Viderium Limited is offering a 3 year bond paying 9.8% interest per year, paid out quarterly.
The bond is promoted as offering “A Rated Indemnity Insurance”.
Who is Viderium?
Viderium was incorporated in December 2017 and is controlled by Ross Archer (Chief Executive Officer) and Alexander Johnson (non-Executive Chairman).
Interestingly, when it originally incorporated in December 2017, Archer held 95 of Viderium’s 100 shares and Johnson 5. However, a few days later, 1800 new shares were allocated to Johnson, so the ownership ratio swapped around to give Johnson the 95% shareholding.
Due to the company’s young age, it is yet to file accounts with Companies House.
How safe is the investment?
These investments are unregulated corporate loans and if Viderium defaults you risk losing up to 100% of your money.
The purpose of the bonds is to allow Viderium to expand its data centre operations in order to mine cryptocurrency.
If Viderium fails to make sufficient returns from its cryptocurrency mining, or for any other reason Viderium runs out of money to service these bonds, there is a risk that they may default on payments of interest and capital to investors.
Viderium’s literature is very clear in this regard, with the front page stating “reliance on this promotion for the purpose of engaging in any investment activity may expose an individual to a significant risk of losing all the property or other assets invested.”
Investors have a first legal charge over the company’s assets, with Bluewater Capital Limited appointed to act as Security Trustee.
Investors should not assume that because their loans are secured on these assets, they are guaranteed to get at least some of their money back through sale of the collateral if the issuer defaults. Investors in asset-backed bonds have been known to lose 100% of their money (e.g. Providence Bonds and Secured Energy Bonds) when it turned out that the company’s assets were insufficient to pay investors after paying the insolvency administrator (who always stands first in the queue).
We are not in any sense implying that the same will happen to investors in Viderium, only illustrating the risk that is inherent in any corporate loan note even when it is asset-backed.
If investors plan to rely on this security, it is essential that they undertake professional due diligence to ensure that in the event of a default, Viderium would have enough valuable and liquid assets to raise sufficient money to compensate all investors, as well as any other creditors that Viderium has borrowed money from.
Viderium has an insurance policy with Assicurazioni Generali S.p.A. which covers it against “any Actual or Alleged act, Error, Misstatement, Misleading Statement, Omission, Neglect or Breach of Duty or loss.”
This policy is promoted heavily as an attraction of the investment; the cover page of Viderium’s Information Memorandum includes the sub-title “With A Rated Bond Indemnity Insurance”.
Investors should note that, as Viderium says in its literature, “this policy is not a Performance or Financial guarantee”. In other words, the insurance policy has nothing to do with the risk that Viderium fails to make enough from its cryptocurrency mining operations and cannot pay investors their interest and capital. If Viderium defaults in this event, the insurance policy does not cover investors.
Should I invest with Viderium?
This blog does not give financial advice. The following are statements of publicly available facts or widely accepted investment principles, not a personalised recommendation. Investors should consult a regulated independent financial adviser if they are in any doubt.
As with any unregulated corporate bond, this investment is only suitable for sophisticated and/or high net worth investors who have a substantial existing portfolio and are prepared to risk 100% loss of their money.
Any investment offering up to 9.8% per annum yields should be considered very high risk. As an individual security with a risk of total and permanent loss, Viderium’s bonds are higher risk than a mainstream diversified stockmarket fund.
This particular bond is described as asset-backed. Before relying on the security backing the bond, investors should undertake professional due diligence to ensure that in the event of default, the security could be easily sold and would raise enough money to compensate all the investors, after the adminstrator deducts their fees.
Before investing investors should ask themselves:
- How would I feel if the investment defaulted, the sale of the security failed to raise enough money to compensate all investors, and I lost 100% of my money?
- Do I have a sufficiently large portfolio that the loss of 100% of my investment would not damage me financially?
- Have I conducted due diligence to ensure the asset-backed security can be relied on?
If you are looking for an investment that is fully insured against the risk of capital loss, you should be looking at deposit accounts protected by the Financial Services Compensation Scheme, rather than unregulated bonds with a risk of total and permanent loss.