Ambrella

Financial company Umbrella

Financial company Umbrella attracts investments to purchase mortgage-backed loan portfolios, and provides investors with a profit and return on the investments by reconciliation of the loan cases.

Product Description

Umbrella Financial Company offers a financial product called fixed income asset to the investors, i.g. placement of the funds for a certain period at a fixed percentage (or interest).
Deposit currency
US dollar
Return on deposit
12% per annum
Minimum amount
from $ 100,000 USD
Maximum amount
up to $ 1,000,000 USD *
Duration
2 years
Interest payments
on a quarterly basis,
according to the schedule
of interest payments;
Capitalization of interest
no
Deposit replenishment
no

(* larger amounts of investment are discussed individually)

General business process of Umbrella Management Company aimed at an income generating from attracted investments

More info

Income mechanism

Financial company Umbrella attracts investments to purchase mortgage-backed loan portfolios, and provides investors with a profit and return on the investments by reconciliation of the loan cases.

Product benefits

Compared to the current yield of the Mid-Term US Treasury Bonds of 1.578% per annum, the fixed-income investments offered by Financial company Umbrella have the advantage of high returns (12% per annum) under risk-weighted ratio.

Description of the issuing company and related companies

Issuer

Umbrella Financial Company is a management company of the Umbrella’s Financial Group.

Umbrella Financial Group includes:

  1. Umbrella Financial Management Company (license delivery order No. 1009 dated June 04th, 2019).

Umbrella Financial Company attracts investments and acquires assets (problem debt portfolios), provides an income from the attracted investments.

Umbrella Management Company builds its activities on the basis of the BPM (Business Process Management) concept, which provides transparency and predictability at all stages of the portfolio and investment management process.

Umbrella uses effective systems:

Assessment of the portfolio investment attractiveness
Profitability for the investor (in percentage of the investment’s size) is the main criteria for the investment projects’ effectiveness
Portfolio management monitoring process
On-line control of the processes of reconciliation credit cases and cashflow dynamics is carried out during monitoring
Currency risk management
Financial flows management and accounting mechanisms for exchange rate fluctuations in portfolio returns assessment are aimed at suretyship of the declared return on investment in US dollars.
  1. Trust and Guarantee Financial Company (DG Finance)

(Certificate of registration No. 435 of November 19, 2013).

Carries out operational activities on collecting bad debts (Debts Recovery Agency).

DG Finance ensures the implementation of all stages of work with debtors, starting from Soft Collection up to the Legal Collection, and also accompanies re-registration of mortgage objects (collaterals) ownership and subsequent sale of this property.

DG Finance means:

12 years of successful work on Ukrainian financial market specializing on debts collection activities;

More than 200 specialists, including 42 lawyers, experts on real estate and work with financial organizations;

4 autonomous call centers;

Experience in ProZorro e-procurement system usage.

Structure of Umbrella Financial Company product portfolio in 2019:

Loan portfolio Debt amount on the loan portfolio, USD Actual portfolio purchase price, USD Relative debt cost, %
LP 1 $3 964 600 $180 850 4,5%
LP 2 $4 820 000 $201 785 4,2%
LP 3 $14 748 400 $283 950 2%
LP 4 $9 806 300 $380 120 3,8%
Total: $33 339 300 $1 046 705 3%

The structure of the total portfolio of Umbrella, 2019, % of the total debt

Total amount of the credit debt under the group of companies managements is 1.2 billion euros.

Umbrella Portfolios Assets return forecast

Loan portfolio Actual portfolio purchase price, USD Planned portfolio income, USD Planned Portfolio Reconciliation Cost, USD Planned portfolio income, USD Planned portfolio income, %
1 2 3 4 5 6
LP 1 $180 850 $384 320 $76 864 $307 456 70%
LP 2 $201 785 $403 570 $80 714 $322 856 60%
LP 3 $283 950 $553 711 $110 742 $442 969 56%
LP 4 $380 120 $788 742 $157 748 $630 994 66%
Total: $1 046 705 $2 130 343 $426 068 $1 704 275 63%

The structure of the planned total return on portfolios in magagement, %

Actual income (cash-in) from the Portfolios under Umbrella company management
(as of November 01, 2020)

Loan portfolio Portfolio Purchase Date Actual portfolio purchase price, USD Actual receipt of money on the account on 01.11.2020 Value of property on balance, USD Total revenue minus reconciliation costs («4» - 20%) + «5» Return on investment, %
1 2 3 4 5 6 7
LP 1 13.02.2019 $180 850 $345 191 $120 890 $397 043 219,5%
LP 2 21.02.2019 $201 785 $90 502 $292 213 $364 615 180,7%
LP 3 18.04.2019 $283 950 $142 814 $106 038 $220 289 77,6%
LP 4 27.06.2019 $380 120 $254 027 $183 278 $386 500 101,7%
Total: $1 046 705 $832 534 $702 419 $1 368 446 130,7%

Investment risks and their minimization

External risks
  1. Changes in the legislation of Ukraine, which could lead to worsening conditions or the actual inability to continue activities on returning bad debt to the creditors.

To minimize this risk, legal department of the Umbrella Management Company constantly monitors changes in the legislation of Ukraine and develops effective mechanisms to avoid newly formed risks.

On June 3, 2018, Verkhovna Rada of Ukraine adopted the Law on Strengthening the Rights of Creditors (Bill No. 6027-d “On Amending Certain Legislative Acts of Ukraine Regarding the Renewal of Lending”), which “aims to reduce risks for banking institutions and national/foreign investors” (cited by Oschadbank Chairman of the Board Andriy Pyshny).

