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FINBOND GROUP LIMITED - Acquisition of up to 35% of Financiera Contigo-Mexico

Release Date: 24/05/2021 15:30
Code(s): FGL     PDF:  
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Acquisition of up to 35% of Financiera Contigo-Mexico

Finbond Group Limited
(Registration number: 2001/015761/06)
Share code: FGL ISIN: ZAE000138095
(“Finbond” or “the Company” or “the Group”)


1. Introduction

Finbond shareholders are advised that Finbond has agreed terms with Cege Capital
S.A.P.I. de C.V. SOFOM E.N.R (“Financiera Contigo”) (“Contigo”) that sets forth
the terms and conditions pursuant to which Finbond will acquire up to 35% of
the equity interests issued by Financiera Contigo.

Financiera Contigo provides financial services and products throughout the
Mexican territory. With more than 10 years of experience in the group-based
micro-finance sector, Financiera Contigo, that has a similar business model to
Grameen Bank in India, mainly focuses on group lending and currently serves
more than 200 000 families through their different brands and products. Since
its foundation in 2010, Financiera Contigo offers financial services mostly to
women entrepreneurs with limited access to traditional banking services,
supporting self-employment and consequently improving their quality of life.

Financiera Contigo has a presence in 27 of the 32 states in Mexico and more
than 170 branches, which has allowed it to offer its products and services to
approximtaly 200,000 clients through its different brands and products.

Mexico’s gross domestic product (“GDP”) for 2019 was $1,200 billion compared to
South Africa’s GDP of $386 billion. South Africa has a GDP per capita of $13
500, while in Mexico the GDP per capita is $19,900. In South Africa, 28.1% of
adults are unemployed, while in Mexico the unemployment rate is 3.6%. Mexico’s
land surface totals approximately 1,964,375 sq. km compared with South Africa’s
1,219,090 sq. km. The population of Mexico is approximately 128.6 million people
(72.2 million more than South Africa).

2. Nature of Finbond Business and Rationale for the Contigo Transaction

Finbond is a leading South-African, North American and Latin American financial
services institution that specialises in the design and delivery of unique value
and solution-based credit products tailored to borrower requirements rather
than institutionalised policies and practices.

Finbond is a credit provider with both fintech and brick and mortar operations.
Finbond conducts its business through administrative hubs located in Chigago,
La Quinta, Phoenix, CutOff, Merrillville, Memphis, Toronto, Sliema, Pretoria,
Somerset West and a total of 629 stores (366 in South Africa, 256 in North
America and seven in Latin America).

Finbond North America’s branches are located in 17 states of the United States
of America namely: Arizona, California, Illinois, Idaho, Wisconsin, Missouri,
South Carolina, Tennessee, Louisiana, Mississippi, Alabama, Oklahoma, Michigan,
Florida, Nevada, Utah and Indiana. In addition to the US States, Finbond also
has a presence of 14 stores in Ontario, Canada and seven in Panama.

The rationale for the Contigo Transaction includes:

   •   Mexican Peso based earnings enhancing growth.
   •    Product diversification to include group-lending.
   •    Expanding Finbond’s North American store network to 27 Mexican states.
   •    Increasing Finbond’s store network to 439 locations in North America.
   •    Partnering with Mexican based owner managers with a proven track record
        of success and extensive experience in the Mexican financial services
   •    Further diversification of country and political risk.

3. The Financiera Contigo Transaction

   3.1.   Nature of business

Financiera Contigo is based in Mexico City and was founded in 2010. Contigo has
2,500 employees, more than 170 branches and operates in 27 out of the 31 Mexican

Contigo (“with you” in Spanish) seeks to change the lives of financially
underserved women by providing group-based micro-loans and unique personal
support systems to help them grow a business venture. Financiera Contigo’s
communal loans are issued to groups of eight to 30 women at competitive interest
rates to fund businesses such as local handmade fashion products, food stands
and pharmaceutical delivery services. Financiera Contigo employs loan advisors
that meet with their groups weekly, which elevates group self-esteem, heightens
team accountability and cultivates a lasting sense of community around a
centralized endeavor. Financiera Contigo also offers an affordable life and
health insurance package to accentuate its core message of “people before

Financiera Contigo grants loans in an agile and timely manner, through simple
and personalised procedures based on a relationship of trust. Lending products
include group loans and micro loans, all focused on lending to women. Recently,
Financiera Contigo began to include men to credit groups, helping to expand and
diversify its portfolio.

