Business News used car company The used-car sales company isn't yet profitable, but claims it now will be within six months. Kavak/Facebook

Kavak, Mexican ‘unicorn’ startup, to receive US $810 million in debt financing

The used-car company aims to lower barriers to loans in Latin America, where only 1.5 in 10 people own a vehicle

Mexico’s first “unicorn” company – a startup valued at more than US $1 billion – has secured US $810 million in additional funding.

Kavak, which runs online used-car marketplaces in seven countries, said Tuesday that it had secured $675 million in funding from the bank HSBC.

Kavak – Latin America’s largest unlisted company – previously announced that it had reached credit line deals with Goldman Sachs and Santander bank for US $100 million and US $35 million, respectively.

The HSBC financing will allow Kavak to increase its car loan offerings, while the funds provided by Goldman Sachs and Santander are for business development and to increase inventory.

Kavak, which was founded in Mexico City in 2016 and operates in Mexico, Argentina, Brazil, Chile, Colombia, Peru and Turkey, said that its agreement with HSBC will increase the number of drivers in Latin America, where only 1.5 in 10 residents have a car according to Kavak’s research team. The funding is in the form of a forward flow agreement in which HSBC will buy collection rights for Kavak’s loans.

“My understanding is that this had never been done with a portfolio like this, for cars,” Moises Flores, Kavak’s chief financial officer, told the news agency Reuters. 

Kavak is aiming to lower barriers for access to car loans in Latin America, where many people don’t have bank accounts and are unable to access traditional lines of credit.

Flores indicated that the company – which says it’s worth more than $8.7 billion – had little trouble securing the additional funding. “The risk of lending to Kavak is low,” he said. “[The banks are] also looking at our portfolio, our financing, and they say, ‘Looks good.’”

Flores told Reuters that the company could have access to a total of $1.2 billion in additional funding by the end of the year and hinted it could move into more markets. We’ve financed ourselves pretty cheaply. Our debt is cheap,” he said.

Despite its high valuation, Kavak is not yet profitable, but Flores said that should change soon. “[The first profitable month] is going to be in the next six months for Mexico for sure,” Flores told Bloomberg. “And then, in the other countries, we will need a bit more scale.”

The CFO claimed that Kavak is “revolutionizing” the used-car market in Latin America, adding that “these kinds of credit lines help us to deepen the change.”

“In Latin America today, 90% of used car transactions are between private individuals,” he said. “In general, it tends to be a very stressful time with several risks. … That’s why for us, there’s an opportunity to offer a completely innovative experience that … eliminates mechanical and documentation frauds that usually occur in these kinds of transactions and also provides financing, mechanical guarantees and post-sale services that are unique in the market.”    

With reports from El Financiero, Infobae, Reuters and Bloomberg

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