Goldman Sachs Makes Biggest Mexico Fintech Bet with $125M MercadoLibre Loan, Colombian Real Estate Startup Habi Raises $5.5M Pre-Seed Round, Mexican Fintech Konfío Closes $100M Series D Led by SoftBank, and more from Latin America

Other featured stories include: Chile Announces $5.5B Economic Recovery Plan following Protests, Uruguay President-Elect Warns of Tensions in Mercosur Trade Bloc, SoftBank Innovation Fund’s Latin American Deployments, and The Dilemma of Spanish Firms in Latin America

Goldman Sachs Makes Biggest Mexico Fintech Bet with $125M MercadoLibre Loan

This Monday, Goldman Sachs Group Inc. agreed to lend $125 million to Mercado Credito, a unit of MercadoLibre Inc. This deal is the bank’s third loan to a Latin American fintech this year and the biggest ever in Mexico.

According to a phone interview with Mercado Credito SVP Martin de los Santos, Mercado Credito plans to use this capital to boost its $100 million working-capital portfolio provided to small and midsize companies in Mexico threefold in approximately one year.

The goal is to “democratize financial services,” by lending to firms that don’t have access to other financing, he said (Yahoo Finance).

MercadoLibre dominates the Latin American e-commerce market with an almost 25% market share and 40 million unique monthly visitors, as reported by Julie Chariell, a senior analyst at Bloomberg Intelligence.

According to the company’s financial statements, MercadoLibre’s market value more than doubled this year to $29 billion. Although the e-commerce giant is based in Argentina, roughly two-thirds of its $603 million in third-quarter net revenue reportedly came from Brazil.

As reported by Yahoo Finance, Mercado Credito was launched in 2016 to provide credit to clients of its parent company and to customers using its online payment platform, MercadoPago, in Brazil, Argentina and Mexico.

“Mercado Credito, which develops proprietary credit-risk models, has granted more than $610 million in working-capital credit lines to more than 270,000 companies in Latin America. It also offered around $200 million in consumer loans.”

The loan from Goldman Sachs won’t be used to finance lending in Brazil, where Mercado Credito raised 245 million reais ($58 million USD) from investors including the Inter-American Development Bank. The capital will not be used in Argentina, where the firm finances itself in the capital markets, Santos said.

Prior to the Goldman deal, Mercado Credito was using its own capital to finance loans to firms in Mexico.

“We wanted not only Goldman’s capital but also the experience the bank has on this type of transactions throughout Latin American… I hope to work with the bank in the future to finance other portfolios, including consumer operations in Mexico and other markets,” Santos said.

According to Santiago Rubin, a managing director at Goldman Sachs who’s head of technology, media and telecommunications for Latin America, Mercado Credito has a unique way of getting capital flowing to businesses that have traditionally lacked access to financing.

Although higher delinquency rates are a concern for analysts, Santos said he is not worried. The lending portfolio to consumers in Brazil is less than 8% of the total, and brand new, having started only 9 months ago, he said.

This recent Goldman deal follows a $750 million investment by PayPal Holdings Inc. and $100 million by Dragoneer Investment Group, that were part of the $1.85 billion equity offering Mercado Libre did earlier this year.

Yahoo Finance reports that Goldman’s loan will be executed through the company’s structured finance, investment and lending business, headed by Ram Sundaram: the same special-situations group that provided a secured credit facility of as much as $100 million to Mexican fintech Konfío Ltd. in August. Earlier this year, the group also agreed to provide Mexico’s Credijusto Inc. with a $100 million facility.

This special-situations group also provided a loan to Brazilian credit-card lender Nu Pagamentos SA, widely known as Nubank. The loan was of 200 million reais in 2016, and was expanded to 455 million reais in August 2017, in a deal with Fortress Investment Group. The entire loan has been repaid.

“We look forward to keep supporting MercadoLibre across the region as their lending footprint grows,” said Sundaram, who also oversees the emerging markets and commodities business at Goldman Sachs.

Colombian Real Estate Startup Habi Raises $5.5M Pre-Seed Round

Bogóta-based real estate startup Habi recently raised $5.5M in a pre-seed round from lead investor Tiger Global Management, with additional investments from Homebrew and Zigg, Reshape Holdings, FJ Labs, and Supernode Ventures.

The Colombian startup aims to accelerate the process of buying and selling real estate in the complex Latin American market. According to LatAm List, Habi’s platform uses a pricing algorithm and scalable processes to reduce sales time from more than 14 months to approximately two weeks. The startup offers to purchase users’ houses within 10 days of listing using AI to calculate the sales price rapidly, increasing liquidity in the housing market.

Co-founder Brynne McNulty Rojas stated,

“By combining advanced analytical tools with human insight, we help our clients buy, improve and sell homes quickly and efficiently, giving them transparent access to information”.

