Former banker founded Charismatic Capital to offer stock loan financing to underserved companies

Sensing the gap in the market, Lam Ching Ching — with 25 years of banking experience under her belt — founded Charismatic Capi­tal in 2017. The company provides stock loans to shareholders — many of whom are CEOs and chairmen of listed companies. These stock loans are financed by family offices and high net worth individuals (HNWIs) via a fund structure managed by Charismatic Capital. In return for their funds, family offices and HN­WIs are compensated with attractive yields.

Lam is a specialist in stock loan financing. She had previously worked for a host of inter­national banks, including Citibank, Credit In­dustriel et Commercial, EFG and UBS. Much of her career was spent in private banking, enabling her to cultivate relationships with many clients in China, Hong Kong and Taiwan.

According to Lam, the banks that are still providing stock loans would only do so for companies that have a market capitalisation of at least US$5 billion ($7 billion). “Anything short of that, [the banks] cannot be bothered. So that excludes about 90% of listed compa­nies in Asia [that can apply for stock loans],” she tells The Edge Singapore in an interview.

Nevertheless, many owners of listed com­panies in Asia still prefer to obtain financing from stock loans. Though they can raise funds from the capital markets, obtaining a stock loan is quicker and easier, she explains. The funds can be dispensed as quickly as after one-to-two months, she says.

By comparison, undertaking a rights issue, bond issue or placement of shares could take longer given that listed companies have to secure shareholder and regulatory approvals. Market conditions may also affect the gross amount of proceeds raised from capital markets.

And after all, many owners of listed com­panies in Asia do not want their shares to sit idly by. “To them, their mentality is that: ‘If I have so many shares, why don’t I just take a fraction of it and make [the shares] work for [themselves]?’,” says Lam, noting that the funds are usually used for working capital, project financing and merger & acquisition purposes.

So, in 2018, Charismatic Capital launched the Charismatic Debt Equity Fund — which is domiciled in Ireland — after it obtained ap­proval from the Central Bank of Ireland. The three-year fund is fully backed and secured against listed equities in four Asian markets.

Lam says the fund’s biggest exposure is to the Hong Kong market at about 50% to 60%, followed by the Indonesian market at about 25%. The remainder is made up of the Singa­pore and Thai markets. The fund does not in­vest in Malaysia and the Philippines owing to capital controls there, she says.

The fund focuses on listed companies with market capitalisation between US$300 million and US$1 billion and has a diversified portfolio across sectors. It has an expected gross aver­age return of 13% to 14% per annum.

According to Charismatic Capital, the fund received US$100 million worth of commitment from Irish investors within seven months of ap­proval. By early 2019, the fund had swelled to US$300 million of investor commitment. From September 2018 to September 2019, several stock loans were executed with proven track record. Lam says the fund has recorded a net annual return of 7% in that period.

From Ireland to Singapore

Setting up a private debt fund in Ireland may sound strange for a Singapore company. But Lam says it was for practical and personal rea­sons. According to her, she had flown frequent­ly to London to visit her children, who were completing their tertiary studies there three-to-four years ago. In between those visits, she had the opportunity to meet several family of­fices and HNWIs in the UK and Switzerland.

“So, thinking to myself, since I’m going to spend many years visiting my children regu­larly, and given the network of family offic­es I know, I decided to set up a fund there,” Lam says.

Moreover, European investors are more com­fortable to invest in a fund that is registered in a familiar jurisdiction, she adds. In addi­tion, Dublin is also located not too far away. “So, whenever I am in London, I would just hop onto the plane for an hour to Dublin and attend the fund’s board meeting,” she says.

The fund’s Irish investors, meanwhile, have no qualms with the fact that the stock loans were issued to borrowers far away from Ire­land. On the contrary, they were attracted to the fund because finding investments with a “good” yield in Europe is difficult, Lam says.

Most would be happy to settle for a yield of 5–6%. But with Charismatic Capital, they can get “double-digit returns”. “So, they are [incredibly] happy,” she says. In addition, the fund’s exposure to borrowers in Asia provid­ed a form of diversification for the Irish inves­tors, she says.

Due to popular demand, Lam says Charis­matic Capital is planning to launch a second fund that will raise US$250 million in the sec­ond quarter this year. This time, however, the new fund will be domiciled in Singapore. She says that managing the first fund in Ireland has made her realise the challenges of operating the fund in different time zones and with dif­ferent working cultures.

Furthermore, the cost of maintaining the fund there is more expensive compared to doing so in Singapore, though Dublin offers a good structure for funds. “At the end of the day, I need to show performance. No point spending so much [money to have a good fund structure] but suppressing the returns to in­vestors,” she says.

Like the first fund, the second fund has a three-year duration and will be fully backed and secured against listed equities in Hong Kong, Indonesia, Singapore and Thailand. It will be available only to accredited investors, who mostly reside in Asia. Lam says some of her European investors from the first fund have expressed interest, though they are still in talks.

But a key difference in the second fund is the option of early redemption via digital se­curities. Investors can choose to hold the lat­ter, which have the same rights and distribu­tions of traditional paper scrip. These digital securities are tradeable on the InvestaX plat­form, which is licensed by the Monetary Au­thority of Singapore (MAS).

Lam says the fund is offering the option of early redemption because she understands the frustration of investors having money locked up for a long duration. “So, they can sell their digital securities and take profit early. We give them the option to do that,” she says.

Competing and cooperating with the banks

To compete with the banks, Lam says Charis­matic Capital does not assume ownership of the shares. Instead, the shares are placed under a custodian appointed by the company. This way, the shares cannot be tampered without good reason, unless the borrower defaults on the loan, says Lam. “The borrowers are very happy to do that because the shares are locked up, which means that we won’t mistreat the shares,” she says.

This arrangement, however, comes at a pre­mium. Charismatic Capital charges a fee of 15% gross per annum, including an upfront fee of 4%, and issues loans at only 30–40% of the value of the shares. “So, our lending value is low, and we charge a premium on the low rate. This has always been our business mod­el. [However], borrowers are happy to pay be­cause they know that their shares are intact,” she explains.

Interestingly, some of the big banks have ap­proached Charismatic Capital, wanting to have a slice of the action. Lam claims that Goldman Sachs and Deutsche Bank want to leverage her ability to find lucrative deals. “So some of the big banks have approached me and say: ‘Hey, if you have a good loan that can satisfy our criteria, [we] would like to syndicate the loan with [you]’,” she says.

For now, Charismatic Capital has yet to syn­dicate a loan with any of the banks although Lam notes that the company was close to completing a joint deal with Goldman Sachs. Unfortunately, the to-be-borrower decided to undergo a share placement exercise instead.

So far, there have been no cases of default by borrowers because the investment team at Charismatic Capital has always been conserv­ative, Lam says. In fact, there have been more loan enquiries.

However, the team has become more se­lective lately, given the impact brought about by the novel coronavirus pandemic, says Lam. For instance, companies operating in defensive sectors are favoured more than companies in other sectors. “Credit crunch is already hap­pening. It can only go worse,” she says.

The team is also making weekly calls to borrowers to understand the impact of Cov­id-19 on their operations. “If we think there is a risk… that something is not well, then in our contract we have the right to recall the loan,” she says. “We’ll give them some time to repay the loan, but not too long.”

Lam says Charismatic Capital has earned a good reputation since inception. And she in­tends to keep it that way. “So, in three-to-five years from now, I intend for the company to be the leading stock loan specialist,” she says.