Kavak the Mexican
‘unicorn’ startup, to receive US $810 million in debt financing
Kavak.com used
car company The used-car sales company isn't yet profitable, but claims it now
will be within six months. Kavak, which runs online used-car marketplaces in
seven countries, said Tuesday that it had secured $675 million in funding from
the bank HSBC.
Source: Mexico News Daily
The used-car
company aims to lower barriers to loans in Latin America, where only 1.5 in 10
people own a vehicle
Mexico’s first
“unicorn” company – a startup valued at more than US $1 billion – has secured
US $810 million in additional funding
Kavak – Latin
America’s largest unlisted company – previously announced that it had reached
credit line deals with Goldman Sachs and Santander bank for US $100 million and
US $35 million, respectively.
The HSBC
financing will allow Kavak to increase its car loan offerings, while the funds
provided by Goldman Sachs and Santander are for business development and to
increase inventory.
Kavak, which
was founded in Mexico City in 2016 and operates in Mexico, Argentina, Brazil,
Chile, Colombia, Peru and Turkey, said that its agreement with HSBC will
increase the number of drivers in Latin America, where only 1.5 in 10 residents
have a car according to Kavak’s research team. The funding is in the form of a
forward flow agreement in which HSBC will buy collection rights for Kavak’s
loans.
“My
understanding is that this had never been done with a portfolio like this, for
cars,” Moises Flores, Kavak’s chief financial officer, told the news agency
Reuters.
Kavak is
aiming to lower barriers for access to car loans in Latin America, where many
people don’t have bank accounts and are unable to access traditional lines of
credit.
Flores
indicated that the company – which says it’s worth more than $8.7 billion – had
little trouble securing the additional funding. “The risk of lending to Kavak
is low,” he said. “[The banks are] also looking at our portfolio, our
financing, and they say, ‘Looks good.’”
Flores told
Reuters that the company could have access to a total of $1.2 billion in
additional funding by the end of the year and hinted it could move into more
markets. “We’ve financed ourselves pretty cheaply. Our debt is cheap,” he said.
Despite its
high valuation, Kavak is not yet profitable, but Flores said that should change
soon. “[The first profitable month] is going to be in the next six months for
Mexico for sure,” Flores told Bloomberg. “And then, in the other countries, we
will need a bit more scale.”
The CFO
claimed that Kavak is “revolutionizing” the used-car market in Latin America,
adding that “these kinds of credit lines help us to deepen the change.”
“In Latin
America today, 90% of used car transactions are between private individuals,”
he said. “In general, it tends to be a very stressful time with several risks.
… That’s why for us, there’s an opportunity to offer a completely innovative
experience that … eliminates mechanical and documentation frauds that usually
occur in these kinds of transactions and also provides financing, mechanical
guarantees and post-sale services that are unique in the market.”