The capital funding will allow Habi to expand into three key neighbourhoods in the north of Bogotá, and beyond Colombia into other Latin American markets.

“We plan to use this investment to build and scale a single solution for current and future residential owners at every stage of the homeownership process in Colombia and throughout Latin America,” Rojas said (LatAm List).

Mexican Fintech Konfío Closes $100M Series D Led by SoftBank

This Tuesday, Mexican fintech Konfío announced the close of a $100M Series D round, led by SoftBank. This latest round of funding follows Goldman Sachs’ loan of $100M for a secured credit facility back in August.

QED Investors, Kaszek Ventures, and Vostok Emerging Finance also contributed to this Series D round. As reported by Contxto, the new capital will go towards expanding products, such as more loans for small and medium enterprise (SME) partners.

Other potential developments include the incorporation of additional business analysis for customers’ credit reports.

Additionally, the company intends to eventually launch an online marketplace, known as Konsiento. Although it is still in the conceptual stages, the Konsiento platform will serve as a resource for partners to find financial and legal services. In efforts of promoting business development, Konsiento will connect companies with website designers as well as discounted office supplies.

Overall, these efforts are to furnish SMEs with more tools for success. Konfío clients have expanded sales by about 28 percent within six months of receiving loans (Contxto).

Since Konfío launched in 2013, the alternative finance provider has committed itself to serve SMEs in Mexico: many of which struggle with traditional banks due to aggressive fees, bureaucracy, and an overall lack of transparency.

On average, Konfío loans go for roughly $12,000 USD. Loan applications take fewer than 10 minutes and money goes into accounts within 24 hour, and does not require any collateral for loan borrowers.

“We consider ourselves to be a tech company that’s focused on resolving one of the biggest problems for small and medium-sized businesses, which is access to credit… We grant quick loans based on technology, alternative data sources, artificial intelligence, and data science,” said Gregorio Tomassi, the investor-relations director at Konfío.

Chile Announces $5.5B Economic Recovery Plan following Protests

On Monday, the Chilean government announced plans to roll out a $5.5 billion economic recovery plan and issue more debt in foreign currencies. The announcement responds to the country’s widespread rioting and protests that triggered the worst monthly contraction in a decade.

As reported by CNBC, Finance Minister Ignacio Briones slashed the official forecast for economic growth this year to 1.4% from 2% just a month ago, and he put next year’s expansion at 1% to 1.5% instead of its 2.3% estimate previously.

“These aren’t just numbers. This means thousands of companies and jobs today are at risk… The violence, the looting and the destruction have halted the economy with enormous costs for Chileans,” Briones told a news conference (CNBC).

Riots in Chile began on Oct. 18 over a hike in metro fares but quickly spiraled into mass protests, arson and looting have left 26 dead and upwards of $1.5 billion in losses for businesses. The peso has plummeted to a historic low, prompting multiple central bank interventions.

Briones said the government will invest $2.4 billion in infrastructure as part of its recovery plan, which also strives to help small businesses and prevent job losses.

“Government spending will rise 9.8% next year and the fiscal deficit will widen to 4.4% of gross domestic product. The government plans to sell some $3.5 billion in foreign currency bonds next year to help meet financing needs, more than in previous years,” Briones said (CNBC).

Earlier on Monday, Chile’s central bank reported that the economy shrank 3.4% in October from the same month a year ago, marking the worst contraction in a decade.

The IMACEC economic activity index- a proxy for gross domestic product tallied on a monthly basis- fell 5.4% from September. Scotiabank labeled it as the “beginning of the bad news” in a note to investors.

A majority of Chile’s capital city of Santiago was shut down near the end of October as riots and looting closed streets and small businesses. Violence spiked once again last week, prompting President Sebastian Pinera to renew calls for increasingly intense reforms and a “crackdown on lawlessness” (CNBC).

Uruguay President-Elect Warns of Tensions in Mercosur Trade Bloc

South America’s Mercosur trade bloc faces a tense future, said president-elect of member nation Uruguay on Monday, referring to a diplomatic disagreement between two of the region’s economic powerhouses: Brazil and Argentina.

Brazil’s right-wing leader Jair Bolsonaro and Argentina’s incoming leader, left-leaning Peronist Alberto Fernandez, have openly bickered.

“The tensions are clear,” Luis Lacalle Pou said after meeting with outgoing Uruguayan leader Tabare Vazquez. He added that he hoped “pragmatism would prevail over ideology” (Reuters).

If relations between the region’s two biggest economies falter, it could contribute to the global trade turmoil due to the tension between the United States and China.

Investors are monitoring Washington and Beijing for signals about trade. On Monday, the dollar and global stock markets retreated after U.S. President Donald Trump said he would restore tariffs on some imports from Brazil and Argentina.

Lacalle Pou, leader of the conservative National Party, claimed victory last week over the ruling party candidate Daniel Martinez. He will take office on March 1, ending a 15 year consecutive period of center-left government.