Financiera Contigo’s typical client profile:

   •   Women entrepreneurs
   •   Eight or more per group
   •   Between 18 and 79 years of age on the date of the loan application
   •   Mexican citizenship
   •   Must have an existing small business or start a new one

Financiera Contigo’s typical product characteristics:

   •   Term: 16 to 20 weeks
   •   Amount: MXN5,000 to MXN80,000
   •   Global monthly rate: 2.50% to 9.00%
   •   Initial guarantee: 0%, 5% or 10%
   •   Additional services: Life insurance

Financiera Contigo’s Products:

   •   Contigo Créditos Grupales (Group Loans)
   •   Contigo Créditos Individuales (Individual Loans)
   •   Contigo Micro Seguro (Micro Insurance)

In response to strong market demand and success in all Mexican states where
Financiera Contigo was operating, management made a strategic decision in late
2018 to implement a growth strategy covering the following:

   •   Expansion into three new states (over 18 months,
   •   Opening 48 new branches over the same period,
   •   Employing an additional 700 employees, of which 372 were women,
   •   Investing in all requisite infrastructure both at branch level and to
       equip the new staff with the requisite technology to operate in an
       increasingly digital environment,
   •   Investing heavily in staff training to maintain its high quality of
       customer service, and
   •   Diversified the offering to position Financiera Contigo as a multi-product

In 2019 Financiera Contigo added individual loans to its offering of products
and services.

Some recent financial indicators include:

   •   Annualised EBITDA based on April 2021 results of US$ 14.6 million.
   •   Annualised NPAT based on April 2021 results of US$ 9.8 million.
   •   Total Assets as at 31 December 2020 was US$ 93 million.
   •   The net asset value attributable to the assets, as per the audited annual
       financial statements for the year ended 31 December 2020 was US$ 15.7
       million and the net profit after tax for the same period was US$ 1.5
       million. The audited annual financial statements for the year ended 31
       December 2020 was prepared in accordance with Mexican FRS.

   3.2.   Current Shareholding

The current shareholding structure of Contigo is as follows:

   •   39.5% - Microfin CEGE S.A. de C.V. and Controladora RRL S.A.P.I. de C.V.,
       founding shareholder group.
   •   38.0%- Credito Real, S.A.B. de C.V., SOFOM, E.N.R., a publicly traded
       financial institution on the Mexican Stock Exchange.
   •   22.5% Credex, a Mexican based micro finance institution.

   3.3.   Salient terms

Subject to the fulfilment of the conditions precedent (condiciones suspensivas)
set out in 3.4 below the terms of the Contigo Transaction would be as follows:

   •    The purchase consideration payable by Finbond would be $18 750 000 for
        25% of the existing shares in Financiera Contigo by way of a sale of
        equity interests (100% of Contigo is valued at $75 000 000).
   •    Finbond would have an option to acquire a further 10% of Financiera
        Contigo’s shares to increase its shareholding up to 35% by 31 August
        2021 by way of an offer for subscription and/or sale.
   •    100% of the purchase consideration set out above would be payable in
        cash on the closing date of the transaction.
   •   The anticipated effective date of the transaction would be 1 August 2021.

   3.4.   Conditions precedent (Condiciones suspensivas)

The Contigo Transaction remains subject to inter alia the following conditions
precedent (condiciones suspensivas), to be fulfilled by no later than 31 July

   •   Negotiation and execution of a definitive agreement,
   •   Negotiation and execution of an operating agreement,
   •   Finbond’s Board and Investment Committee approval,
   •   Contigo’s Board and shareholder approval, and
   •   Finalisation of a satisfactory due diligence investigation by Finbond.

4. Funding of the acquisition

   Finbond intends to fund the Contigo Transaction from surplus cash on hand.

5. Categorisation of the Contigo Transaction

   The Contigo Transaction is categorised as a Category 2 transaction in terms
   of the JSE Limited Listings Requirements and is therefore not subject to
   Finbond shareholder approval.

6. Withdrawal of Cautionary Announcement

   Shareholders are referred to the Cautionary Announcement released on SENS
   on 11 May 2021 and are advised that all the details of the transaction are
   published in this announcement. The cautionary is withdrawn and shareholders
   are no longer required to exercise caution when dealing in the Company’s

24 May 2021

Sponsor and Corporate Adviser:
Grindrod Bank Limited

Date: 24-05-2021 03:30:00
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