A similar parallel could exist in today’s EB-5 market. Over 90 percent of investors come from emerging markets, and enter the EB-5 market, where returns on investment are often less than 2 percent. Furthermore, the investment is held for five years or more. Many of the largest financial institutions like HSBC, Citibank and Morgan Stanley offer security based lending when assets are guaranteed to cover the loan facility. Blue-chip stocks often receive up to 60 percent and U.S. treasury bills up to 90 percent.
The chart below illustrates a sample portfolio:
Asset |
Market Value |
Loan-to-value |
Line of Credit |
U.S. Treasury Bonds |
$500,000 |
90% |
$450,000 |
Fixed Income Bond Fund |
$500,000 |
65% |
$325,000 |
Blue-chip stocks |
$1,000,000 |
60% |
$600,000 |
Total |
$2,000,000 |
|
$1,375,000 |
In the above portfolio, the bank would assign a loan-to-value (LTV) for each asset class corresponding to the percentage of the market value it is willing to lend against. If the client takes a $600,000 loan to support his EB-5 investment and additional related costs, there is a sizeable cushion should the market value of his securities fall. If the full line of credit of $1,375,000 is drawn down (if authorized by the bank), the client would risk suffering a margin call and having to sell his securities to pay down the loan facility.