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Goldman Makes Biggest Mexico Fintech Bet With MercadoLibre Loan

Cristiane Lucchesi

(Bloomberg) -- Goldman Sachs Group Inc. agreed to lend $125 million to Mercado Credito, the bank’s third loan to a Latin American fintech this year and the biggest ever in Mexico.

The borrower, a unit of MercadoLibre Inc., plans to use the money to triple in about one year its $100 million working-capital portfolio provided to small and midsize companies in Mexico, Martin de los Santos, a senior vice president, said in a phone interview.

The goal is to “democratize financial services,” by lending to firms that don’t have access to other financing, he said.

MercadoLibre dominates Latin American e-commerce with an almost 25% market share and 40 million unique monthly visitors, Julie Chariell, a senior analyst at Bloomberg Intelligence, said in a November report. It’s based in Argentina, but almost two-thirds of its $603 million in third-quarter net revenue came from Brazil, according to the company’s financial statements. Its market value more than doubled this year to $29 billion.

The Mercado Credito unit was launched in 2016 to provide credit to clients of its parent company and to customers using its online payment platform, MercadoPago, in Brazil, Argentina and Mexico. The company, which develops proprietary credit-risk models, has granted more than $610 million in working-capital credit lines to more than 270,000 companies in Latin America. It also offered around $200 million in consumer loans.

The Goldman loan won’t be used to finance lending in Brazil, where Mercado Credito raised 245 million reais ($58 million) from investors including Inter-American Development Bank, or in Argentina, where the firm finances itself in the capital markets, Santos said. Before the Goldman deal, Mercado Credito was using its own capital to finance loans to firms in Mexico.

“We wanted not only Goldman’s capital but also the experience the bank has on this type of transactions throughout Latin American,” Santos said. “I hope to work with the bank in the future to finance other portfolios, including consumer operations in Mexico and other markets.”

Latin American retail e-commerce is expected to increase 13% to 16% annually over the next five years, with penetration at just 2.4% of total retail sales in the region, Chariell said in a June report.

Mercado Credito has a unique way of getting capital flowing to businesses that have traditionally lacked access to financing, according to Santiago Rubin, a managing director at Goldman Sachs who’s head of technology, media and telecommunications for Latin America.

But higher delinquency rates are a concern for analysts. “Credit quality deteriorated significantly in Brazil,” analysts at Banco Itau BBA SA said in a Nov. 1 report that pinned part of the blame on consumer credit and lending to merchants that use mobile-card acceptance machines.

Santos said he is not preoccupied. The lending portfolio to consumers in Brazil is less than 8% of the total, and brand new, having started only 9 months ago, he said.

The Goldman deal follows a $750 million investment by PayPal Holdings Inc. and $100 million by Dragoneer Investment Group that were part of an $1.85 billion equity offering Mercado Libre did earlier this year.

Goldman’s loan is being done through the New York-based company’s structured finance, investment and lending business, headed by Ram Sundaram, the same one that in August provided a secured credit facility of as much as $100 million to Mexican fintech Konfio Ltd. Also this year, the special-situations group agreed to provide Mexico’s Credijusto Inc. with a $100 million facility.

The bank’s special-situations group also did a loan to Brazilian credit-card lender Nu Pagamentos SA, widely known as Nubank. The loan was of 200 million reais in 2016, and in August 2017 was expanded to 455 million reais in a deal with Fortress Investment Group. The entire loan has been repaid.

“We look forward to keep supporting MercadoLibre across the region as their lending footprint grows,” Sundaram, who also oversees the emerging markets and commodities business at Goldman Sachs, said in a statement.

--With assistance from Felipe Marques and Vinícius Andrade.

To contact the reporter on this story: Cristiane Lucchesi in Sao Paulo at clucchesi5@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Steve Dickson, Dan Reichl

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