  1. Exchange rate risks

The risk of fluctuations in the national currency of Ukraine against the US dollar is taken into account in all business processes of Umbrella company:

  • In assessing the investment attractiveness of the Portfolio, the pessimistic long-term IMF forecast of the US dollar against the national currency of Ukraine is used;
  • In the cash flow management system.

In 2019, the national currency of Ukraine strengthened against the dollar by 12.5%. The IMF expects that by the end of the year, the dollar will cost an average of 26.75 UAH, but in 2020 it will grow to 27.72 UAH, and in 2021 – to 28.7 UAH. According to the forecasts of the Fund, in 2022 the dollar against the hryvnia will amount to UAH 29.67, in 2023 – UAH 30.64, and in 2024 – UAH 31.61 (https://www.imf.org/en/Publications/ WEO / Issues / 2019/10/01 / world-economic-outlook-october-2019).

Internal risks

The risk of not receiving the planned income (non-return on investments)

To minimize the risk of not receiving the planned income (non-return on investments), Umbrella company uses its balanced scorecard and Portfolio management process monitoring system* (see Annex 1).

Period 1st quarter 2nd quarter 3rd quarter 4th quarter 5th quarter 6th quarter 7th quarter 8th quarter Total
Dynamics of portfolio income, % of planned revenues for the period of 2 years 3% 7% 8% 14% 21% 20% 21% 6% 100%
Investor Payments 3% 3% 3% 3% 3% 3% 3% 103% 124%

Dynamics of planned revenues by quarters, % of total planned revenues

Umbrella company manages several portfolios simultaneously. The company plans to manage 10 portfolios with a total debt of about $ 150 million in 2020.

There being presence of the Portfolios at different stages of management, this allows the Company to effectively plan cash flow and guarantee timely payments to the investors.

Umbrella Financial Company uses its own funds to invest in the Portfolios / parts of the Portfolios, partially assuming its risks of not receiving planned income.

Umbrella Management Company financial resources structure in 2019

Umbrella Management Company financial resources
as of November 1, 2019:

Umbrella Resource Total, $
Own funds $800 000
Attracted funds $250 000
Current assets of the company $100 000
Total $1 150 000

Structure of the financial resources of Umbrella Management Company in %, 2019

Own funds 78%
Attracted funds (loans) 22%

Financial resources structure of the management company Umbrella, November 2019

The development strategy of Umbrella Management Company provides for a significant increase in the share of attracted funds into its financial resources structure.

Planned assets of Umbrella Management Company in 2020:

Umbrella Resource Total, $
Own funds $1 650 000
Attracted funds $3 250 000
Current assets of the company $100 000
Total $5 000 000

Structure of the financial resources of Umbrella Management Company in %, 2020

Own funds 35%
Attracted funds (loans) 65%

The structure of financial resources of the management company Umbrella, 2020

The credit portfolio management monitoring system (Balanced scorecard monitoring system) uses Balanced scorecard, which allows to control the return on investment and its profitability.

Each investor receives the personal access to the digital monitoring system (Balanced scorecard monitoring system) and have a possibility to regularly monitor the financial results and one’s Portfolio progress on the settlement business process.

Special conditions for non-residents of Ukraine (see Annex 2)

Attracting investments from non-residents of Ukraine are regulated by the legislation of Ukraine, namely, Resolution No. 6 of January 2, 2019 “On approval of the Regulation on the procedure for banks to provide the National Bank of Ukraine with information on contracts providing for residents to fulfill debt obligations to non-resident creditors on loans and loans attracted by residents,” in accordance with Articles 7, 71, 15, 25, 44, 56 of the Law of Ukraine “The National Bank of Ukraine”, the Law of Ukraine “Banks and Banking”, the Law of Ukraine “Currency and foreign currency transactions.”

Attraction of funds from the clients – non-residents of Ukraine is carried out in a way of obtaining a loan from them (see Loan Agreement for non-resident clients).

Relationships are drawn up by concluding a loan agreement, which includes the following articles:

Amount of the loan
Size and timing of payment of interest on the loan
Procedure for granting and re-paying a loan
Rights and obligations of the sides
Responsibility of the sides for the improper performance of their duties
Confidentiality
Other conditions depending on jurisdiction of the investor registration

Loan agreements are developed for each individual investor, based on the agreements reached, the form of the investor ownership, as well as the legislation requirements of the country where the investor has its registration.

According to the Ukrainian law, a resident of Ukraine, paying income to a non-resident in the form of a loan (credit) agreement interest, is required to withhold the interest tax on non-resident income (income from repatriation) from the amount of the interest.

The total tax rate is 15%. The tax rate and procedure for its deduction / payment in Ukraine does not depend on the recipient of income status and applies to legal entities as well as to individuals.

Example

If you have invested $ 500 000 and your income is $ 120 000, in which that case you pay 15% tax for the income amount, namely $ 18 000.

Ukraine may establish a different (lower) tax rate in its international agreements. List of countries with which Ukraine has entered into the double taxation avoidance agreements is given in Annex 2.

To apply the provisions of international double taxation agreements, a resident of Ukraine is required to obtain a certificate from a non-resident recipient of income, confirming his tax agent status in the country of registration.

Annex 1

Business portfolio management

Annex 2

The list of countries with which Ukraine has concluded agreements on avoidance of double taxation.
Agreements came into force

Team

Irene Ulianova
Irene Ulianova
СЕО
Iaroslav Ianushevych
Iaroslav Ianushevych
Investment consultant
PhD in Economics
Sergey Deminsky
Sergey Deminsky
reconciliation consultant
PhD in Economics
Kate Skurtul
Kate Skurtul
Head of legal department

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