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ECSPONENT LIMITED - Terms announcement in relation to additional MyBucks investment and cancellation of MyBucks option agreement

Release Date: 26/03/2019 12:27
 
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Terms announcement in relation to additional MyBucks investment and cancellation of MyBucks option agreement

ECSPONENT LIMITED
Incorporated in the Republic of South Africa
Registration number: 1998/013215/06
JSE Code: ECS - ISIN: ZAE000179594
JSE Debt Code: ECSP and ECSD
(“the Company” or “Ecsponent”)

Terms announcement in relation to additional MyBucks investment and cancellation of
MyBucks option agreement


1.     ADDITIONAL INVESTMENT IN MYBUCKS

1.1.     Overview and rationale for the additional investment in MyBucks

The Board of Directors (“the Board”) is pleased to announce that the Company, has concluded an
agreement (“the Agreement”) with the Frankfurt-listed fintech company MyBucks SA (“MyBucks”),
which will enable Ecsponent to take control of MyBucks.


The Ecsponent group has been one of the primary funders of the MyBucks group since its
establishment in 2011 and supportive of the fintech group’s growth and value proposition. As part
of Ecsponent’s strategy to increase its investment base of assets focused on capital growth, the
Group has increased its shareholding in MyBucks over the past three years. This has resulted in an
improved balance between short-term cash generative assets and longer-term capital growth assets.


As with all its investments, Ecsponent has been monitoring the MyBucks group and management
believes that it is now opportune to take control of MyBucks. Ecsponent has successfully approached
the MyBucks board of directors to bring about changes for it to assume control of the MyBucks group,
strengthen management and unlock operational inefficiencies for enhanced profitability. These
changes will also further ensure alignment between the two groups and result in a realisation of
Ecsponent’s investment objectives.


The proposed transaction is expected to result in an improvement in MyBucks’ equity, while reducing
finance cost on the Ecsponent Loans (as defined below), which is expected to have a direct impact
on the net profit of MyBucks. Further improvements are expected following a management
restructuring and reduction of overheads, a process which has commenced and is being led by
Ecsponent and new MyBucks management.


MyBucks remains a perfect fit in respect of Ecsponent’s target profile as it offers a high technology,
high profit margin business, and a strong platform to support growth. In a region with a retail
banking penetration of just 38% to GDP (half the global average for emerging markets), the
opportunity for fintech innovations to bank the unbanked has never been more pronounced. Through
a change in MyBucks management, refinement of focus and significant cost reduction, the Ecsponent
Board see tremendous potential in this investment.


It is accordingly Ecsponent’s intention to hold the MyBucks shares for long term capital growth.


1.2.     Terms of the Agreement

1.2.1.    Debt restructure and subscription proceeds

The Ecsponent group has advanced funding to MyBucks, equal to R353.4 million as at 31 December
2018, which carries interest at a rate of 28% per annum, and is repayable on or before 28 September
2020 (“the Ecsponent Loans”).

There is also a loan in place from MyBucks to Ecsponent, equal to R28.5 million as at 31 December
2018, which carries interest at a rate of 17% per annum, and has no fixed repayment terms (“the
MyBucks Loans”).

It is the parties’ intention to off-set the Ecsponent Loan and the MyBucks Loan, and to conclude an
agreement which will see Ecsponent acquiring the following loan claims from MyBucks, in exchange
for a further settlement of the Ecsponent Loans:
    -    a loan owing by MHMK Group Botswana Limited (“MHMK”) to MyBucks, with a balance of
         R65.2 million at 31 December 2018; and
    -    a loan owing by Ecsponent Capital Proprietary Limited to MyBucks, with a balance of
         R23.4 million at 31 December 2018,
(collectively, the “Debt Restructure”).

The Debt Restructure will result in a net loan owing by MyBucks to Ecsponent (“the Remaining
Loan”), having a balance of c. R347.7 million, based on the loan balances as at 31 December 2018.

