South African crypto asset platform launches R30-million capital raise

Tokenised financial assets exchange Mesh.trade has announced the launch of a R30-million capital raise for South African reverse mortgage provider Water Financial.

The exchange has issued 30,000 “A” preference shares, which will pay a monthly dividend of 87% of the prime lending rate.

Mesh facilitates the issuing and investing in digital capital markets assets. The assets are tokenised and issued on the Stellar blockchain.

It is one of the companies that received South Africa’s first crypto asset service provider (CASP) licences from the Financial Sector Conduct Authority (FSCA) this year.

With a Category 1 and 2 CASP licence, Mesh lays claim to being Africa’s first fully regulated tokenised financial assets exchange.

“We designed our platform to offer investors access to previously inaccessible investments, as well as a regulated alternative avenue for entrepreneurs looking to raise capital to fund their growth,” said Mesh.trade managing director Connie Bloem.

Bloem said issuing Water Financial’s tokenised preference shares was a natural expansion of the different classes of smart assets available on its platform.

Earlier this year, Mesh issued its first tokenised corporate bond for Die MOS-Inisiatief, which offered a 10-year prime +2% floating rate bond. Die MOS counts renowned economist Dawie Roodt among its directors.

Mesh said the Water Financial issue is an opportunity for investors to add cumulative, redeemable, floating rate preference shares to their portfolios.

Water Financial offers home equity release services, also known as a reverse mortgage. It is a registered credit provider.

The company said it has recognised the broader societal challenge of an increasing proportion of retired people over 70 who are in financial distress, yet live in their fully paid-off houses.

It launched a product called Freedom Finance in 2021 with the goal of empowering retired homeowners to unlock the capital tied up in their properties.

Reverse mortgages allow people with unbonded homes to take out a loan without monthly repayments.

Where the outstanding balance on traditional mortgages decreases every month as you pay your monthly instalment, reverse mortgages continue increasing over time.

When the borrower sells or passes away, the loan must be settled in full.

However, unlike some other reverse mortgage products that offer a lump sum, Water Financial pays clients a monthly income.

This prevents the loan from compounding too rapidly in South Africa’s high interest rate environment relative to more developed economies.

Its product is restricted to people over 70 and comprises a loan equal to a percentage of the property’s value, spread over 60 months.

After the maturity date, the loan terms may be extended, or a new agreement may be entered into for five years.

Water Financial explained that the loans dispensed to retirees are based on the equity value of their homes. The borrower remains the owner of the asset, and a bond is registered against the house.

This allows elderly people with a paid-up house to release capital from their investment without selling it and moving to a smaller place, or taking out a regular loan where defaulting could cause them to lose their home.

Water Financial founder and managing director Chris Loker said that by buying its preference shares, investors would be supporting a model that ensures elderly homeowners maintain ownership of their homes and enjoy flexible terms tailored to their needs.

“In essence, the investors will help us provide maximum financial benefit to our clients with minimal disruption to their lives, while enjoying an attractive return,” he said.

Loker said there is strong market demand, which is projected to accelerate.

“The issuance of our Preference Shares on Mesh.trade’s platform gives investors access to higher than inflation returns from an innovative business looking to disintermediate traditional financial institutions that are unable to service this growing market segment,” he said.

This raise will be the first of a series of capital raises aimed at funding the growing lending needs of the company to serve their rapidly expanding client base.

Bloem said that Mesh.trade will also issue more alternative and private capital assets to investors over the coming months.