Solidus Technologies Limited is offering unregulated 3 year bonds paying interest as follows:
- Three-year Fixed Term Bond: 10% annual interest in year 1, 3% per quarter (12% per year) in years 2 and 3, plus 10,000 alternative cryptocurrency coins for every £10,000 invested.
- High Net Worth Fixed Term Bond: for investments above £100,000, the terms are as above but the quarterly interest is 3.62% instead of 3% in years 2 and 3.
- Three-year Compounded Bond: interest of 37.9% paid at the end of the three year term (11.3% compound interest), plus 10,000 alternative cryptocurrency coins for every £10,000 invested.
- High Net Worth Compounded Bond: for investments above £100,000, as above but the interest is 44.21% (13.0% per year) instead of 37.9%.
The FAQ in the Information Memorandum states that investors can ask for their holdings to be redeemed early at the anniversary of their investment. This is at the discretion of Solidus Technologies’ director, and their ability to do so will depend on whether Solidus has enough liquid funds available.
Despite the similarities to the Viderium bond reviewed last week (both are soliciting investment to fund cryptocurrency mining, both have an insurance policy with Assicurazioni Generali S.p.A. brokered by Willis Towers Watson, both employ Bluewater Capital Ltd as a Security Trustee, both companies were founded in December 2017) the two companies are unrelated as far as I can tell. The two companies have different directors, and Solidus aims to invest in a data centre in Romania whereas Viderium’s facilities are in Hampshire and Rotterdam.
Who is Solidus Technologies?
No details of who runs or controls Solidus Technologies is provided on Solidus’ website, although the Information Memorandum does disclose that the company’s sole director (and shareholder) is Chief Executive Officer Scott Cannon.
Solidus Technologies Limited was incorporated in December 2017 and due to its young age is yet to file accounts with Companies House.
How safe is the investment?
These investments are unregulated corporate loans and if Solidus defaults you risk losing up to 100% of your money.
The purpose of the bonds is to allow Solidus Technologies, in partnership with a Romanian company (Soft Galaxy International & Block Chain Development), to build a new data centre in Bucharest, Romania, which will mine cryptocurrency.
If Solidus fails to make sufficient returns from its cryptocurrency mining, or for any other reason Solidus runs out of money to service these bonds, there is a risk that they may default on payments of interest and capital to investors.
Solidus’ literature is very clear in this regard, with page 2 of the literature stating “Investing in the Company is speculative and involves a significant degree of risk to invested capital”, and a comprehensive list of risk factors included later in the literature.
According to the literature, Solidus plans to raise £10 million, of which £1 million will be used to build the data centre and £6 million used to buy computer equipment (graphics cards). The other £3 million will be used to cover the costs of marketing this investment to investors.
Asset-backed security
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 Solidus, 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, Solidus would have enough valuable and liquid assets to raise sufficient money to compensate all investors, as well as any other creditors that Solidus has borrowed money from.
Solidus’ literature states “In the absence of a negative pledge clause, the Company is entitled to issue further series of Bonds and other loan arrangements. This could negatively affect bondholders claim [sic] on company assets.”
“Insured” bonds
Solidus 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.”
Investors should note that, as Solidus says in its literature, “This policy is not a Performance or Financial guarantee, it does NOT provide an indemnity if the Company’s performance, strategy or business activities are unsuccessful and it is unable to meet the obligations to bondholders.” (bolding is as per the original)
Cryptocurrency bonus
At the end of the term, investors receive a bonus of 10,000 “alternative crypto coins” for every £10,000 invested. Exactly which cryptocurrency investors will receive is not specified. Later in the literature Solidus’ states that “these coins/tokens will be chosen by the company that they believe have the potential to have maximum growth potential.”
It is interesting that part of the return is paid in a fixed number of coins in an unspecified cryptocurrency. Imagine if I said that I was going to pay part of your return in 10,000 conventional currency units, but I didn’t specify whether I was going to pay you 10,000 pounds sterling or 10,000 Turkish lira.
Given that Solidus’ has promised to buy a specified number of coins (10,000 for every £10,000 invested) by the end of the term, their choice of coins will be restricted by the amount of money (conventional or crypto) that they have left over to purchase alternative coins, after they have paid out investors’ fixed returns each year.
Hypothetically speaking, Solidus could identify a cryptocurrency with really terrific growth potential, but be unable to buy it because it already trades significantly above £1 per coin, meaning that Solidus couldn’t realistically afford to buy 10,000 for every £10,000 invested. Investors would rather have 1,000 of a high-growth-potential cryptocurrency than 10,000 of a lesser-growth-potential cryptocurrency, but Solidus’ arbitrary promise to deliver 10,000 units of an unspecified cryptocurrency would tie their hands.
Given that investors cannot have any idea how much their 10,000 bonus cryptocurrency tokens will be worth at the end of the term, it is safest to disregard the “bonus” part of the offer and assess the bond purely on the conventional currency returns (i.e. the 10% in year 1 and 12% in year 2 and 3 for the first version of the bond).
Regardless of how skilled Solidus management are at identifying cryptocurrencies that will rise in value, there is still a risk that the coins they allocate to investors will be worthless or untradeable at the end of the term.
Should I invest with Solidus?
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 yields of up to 13% each year should be considered very high risk. As an individual security with a risk of total and permanent loss, Solidus’ 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.