According to Reuters, Lacalle Pou also announced that Uruguay will withdraw from the Montevideo Mechanism, an initiative alongside Mexico and a grouping of Caribbean countries aimed at mediating the conflict in Venezuela, which was established earlier this year.

SoftBank Innovation Fund’s Latin American Deployments

The SoftBank Innovation Fund (SIF) aims to capitalize on several factors unique to Latin America. The region’s middle class has grown by 50 million people since 2000, and over 375 million Latin Americans currently use the Internet.

As reported by Red Herring, e-commerce and digital finance have boomed of late, with 79% of the region’s citizens now living in urban areas with high levels of connectivity.

According to the company’s website, the SoftBank Innovation Fund (SIF) is “the largest-ever technology fund focused exclusively on the fast-growing Latin American market.”

The fund is currently pegged at $5 billion, having begun at $2 billion, and SoftBank has wasted no time in deploying capital. Last week, the fund led a $140 million investment in VTEX, a Brazilian e-commerce platform used by Walmart and Sony. The SIF also recently joined Chinese investment giant Tencent to invest a combined $150 million into Argentine fintech platform Ualá.

Photo Courtesy of LABS

                                                         Photo Courtesy of LABS

The SIF’s expansion also includes the Brazillian fintech startup Creditas (a total shared investment of $231 million), real estate tech startup QuintoAndar ( total shared investment of $250 million), and Columbian delivery service Rappi, where alongside SoftBank Group Corp, SIF has invested $1 billion.

In addition to injecting cash into Latin American startups, SoftBank is also pursuing local venture capital funds—many of whom have a substantial profit potential thanks to the region’s “relative infancy comparative to other global regions”. Bureaucratic red tape such as requiring capital funds to accept non-compete clauses before investment has traditionally held the region back. However, local VC firms including Argentina’s Kazek Ventures and Brazil’s Valor Capital have signed with the fund. (Red Herring).

“Growing up in Latin America I witnessed firsthand the creativity and passion of the people. There is so much innovation and disruption taking place in the region, and I believe the business opportunities have never been stronger… The SoftBank Innovation Fund will become a major investor in transformative Latin American companies that are poised to redefine their industries and create new economic opportunities for millions of people,” said Marcelo Claure, CEO of SoftBank Latin America  (Red Herring).

Considering Latin America will be home to a SaaS market worth an estimated $5.3 billion in 2022 (up from just $1.5 billion in 2017), it’s become evident that getting out ahead of the competition could go a long way for SoftBank.

The Dilemma of Spanish Firms in Latin America

This is a year of notable anniversaries in Spain’s relationship with Latin America.

While exactly 500 years ago Hernán Cortés launched his conquest of Mexico, this year may have been a celebratory year for Spanish business as well.

In 1989, Telefónica- Spain’s biggest telecoms firm- made its first incursion into the region in its bid for a Chilean counterpart; subsequently unleashing a flood of Spanish investment into Latin America in the 1990s known as la reconquista. 30 years after the company’s entrance into the region, Telefónica has decided to cut its losses in the former Spanish colonies, and may sell its businesses there altogether.

Last month, Telefónica announced a new strategy as part of a rethink of the company by its boss, José María Álvarez-Pallete.

According to The Economist, the company’s market value has almost halved over the past five years to €35bn ($39bn), and carries a whopping €38bn of net debt.

Telefónica plans to refocus on four core markets: Spain, Brazil, Germany and Britain, and create separate digital and infrastructure businesses. On December 4th, Orange- its French rival- announced similar plans to reinvent itself for the digital age.

“…It is the prospect that Telefónica may sell its businesses in Argentina, Colombia, Mexico, Chile, Peru and other so-called Hispano-American countries, that is most significant. They account for 21% of its revenues. Their sale, which could raise €13bn or more, represents a historic u-turn that is likely to reverberate in Spain’s boardrooms.”

Like Telefónica, Spanish banks, energy firms and other companies have valid reason to agonize over the slow growth and currency volatility. For some, Latin America is no longer “a land of opportunity, but a distraction” (The Economist).

Within a few decades, Spain had become the second-biggest foreign investor in the region, behind the United States. Today, Spanish firms represent €156bn worth of investments in Latin America.

The biggest firms- including Telefónica, Santander and BBVA in banking, Iberdrola in utilities, and Repsol in oil and gas- accounted for the majority of Spain’s investment in the region.

“Their shared language, as well as passable Portuñol in Brazil, enabled them to operate service industries in places where telecommunications, banking and utilities were hopelessly backward. Profits from Latin America during a commodities boom helped Spanish firms through the financial crisis of 2008-09,” The Economist reports.

Even without crisis, day-to-day business for Spanish firms have proven to be a struggle. BBVA and Santander have used their big Latin America subsidiaries to help offset zero interest rates closer to home, and have no plans to pull out.

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