HSBC, Goldman, Santander ink US$810m in financing for Kavak

KAVAK, Latin America's biggest startup, signed structured financing agreements with HSBC Holdings, Goldman Sachs Group and Banco Santander worth US$810 million as it looks to expand operations amid a downturn in the tech industry.

Specifically, HSBC will provide US$675 million of financing to purchase Kavak's current and future loan portfolio in Mexico while Goldman Sachs and Santander will provide loans backed by assets including warehouses and cars worth a combined US$135 million, chief financial officer Moises Flores said in an interview at the company's Mexico City offices.

Kavak, which has built a digital platform to allow customers to buy and sell used cars while financing the operations, was last valued at about US$8.7 billion in a funding round that concluded in September 2021. Kavak is negotiating more debt financing deals with banks and could raise a total US$1.2 billion this year, including the amount announced on Tuesday, Flores said.

Flores declined to disclose the terms of the loans but said the financing was cheaper than what's available in the market and did not carry prohibitive covenants in a sign of the banks' faith in their business. The discussions with banks began about 18 months ago, long before liquidity tightened for startups, Flores said.

"This is the Ferrari of debt," Flores said. "This is the kind of thing that you achieve when you're public and you've been in the market for many years, and we're doing this many years ahead of that."

The Mexico City-based firm is funded for at least 36 months and it may turn its first profitable month in Mexico in December or January, he said, if current targets are hit. "It is going to be in the next 6 months for Mexico for sure, and then in the other countries we will need a bit more scale," he said.

Technology startups around the world have found themselves under increasing pressure to turn a profit as investors recoil from risky ventures. Companies are now turning to bank financing as rising interest rates around the world depress valuations and increase the cost of funding.

The company currently has around 30,000 loans and a loan book of US$200 million, Flores said. Kavak is seeking to set up loans similar to the HSBC facility in other markets, he said.

Kavak expanded operations to Colombia, Chile and Peru as well as Turkey since late last year, building on its operations in Mexico, Brazil and Argentina.

"We are in a very strong financial position," he said. "We can ensure infinite runway, if we wanted to, we'll just have to pace the growth." BLOOMBERG

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