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Opera denies Hindenberg claims of “predatory” loans in Nigeria, Kenya

By David Whitehouse
Posted on Wednesday, 29 January 2020 10:44

Hindenburg has passed its claims about Opera's lending to Google, whose apps are used for the loans. Reuters/Dave Paresh

Opera, the provider of short-term mobile loans in Kenya and Nigeria which is traded on Nasdaq, has denied claims by short-seller Hindenburg Research that its lending practices breach Google’s Play Store rules.

“Our microlending apps are and have been fully compliant with the policies for the Google Play store and partner networks we rely on,” said Opera’s communications manager Alejandro Viquez. The company offers its loans through the OKash and OPesa apps in Kenya, and via OPay in Nigeria.

A report from Hindenburg on January 16 argues that Opera has disregarded a Google rule which states that apps which offer short-term personal loans of 60 days or less are not allowed. Hindenburg says that Opera failed to disclose the change in Google’s rules to investors when it raised $82m in a secondary offering in September.

  • “We believe our disclosures were in compliance with US securities law,” Viquez says.

Hindenburg has taken a short position in Opera shares and so hopes to profit from a decline in their price.

  • Short sellers argue that their activity serves a wider purpose in alerting markets to companies that they claim are dishonest, or simply overvalued. African e-retailer Jumia saw its stock market valuation plummet in 2019 after an attack from short-seller Citron Research.
  • An investor who buys shares can do no worse than lose all their money, but a short seller who gets it wrong faces unlimited losses if the shares keep rising. Hindenburg has a 12-month price target of $2.60 on Opera, which would mean a drop in value of about 70% from January 16. The shares now trade at $7.65, down from $9 when Hindenburg published its report.

Opera CEO Yahui Zhou declined to be interviewed for this report.

Unanswered Questions

Hindenburg claims that interest rates charged by Opera range from 365% to 876%. Viquez denied the firm’s charge that Opera’s lending practices are predatory.

  • “We have never let fees accumulate anywhere near the presented annual rates,” he said.
  • That, however, begs the question of why such annual rates exist in the first place.

Opera’s short-term loan business, according to Hindenburg, accounts for 42% of the company’s revenue. The company has experienced a massive level of defaults running at about 50% of amounts lent, the report said.

  • Viquez said that Opera, which also operates in India, does not disclose microlending metrics per region.
  • In the third quarter of 2019, he said, Opera issued approximately $250 million in loans globally and about 8% were non-performing.

The Hindenburg report, Viquez said, contains “unsubstantiated statements, numerous errors, and misleading conclusions.” But he didn’t say what those errors are.

  • Hindenburg produced a series of email exchanges showing loans for 15, 22 and 29 days only being offered in Kenya, in apparent breach of Google’s rules.
  • The veracity of those emails has yet to be challenged by Opera.
  • “We continue to provide more than 60 days repayment options for users, as required,” Viquez said.

Bottom Line: Opera CEO Yahui Zhou needs to provide a much more detailed level of rebuttal to convince prospective borrowers that his company is not a predator, and investors that they have not been misled.

 

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