16 March 2022

Q&A | War-affected loans – what is important to know

Dear investors,

We thank you for all the feedback and questions we receive. Many questions are answered already, but we feel the need to have a list of questions we receive more frequently and answers to those questions in one place. We believe this Q&A on war-affected loans will help you understand each of your questions even better.

Before the war in Ukraine started, or even on the first day of the war (on Feb 24th) there was a communication that PeerBerry partners have accumulated significant reserves on banks in the EU, and it was stated that PeerBerry business partners in Ukraine and Russia are fully capable to repay all investments in Russia and Ukraine within 60 days. Why has communication changed? Why lenders in Ukraine and Russia are not able to cover their obligations within 60 days as stated before?

The short answer is – the situation has completely changed. From the ordinary business situation, within one day, it turned to a total force majeure situation.

We see that there are investors who are misinterpreting our previous communication. Let us explain the situation in a more detailed way:

– before the war (or even on the first day of the war, Feb 24) we communicated that our partners’ portfolios are 3 times larger (not reserves are 3 times larger) than their liabilities to investors plus our partners have sufficient reserves to cover their liabilities to investors within 60 days. This statement means, that our partners start repayments from reserves and collect money from borrowers to repay all obligations within 60 days. At the time when our statements were given, our statements were absolute truth. At that time no one knew how this war will develop. No one knew that portfolios in two countries will be fully locked. At the time of our previous statements, there were no miscalculations – our calculations were prepared based on our business practices, on our partners’ practice during the first wave of Covid, which was a very hard period for business as well. But not for the scenario of brutal genocide in Ukraine, what we see now.

– cash reserves: PeerBerry business partners always kept a cash reserve in EU banks of about 10%+ of their portfolio on PeerBerry. What does a 10% reserve mean – if our partners held a portfolio of EUR 66 million on PeerBerry, according to our internal agreements, they have to keep cash reserves of EUR 7 million on accounts in banks in the EU. On the day of the war, our partners had over EUR 8 million reserves on their accounts. No business in normal circumstances would keep more on accounts because money generates value only when money is ‘working’. Our partners always reinvested their profits back into their business development. Since the war started, our partners repaid over EUR 8,5 million of Ukrainian and Russian loans to our investors. The additional reserve for further covering UA/RU obligations can be accumulated only in a certain timeframe, as a reserve is being accumulated from profitable companies’ profits.

– every agreement contains a default force majeure clause which says that business takes no responsibility in the case of the war (or another case which is an object of force majeure). In the current case, our partners are doing more than required by law in this force majeure situation. Our partners are not activating a force majeure clause, our partners set the plan to repay all UA/RU loans.

– why the buyback guarantee cannot be applied for UA/RU loans – the buyback guarantee is being provided by the company, that issued loans. The company, damaged by war, can in no way provide a buyback guarantee or fulfill other obligations the same a person shot in war cannot pay his debt. We should not mix an ordinary business situation with a war situation. The buyback and the group guarantees are set for ordinary business situations, not for the war. There is a huge difference. In this case, a Group guarantee will be applied which means that UA/RU investments will be repaid in the timeframe, set by our business partners.

What is the plan and the timeframe of the repayment of the war-affected loans?

Assessing the complexity of the situation caused by war, the size of the obligations for investments in Ukrainian and Russian loans, also assessing the performance results and future projections of the healthy part of our partners’ business, Aventus Group and Gofingo Group forecast that all investments in Ukrainian and Russian loans will be repaid within 24 months. There are still many uncertain aspects that depend on how this war will develop, but the projection to cover all Ukrainian and Russian loans within 24 months is realistic. If the war ends soon, war-affected investments will likely be repaid sooner.

Detailed information on what the repayment plan of war-affected loans is, can be found here.

If the Russian business is working in an ordinary manner and is earning income, why the interest rate for the Russian loans will not be paid after 60 days of the delay?

Such a decision is taken because Russian companies are not further using funds from PeerBerry investors to further develop their business. In terms of PeerBerry investors’ funds, Russian companies are working on a money collection mode – lenders in Russia are collecting money from borrowers to settle with investors. The collected funds are being kept in our lender accounts in Russia until there is a legally correct way to make a transfer to us to gradually cover obligations to our investors, who invested in Russian loans.

Speaking about investments in Russian loans, it is also important to note a significant RUB depreciation aspect. Compared to the pre-war RUB value, our partners’ obligations in Russia became higher converted to EUR according to the current RUB exchange rate.

Currently, Russian lenders are issuing new loans only by using their own funds. Also, the options to receive/use local banks funding in Russia are being considered. If our business partners in Russia agree on funding with Russian banks, the process to settle with our investors may be much faster.

