Mercan Group's New Project: Mercan fund

Residencies & citizenships Portugal Golden Visa 🇵🇹
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Hi everyone, I’m new here. I’m glad to have found so much information about Mercan Group in this community.

Due to the recent policy updates by the Portuguese government, purchasing real estate no longer qualifies for a Golden Visa. They have launched a fund project that requires an investment of €500,000. This fund will be used to manage hotels including Vau, Alvor etc. It is a venture capital fund. The fund is managed by Finprop Capital and has already been approved by CMVM.

I am currently in contact with them, and I hope to gather opinions—both positive and negative—about the company beyond its official website and promotional materials.

Over the past few days, I have browsed many posts about obtaining a Golden Visa through property investment and found that the fund project has some striking similarities:
1. A buyback agreement is included, stating that they will repurchase the fund six years after obtaining the Golden Visa.
2. The agreement is signed with a subsidiary established for this fund, but it does not clearly state whether the parent company will assume joint liability if the subsidiary lacks the financial capacity to repurchase. Additionally, what happens to my investment if the Group goes bankrupt?
3. The legal team is still IAS, and the POA and Pro grant lawyers excessive authority, which concerns me.
4. If policy changes prevent me from obtaining citizenship, will the Group refund my investment in full?

I have requested for the financial reports or any documents proving that the company has the financial capability to repurchase the fund after six years. I also asked them to attach an organizational chart illustrating the relationship between the subsidiary and the parent company, with a commitment that the parent company will bear financial responsibility if the subsidiary fails to repurchase. However, I have not yet received a response.

My knowledge of the Group comes solely from the intermediaries’ introductions, the company’s official website, and its social media presence. The person I am in contact with is Mr. Marcelo, who is responsible for the Portugal project. In our conversations, he stated that the group is currently in good financial standing and that bankruptcy is not a concern. If they are unable to repurchase the fund, they would use other assets as collateral to secure bank financing for repayment.

I have yet to find any posts in the community specifically discussing the fund project. Since this is the first time the Group is issuing a fund, there aren’t many past cases to refer to.

I welcome anyone who has worked with Mercan to share their experiences. I want to know whether it is truly a trustworthy company to work with. Thanks a lot!!!

Best regards
Vicky

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I’m not familiar with how Mercan’s new funds are structured, nor have I read their documents. But here are a few pointers to get you started on diligence:

  1. The “guaranteed” buyback
  • Wait until Mercan gives you an answer regarding who’s the guarantor. A simple rule of contract is unless a entity specifically assumes the role of guarantor, this entity is NOT a guarantor—any lawyer worth his/her money should be able to tell you not to make any assumptions based on an org chart.
  • Assuming no guarantees from parent/affiliates, and it’s just a contractual promise from the SPV. Also assuming that Mercan is doing this in a smart way, and avoid any event that would trigger bankruptcy/distress of this SPV (e.g. you notify them that you intend to exercise the buy back say 7.5 years after investing, if the SPV doesn’t have enough money to buy back right away, then after a certain number of days, contractually you start getting a higher but still modest interest %, until one day the SPV does have enough money to buy back your share. In other words, you or any of your fellow investors can’t trigger the SPV’s bankruptcy). Ask Mercan whether there is any debt put on the SPV: uses of funds include paying Mercan ParentCo for the land + construction costs + initial operations of the hotels; sources of funds consist of GV investor “equity”, any additional debt should be a major red flag.
  1. Look at the financial position of the SPV
  • how much GV cash does Mercan “extract” on day zero? This is done through the sale of the land to the SPV. You should be able to diligence roughly how much Mercan ParentCo has spent to date on buying the land, hiring the architects etc. to do the initial design/permitting work—let’s call this amount X million euros. Then take the total investments the SPV intends to raise from GV investors (500k euro * number of investors), somewhere in your contracts Mercan would have to tell you how much of this money the SPV will pay to Mercan ParentCo/affiliate to buy the land (the rest stays in the SPV to be used for construction and operation)—let’s call this amount Y million euros. If X<<Y, then this is a sign of high leverage, which increases future risk of buyback difficulties.
  • Mercan investments are designed to use GV money as cheap construction loans, so they are banking on a recap down the road. They would show you an NPV analysis telling you how much the SPV will be worth once the hotels are in operation, and at a reasonable debt-to-cap ratio will have no problem doing a refinance to buy out all GV investors. Like all NPV analyses, these are very sensitive to assumptions, and you should run your own sensitivity analysis to decide how trustworthy the numbers are.
  1. IAS
  • They’ll do a fine job submitting your GV application and handholding. But obviously don’t rely on them to due diligence for you / point out contract clauses written to Mercan’s advantage, due to the conflict of interest you have already pointed out.
  • You should be free to use another lawyer to submit your GV application (and not grant any POA to IAS), but that’s not really the point of contention here. Mercan is unlikely to agree to change clauses in the contract for individual investors—it’s usually a take it or leave it kind of situation. So you really need to know what you are getting into, and leave it if you don’t like it.

Last but not least, search for IR Group on this forum, to see what happens when investment runs into trouble.

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Thank you for your reply, it’s very helpful. I am currently waiting for Mercan to provide the investment plan and financial proof (if they are able to provide them). I will summarize the key issues you raised and follow up with Mercan for further communication. Thanks a lot :smiling_face:

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You are very welcome. Also, I would take anything an “intermediary” says with a grain of salt, and only trust things written in the legal documents.

Intermediaries make commissions from the projects/real estates they sell to GV clients, and even if you are paying them a service fee as well (and hence expect unbiased advice when comparing one country’s program vs another’s, or one PT GV fund vs another), the intermediary might push you towards the investments that offer them the highest commissions, without disclosing the commissions to you. In other words, huge conflict of interest. They are salespeople at the end of the day.

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Do you know what they do with the money? Considering that “real estate related” funds do not qualify for the GV, what will the money be used for? The major cost with hotels is the real estate.

I would be wary of any clever structuring that somehow syphons the money through a corporate structure to ultimately be used in hotel development. The fact CMVM have approved the fund means nothing in respect of the GV - they are just the securities regulator.

I’d suggest asking some detailed questions about the structure, and exactly what the money will be spent on.

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Yes, that’s why I remain skeptical about the information provided by intermediaries and want to hear opinions from others.

Currently, the intermediary has replied that Mercan is not a publicly listed company and is unwilling to provide any financial reports. The equity proof they provided is just a self-made PowerPoint presentation rather than a legal document, which makes me question its authenticity.

They insist that the buyback agreement is legally binding but refuse to provide a supplementary agreement with a guarantee from Mercan’s parent company. So, I believe the risk is still quite high.

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The subscription agreement of the fund states that the fund will be invested in the hospitality of three hotels, and the investment plan outlines the approximate allocation of funds.

I have asked whether this fund qualifies for the Golden Visa. Mercan has assured that the fund is 100% legal, compliant, and meets the Golden Visa requirements, providing legal endorsements as proof.

However, I am still concerned—if the government later finds that the fund’s investment is actually used for hotel management, could it be considered a borderline practice?

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That would be a question for your own (independent) lawyer I think.