MyBucks will issue 27,829,312 shares to Ecsponent at a subscription price of EUR1.00 per MyBucks
share (“the MyBucks Acquisition”), in exchange for:
    -    settlement of the Remaining Loan;
    -    Ecsponent’s investment in preference shares in VSS Financial Services Proprietary Limited
         having a balance of R111.5 million as at 31 December 2018;
    -    a cash contribution to ensure a top up to the Agreed Value set out below (being R102 million
         if based on the various balances as at 31 December 2018);
(collectively, the “Exchange Assets”)

The Exchange Assets will have a value of R450 million (EUR27,829,312 at an exchange rate of
EUR16.17) (“the Agreed Value”) on the effective date of the MyBucks Acquisition.
Following implementation of the MyBucks Acquisition, the following loans will remain in place
between the Ecsponent group and the MyBucks group:
    -    BWP65 million (R66.9 at an exchange rate of ZAR1.31418:Pula 1) owing to Ecsponent
         Botswana, a wholly owned subsidiary of Ecsponent, by GetBucks Limited (Botswana), a
         wholly owned subsidiary of MyBucks; and
    -    E2,87 million (R2.87 million) owing to the Ecsponent Eswatini Collective Investment Scheme,
         a scheme wholly owned by an 84.7% subsidiary of Ecsponent, by the MyBucks group.


1.2.2.    Conditions precedent and effective date

The MyBucks Acquisition is subject to, inter alia:
    -    Ecsponent obtaining approval from its shareholders;
    -    MyBucks obtaining approval from its shareholders;
    -    approvals from the boards of directors of the various entities that are party to the MyBucks
         Acquisition; and
    -    approval from the Reserve Bank of South Africa.

The effective date of the MyBucks Acquisition will be the date of fulfilment of all conditions precedent.

1.2.3.    Waiver of rights under anticipated MyBucks capital raise

It is anticipated the MyBucks will undertake a capital raise during November 2019. Ecsponent has
agreed to waive any rights to participate in the said capital raise, provided that Ecsponent will not
dilute below 50%.

1.2.4.    Warranties

The agreements setting out the MyBucks Acquisition will contain warranties that are usual for a
transaction of this nature.


1.3.     Negotiations with other parties

Shareholders are advised that MyBucks is also currently negotiating with MHMK and Finsbury
Investment Limited for the settlement of the debt owing by MyBucks in exchange for the issue of
MyBucks shares, which will have a further impact on the issued share capital of MyBucks.

1.4.     Overview of MyBucks

MyBucks offers a broad portfolio of technology driven banking, lending and insurance businesses in
12 countries in Africa of which five of the operations are licensed and operating banks. Growth in
Africa’s banking sector is predicted to be double that of the developed world and enabled by fintech,
is seen as a profitable investment. The Board believes that the intrinsic value of MyBucks and the
sum of parts of its underlying businesses are substantially higher than its current market
capitalisation.

Net loss after tax of MyBucks as per the published unaudited interim financial statements for the six
months ended 31 December 2018 was €4,779,770 (being a loss of R78.2 million as at the date of
this announcement).

The net asset value of MyBucks as per the published unaudited interim financial statements for the
period ended 31 December 2018 was €-2,561,505 (R-41.9 million as at the date of this
announcement), excluding non-controlling interest.

The MyBucks interim financial statements for the period ended 31 December 2018 have been
prepared in accordance with International Financial Reporting Standards, as adopted by the
European Union.

1.5.     Categorisation and approvals required for the MyBucks Acquisition

In terms of the JSE Listings Requirements, the MyBucks Acquisition constitutes a reverse take-over
for Ecsponent, and therefore Ecsponent shareholders’ approval is required. Shareholders should note
that the JSE will only permit Ecsponent to retain its listing following the reverse take-over if the JSE
is satisfied that Ecsponent still qualifies for a listing.

In addition, due to the involvement of MHMK, an associate of G Manyere, being a director and
material shareholder of Ecsponent, the MyBucks Acquisition will constitute a related party
transaction.

A circular, setting out all the details of the MyBucks Acquisition and incorporating a notice of general
meeting, will be distributed to shareholders of the Company in due course.


1.5.1.    Confirmation in relation to the constitutional documents of MyBucks

In compliance with section 9.16 of the JSE Listings Requirements, Ecsponent undertakes to ensure
that nothing contained in the constitutional documents of MyBucks will frustrate Ecsponent in any
way from compliance with its obligations in terms of the JSE Listings Requirements or relieve
Ecsponent from compliance with the JSE Listings Requirements.


2.     CANCELLATION OF OPTION AGREEMENT

Shareholders are advised that the Company has decided to cancel the put option agreement
concluded with the Claymore Foundation, as announced on 28 January 2019 (“Option Agreement”).
Having regard to the MyBucks Acquisition, resulting in a recapitalisation of MyBucks, the Option
Agreement no longer makes commercial sense for the parties.


For more information about this announcement or the Ecsponent group, email
investor.relations@ecsponent.com or visit www.ecsponentlimited.com/investor-relations


Pretoria
26 March 2019


Sponsor: Questco Corporate Advisory (Pty) Ltd

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