Why do the war-affected short-term loans get preferential treatment, i.e, in the case of short-term loans the interest rates are being calculated for 60 days of the delay, but in the case of war-affected long-term loans the interest rates are being calculated only for additional 30 days after repayments of long-term loans are stopped?

Such a decision is taken because scheduled monthly repayments of Ukrainian long-term/leasing loans have been implemented longer – long-term/leasing repayments were stopped only from March 15, while repayments of short-term loans were stopped at the beginning of March. We are looking for an appropriate compromise for both types of loans.

We must understand that all portfolios in Ukraine due to war are currently not performing. That is why we need to set a term to stop all regular/scheduled repayments. Our partners decided to respect a buyback term (60 days of the delay) for which the interest rates will be calculated for short-term loans. After 60 days no interest will be paid. Our partners will work on the gradual repayments of your investments into Ukrainian and Russian loans.

With long-term/leasing loans, there is a difference because the term is long, and in our practice long-term/leasing loans never had delays. The repayments of long-term/leasing loans are split into monthly settlements. Those monthly settlements were stopped on March 15. How to understand the additional 30 days for which the interest rates will be calculated – if, for example, the nearest payment under the long-term/leasing loan schedule is on March 18, the interest will be calculated for these few days after the settlement was stopped plus for additional 30 days.

When the interest rates accrued for the war-affected loans will be paid?

All the interest rates accrued for the war-affected loans will be paid at the end of the full repayment of the war-affected investment. I.e., invested funds will be gradually repaid, and after all the investment is repaid, the accrued interest repayment will follow.

Assuming that individual borrowers are still repaying loans to lenders, will the investors keep receiving interest rates (especially relevant for long-term loans)?

As explained above, considering the seriousness of the situation in Ukraine, our partners’ goal in Ukraine is to recover a part of the funds they have lent to borrowers. The current situation in Ukraine is not about earning profits. Our lenders seek to recover part of their funds without asking borrowers to pay interest rates.

Are there any preconditions to transfer money from the Russian entities other than having a working connection to SEPA, will every penny/RUB be transferred?

Reacting to sanctions imposed on Russia, Russia introduced local laws that restrict money withdrawal (transfers from Russia to ‘non-friendly’ countries). Therefore, it is an issue today to receive funds from Russian lenders. Our partners are analyzing the situation and are looking for legally correct ways of how money transfers can be implemented. All ‘smart’ ways to overcome/going around local laws put the business at risk which may lead to the loss of licenses. That is why a thorough analysis of the situation is required, and well-thought decisions must be done for the purpose to save the business and settle with investors correctly.

How repayments of the Ukrainian and Russian loans will be prioritized?

Directly received funds from Russia will be used to repay Russian loans only. Directly received funds from Ukraine will be used to repay Ukrainian loans only.

When using a part of the group’s profits (group guarantee), which will be dedicated to repaying Ukrainian and Russian loans, this reserve will be used to gradually cover the obligations of lenders in both countries.

We plan to cover war-affected loans with the following logic – when we receive a pool of funds, for example, to cover part of the Ukrainian loan, then the total amount received to cover loans will be divided proportionally to all investors, who invested in Ukrainian loans, according to the size of their investment. For example, if person A has invested EUR 100 in Ukrainian loans, he/she will receive EUR 1 at the time of that payment, and person B, who has invested EUR 10 000, will receive EUR 100. We will seek gradually proportionally to cover all investments into UA/RU loans. Our goal is that during each partial repayment of loans every investor receives a part of his/her funds.

What is the role of the independent supervisory board, to which investors, who have war-affected investments, have been invited to join? Usually, it is a decision-making body and is part of the company’s governance structure.

In our case, the independent supervisory board is not some kind of bureaucratically formal body. Our initial idea is to bring together investors who have war-affected investments so that investors could have an open direct dialogue with our business partners. The goal of our partners is to ensure 100% transparency about their business, showing the progress on how the business moves toward the goal to repay all UA/RU loans. To ensure efficiency in live discussions, we plan to have 20 investors in the independent supervisory board, if there are significantly more applicants (investors are welcome to apply till March 18th), we may choose the members based on the largest amounts invested in Ukrainian and Russian loans. In any case, the summarized information will be made available/public to all our investors after live meetings with investors.

How the war-affected loans will be displayed in the investor account?

For better tracking/for your convenience, we will display war-affected loans separately from performing investments. Currently, it is under development. Currently, we do not have war-affected loans that are more than 60 days late. Just a smaller part of war-affected loans recently entered 16-30 days late-term.

On our website we will also create a separate page for the war-affected loans, to show the overall progress, how our partners are moving towards the full repayment of all Ukrainian and Russian loans.