Real Estate Investment blog

Overview of Interchem 2 Business Loan

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A Promising Start

Interchem Distribution Europe OÜ, a company specializing in the import and export of chemicals, had a plan for increasing trading volumes but was lacking finances so it applied for the missing funds with a business loan. The conditions for financing were strict, requiring a personal guarantee of the sole board member and owner in addition to pledging 100% of the company shares. This initial project proved successful, as the company saw a 20% increase in volume and a 50% in profitability.

The company returned the borrowed money along with the interest, setting a success story for the first high-yielding business loan on the platform. Encouraged by the success, Interchem proceeded with a second round of financing, aiming to achieve similar growth and profitability targets, offering our investors 18% interest.

Challenges and Adaptation

The geopolitical landscape shifted dramatically regarding the Ukraine conflict, after Interchem’s second financing round. Despite the turbulent environment, the initial months showed promising development, with profitability almost doubling. However, the sanctions soon followed, making direct trading with Russia impossible. In response, Interchem adapted by redirecting its trade flows through Turkey.

As the deadline for loan repayment approached in 2023, Interchem requested additional time to return the loan, citing that funds were stuck in a Turkish bank. Despite these challenges, Interchem continued to service their loan and pay interest, although the payments began to slow down and become irregular due to their banks’ AML (Anti-Money Laundering) processes.

Since no return was done during summertime, as a result of lengthy negotiations by autumn 2023, Interchem and its board member entered into an agreement to repay the loan within five months. Unfortunately, this agreement was not honored as two deadlines passed with no payments. Consequently, R24 initiated bankruptcy proceedings against both Interchem and its board member and sole shareholder Aleksei Baranov.

Bankruptcy processes are notoriously lengthy and complex, with no guarantees of recovering the debts, where the opposing sides rather tend to avoid fulfilling their debt obligations. In parallel to the court hearings the negotiations were held, R24 and Interchem, along with Aleksei Baranov, eventually signed a notarized agreement for the return of the debt, which resulted in a better situation and higher probability of recovering funds than in a bankruptcy proceeding. As the company trades internationally the bankruptcy administrators tend to avoid international litigation as it’s very lengthy and unpredictable and generates enormous costs, which creditors have to cover before any results are achieved. According to the agreement signed, the first principal payout is scheduled for September 2024, with the final return of the principal expected by the end of 2025. Those dates are set as border deadlines and if Interchem is able to pay the debt back earlier, it will.

A Strategic Path Forward

While the timeline for repayment is extended, this strategy is considered more favorable than pursuing bankruptcy. Bankruptcy would halt the company’s operations, eliminating cash flow and necessitating additional financing for legal disputes, which could span 2-3 years or longer without any guarantees of recovery. Therefore this notarized repayment agreement is a more pragmatic approach.

Under the terms of the agreement, returns will first cover incurred legal costs, and the principal returns will be distributed in equal parts to all investors across all stages. Investors can anticipate the first payout by the end of September 2024. Should Interchem fail to make the payment, the notarized agreement provides options for enforcement proceedings without a court order, which is a lot faster process than bankruptcy.

Understanding the Risks

Business loans inherently carry risks, which have materialized in the case of Interchem. It’s essential to recognize the risky nature of business loans and the implications they can have on investors.

In conclusion, the notarized agreement offers a viable solution for the repayment of debt. Even though the timeline is extended, it significantly improves our investor’s position for getting back their invested capital. The alternative options involve prolonged legal disputes and costs with uncertain outcomes.