Questions have been raised over Chilango new mini-bond funding initiative, with Reuters saying that if retail investors “hungry for high returns could face a nasty shock if the company does not perform in line with expectations”.
Reuters said that this is because the debt instruments may offer coupons equivalent to those in the high-yield bond market, “but they offer none of the protection professional investors demand when lending to junk-rated companies”.
Chilango has raised more than £650,000 of its £1m target, and can raise up to £3m if it receives enough demand.
Reuters states: “Chilango is using the bond to fuel expansion, and hopes to open six new stores in London if £3m is raised. The company does not list what the expected Ebitda would be from six additional stores, however. In contrast, high-yield offering memorandums often present a run-rate Ebitda figure showing expected gains from any planned changes to a business.
“Chilango has misjudged expansion in the past, closing two stores in shopping centres after they failed to perform. The company booked more than £1m in closure costs, losses and write-offs to wind down the stores in 2011 and 2012.
“Some investors are evidently concerned by the lack of information. The deal’s fundraising page has a forum where potential investors can ask questions, and one person has asked for a more detailed version of the company’s balance sheet.
“Chilango responded that some of these figures are commercially sensitive and “we’d like to keep confidential to make sure Chilango continues to kick ass.”
