Ocea Group Limited (pronounced “Oh-see-yer”, not “Oh-sha”, according to a promotional video) is offering bonds paying interest of 6.85% per year for a term of five years.
The bonds are being promoted by the Crowdfunds platform and can be held in an IFISA. Crowdfunds is a regulated P2P platform (an appointed representative of Share In Limited), but the Ocea investment itself is a loan note issued by an unregulated company, and is therefore unregulated from the perspective of the UK Financial Services and Markets Act.
The company aims to raise money to buy commercial properties and convert them into residential property.
Who are Ocea?
Ocea Group Limited is headed by joint managing directors Justine Curtis and Glenn Delve.
Ocea Group Limited claims a history going back to 2014 on the basis of other property developments run by Curtis and Delve. The company itself however was incorporated in 2017. Investors wishing to do due diligence in the track record of the business prior to 2017 will therefore have to obtain the financials of the other projects whose history Ocea Group claims.
Ocea’s last accounts dated 30 April 2018 were unaudited as they were filed under the small companies regime. They show net profit of £1,886 (pounds) on turnover of £845,000.
Ocea’s investment literature projects that revenue will increase to £1.3 million in year 1 and £10.1 million in year 5. Profit margins are expected to improve dramatically, with profits projected at £375,000 in year 1 and £9.1 million in year 5.
Delve and Curtis also lead a business called Take AIM Mastermind which mentors people looking to start their own businesses buying and converting commercial property. AIM stands for “Approachable and Inspirational Mastermind”, which means the full name of the business expands to Take Approachable and Inspirational Mastermind Mastermind.
How safe is the investment?
Ocea Group is currently advertising heavily on Facebook and Instagram. While the investment literature includes capital-at-risk warnings, it is still playing on the angle that investing in a micro-cap startup business is safe because it invests in property.
In a promotional video fronted by Delve, he misleadingly compares Ocea’s bonds with “low interest rates on savings” and states “we want to be your investment harbour in uncertain times”. The implication that a loan note issued by a micro-cap company is somehow not “uncertain” is potentially misleading.
It is important that investors understand that these are loan notes and if Ocea Group is unable to make sufficient returns from its investments in commercial property conversions, or for any other reason runs out of money to service its bonds, investors risk losing up to 100% of their money.
Secured lending on property is not risk-free as there is a risk that if the underlying borrower defaults, the security cannot be sold for enough to cover the loan.
Investors in asset-backed loans have been known to lose 100% of their money when it turned out that there were not enough assets left 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 Ocea Group, only illustrating the risk that is inherent in any loan note even when it is a secured loan.
If investors plan to rely on this security, it is essential that they hire professional due diligence specialists (working for themselves, not Ocea) to confirm that in the event of a default, the assets of Ocea would be valuable and liquid enough to compensate all investors. Investors should not simply rely on what Ocea tells them about their assets, as Ocea are the ones asking for their money.
This is especially important as the actual properties will be owned by Special Purpose Vehicles – companies separate to the one that investors are lending to. The investment literature states that “bondholders benefit from a Debenture over the assets of
Ocea Group (which includes security over the value of all its subsidiaries).” Professional due diligence is essential to ensure that this will in fact be the case.
The literature says that a Security Trustee, Stoa Financial, will act on behalf of bondholders. The literature says correctly that “this does not mean that investments are safe or guaranteed.” Stoa Financial was previously a promoter of Providence Bonds, an investment scheme which collapsed with total losses to investors.
Should I invest in Ocea Group?
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 individual loan note to an unlisted micro-cap company, 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.
As an individual, illiquid security with a risk of total and permanent loss, Ocea Group’s loan notes are much higher risk than a mainstream diversified stockmarket fund.
Before investing investors should ask themselves:
- How would I feel if the investment defaulted 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?
The investment may be suitable for high net worth and sophisticated investors who will already be well aware of all of the above risks, are looking to invest a small part of their assets in corporate lending, have done sufficient due diligence, and feel that the return on offer is sufficient for the risks involved in lending to a small company.
If you are looking for a safe investment, you should not invest in corporate loans with a risk of 100% loss.
You appear to misunderstand what a Security Trustee does. A Security Trustee steps in when something bad has already happened and quickly acts on behalf of all bond holders to secure assets and recover value. If the assets have already disappeared as in the case of London Capital and Finance/Providence there is nothing left for a security trustee to recover. Both London Capital and Finance/Providence were scrutinised for compliant financial promotion by the FCA as fair clear and not misleading before launch and the management still allegedly sequestered the assets.
Mini Bonds were designed by George Osborne for growing British SME’s to borrow directly from retail investors as the banks were not lending.
A Mini Bond from a growing British SME with good prospects and recoverable domestic assets is worth considering by appropriate individuals spreading their risk. London Capital and Finance/Providence had most of the assets outside the UK which increased the difficulty of the security trustee recovering value..
As I haven’t mentioned the Security Trustee in the review (mainly because it is of peripheral importance for the reasons you outline) I’m not sure how you get that impression.
Professional independent due diligence is essential to verify that the domestic assets exist, are worth what the borrower says they are worth, and that any security is legally valid, if potential investors are investing on that basis. And that their “good prospects” are based on accurate financial data and reasonable assumptions.