WorldVest will launch WorldVest Brasil Finance FIDC or the WVB Finance FIDC as its first investment vehicle to participate in the Brazilian consumer finance market.
The new vehicle or WVB Finance FIDC will be structured as a Fundo de Investimento em Direitos Creditórios (FIDC), which is a Brazilian securitized finance fund made up of senior and subordinated shares and which will be rated by Standard and Poor's. The agency will base its ratings on the strength of the collateral within the credit card firm's credit portfolio.
The WVB Finance FIDC will initially invest in credits generated within the retail sector including consumer direct credits and credit cards. However, it ultimately aims to grow into other lucrative areas in the Brazilian financial markets.
WorldVest has identified and entered into initial negotiations with nine retailers whose 2009 combined revenues totaled over $2 billion. Each of these firms is seeking a combination of consumer direct credits and/or credit card financing to solve their limited liquidity, which is hindering growth.
WorldVest wants to finalize contracts with these initial target companies and continue to pursue additional finance opportunities. It is also aims to deploy capital as soon as possible.
The Brazilian economy's strength and, specifically, the rapid growth of the middle class have led to an rise in the use of credit, creating a highly attractive lending environment. Brazil has among the highest consumer interest rates worldwide with CDC rates of around 5% per month and some card rates as high as 10% per month, or 120% APR.
Net of fees, Brazilian consumers pay between six to eight times that of their U.S. counterparts. Consumer credit growth, according to some reports, is expected to be up to five times that of the overall economy, which is forecast to increase by 3.8% in 2010.
The Central Bank of Brazil reported that the total outstanding CDC balance increased 57% from R$91 billion to R$144 billion (around $53 billion to $85 billion) from September 2008 to September 2009. In the lower income sectors, where a large portion of this growth happens and where borrowers gain access to credit for the first time seek to maintain this new found freedom, default rates are as low as 1% to 2%.
According to Brazilian Association of Credit Card Companies (ABECS), much like growth in CDC volumes, Brazilian consumers’ use of “plastics”, which includes credit cards, debit cards and private label cards, rose to 21.4% of all purchase in 2008 from 8.7% in 2000. The 2008 year-over-year growth in overall card transactions and volume were 19.4% and 25.8% respectively, with purchase volumes growing by 20% annually since 1995. Credit card deals totaled aroundy R$220 billion ($129 billion) in 2008, while all plastics accounted for R$375.4 billion ($221 billion).
Highlighting the room for continued growth in this market, card payments make up merely 21.4% of Brazil’s private sector consumption, compared with 40% in more developed countries. Furthermore, the average number of issued cards per individual in Brazil is approximately 1.8, far below that reported in the U.S., where this ratio stands above three cards per individual.
The WVB Finance FIDC fulfills WorldVest’s mission to identify opportunities to generate outsized, risk-adjusted returns across global markets.
“Since our formation, we have worked tirelessly to position WorldVest and its shareholders to capitalize on the most unique and attractive opportunities on a global basis," WorldVest Chairman and CEO Garrett K. Krause said. "Brazil has shown tremendous resiliancy in the face of the global recession, emerging quickly as an engine that is helping to resuscitate the global economy. As a very stable commodity driven economy and on the heels of the Rio Olympics announcement, the upcoming World Cup and a highly successful Banco Santander Brasil IPO in the U.S., we can’t help but feel that our timing couldn’t be better. We have seen a tremendous appetite from global investors for access to the Brazilian finance sector and look forward to this opportunity to position WorldVest as their partner of choice in this market.”