a dip into crowdfunding. It is the first listed company in Singapore’s stock market to access capital through crowdfunding, or what’s also known as p2p (peer-to-peer) lending. The fund raising was administered by MoolahSense, a crowdfunding platform in Singapore. Within 26 short hours, Epicentre had raised a total of S$1 million in two separate tranches of S$500,000 each. Epicenture had offered the debt, with…
Instead of approaching banks for help (to get a loan or to get a bond deal in place), Epicentre decided to take a dip into crowdfunding. It is the first listed company in Singapore’s stock market to access capital through crowdfunding, or what’s also known as p2p (peer-to-peer) lending.
The fund raising was administered by MoolahSense, a crowdfunding platform in Singapore. Within 26 short hours, Epicentre had raised a total of S$1 million in two separate tranches of S$500,000 each.
Epicenture had offered the debt, with a tenor for just 12 months, at an attractive annual interest rate of 13.5%. One tranche also has an option for Epicentre to repay at a time earlier than 12 months.
The lowdown on crowdfunding
Crowdfunding is a method of financing where companies raise money from the public directly. Those who fork out the capital are usually compensated in the form of rewards or interest payments.
Kickstarter is a prominent platform for crowdfunding by reward, where early backers of companies can at times get their hands on newly developed products first and at a discount to the retail price. But, it is not without risk. Projects can fail.
Last year, a Singapore start-up, Pirate3D, made news when it stopped its business and failed to deliver its product – a 3D printer – to 60% of its backers. The backers of Pirate3D had paid for a promise that could not be fulfilled. It’s a reminder that businesses can fail for many reasons.
MoolahSense and other crowdfunding platforms in Singapore, including Capital Match and Funding Societies, work on a different model. Through these platforms, companies raise money via debt by promising to pay interest to lenders. But just like any debt, there is always a risk of default.
Epicentre was established in 2002 as the first Apple Premium Reseller in the region.
Based on the company’s latest annual report for its fiscal year ended 30 June 2015 (fiscal 2015), Epicentre has seven EpiCentre and three EpiLife stores in the shores of Singapore. The company also has six EpiCentre outlets in Kuala Lumpur, Malaysia. These stores are focused on the retail of technological gadgets from Apple (such as the iPhone) and Apple-related products as well as pre- and post-sales services.
Epicentre has won many accolades, including the Promising Brands category under the Singapore Promising Brand Award (SPBA) for three consecutive years from 2009.
The company’s brand name is something many of those living in Singapore have likely come across, especially for those who own an iPhone or iPad. With Epicenture’s link to Apple’s strong brand, coupled with the attractive interest rate being offered, Epicentre’s fund-raising effort through Moolahsense may seem like an irresistible opportunity for many investors.
The question marks
But, there may be some questions for the lenders to consider. These are questions that investors in Epicentre may also want to think through.
Epicentre’s total equity is only S$5.16 million with negative retained earnings as of 31 December 2015. On its balance sheet are trade payables of S$13.0 million and total borrowings of S$5.17 million. Epicentre has the intention to raise up to S$2 million through Moolahsense – this additional S$2 million in debt is a significant increase in the company’s debt burden.
Another possible cause for major concern is the expected opening of an official Apple Store in Singapore in the near future. The Apple Store could easily draw traffic away from Epicentre’s retail outlets with its stylish store façade and premium customer service.
Apple products have historically provided lower margin for Epicentre. But if there’s indeed lower shopper traffic flowing to the company’s retail outlets as a result of the Apple Store, sales of Epicentre’s higher margin private line of accessories may also be affected. Competition appears to be heating up for Epicentre even before the Apple Store has opened: Epicentre has clocked a net loss in each year since fiscal 2013.
Lastly, investors may also want to find out why Epicentre’s management had decided to raise debt at a hefty annual interest rate of 13.5% when its monthly revolving credit facility in fiscal 2015 had interest rates of only 2.37% to 3.43% per year. What might be a compelling reason for Epicentre to take up such a costly financing option via the Moolahsense platform?
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor, Wilson Ong, doesn’t own shares in any companies mentioned.