Dual-listed Net1 UEPS Technologies says its empowerment partner has not elected to exercise its option to buy more shares, because it could not raise funding due to an ongoing legal battle between it and a rival bidder over a R10 billion deal.
Last year, Net1's subsidiary Cash Paymaster Services (CPS) won the tender from the South African Social Security Agency (SASSA), to distribute social welfare payments to 10 million South Africans every month for five years.
However, Absa subsidiary AllPay - which lost its bid for the deal - took the matter to court, arguing that Net1's win of the multimillion-rand deal - to distribute about 15 million social security grants to 10 million people - was unlawful. Last August, the North Gauteng High Court ruled that, while the deal was illegal and invalid, it would remain in place so that payments could continue.
Last month, Net1 won a court bid in the South African Supreme Court of Appeal, which handed down a judgment finding that a R10 billion social security payments tender process was valid and legal. AllPay has filed leave to appeal with the South African Constitutional Court, says Net1 in a statement.
Net1 is also under investigation by the US Securities and Exchange Commission and the Department of Justice's Criminal Division to determine whether there was bribery involved in the R10 billion contract with SASSA.
However, as a result of the ongoing wrangle, and the US investigation, Net1's empowerment partner, Business Venture Investments 1567 (BVI), was not able to take up its one-year option to buy 8.96 million shares, at $8.96 a share.
BVI is a special purpose vehicle that represents a consortium of black South Africans, community groups and the Net1 Foundation. Net1 and the consortium are evaluating various alternatives to meet Net1's empowerment objectives.
BVI spokesman Brian Khomotso Mosehla explains that the option, to buy about 19.9%, lapsed as "the attack on Net1 by Absa subsidiary AllPay made it impossible to raise funding". Mosehla will remain a director of the Net1 board.
Mosehla said funding was assured until AllPay, a losing bidder for the SASSA tender process, complained to US authorities about alleged irregularities in the tender process. Net1's share price collapsed by 60% in the US and 40% in SA.
"Overnight, the deal became unviable," says Mosehla. He adds that the consortium still has faith in Net1 and still aims to become its empowerment partner.
Net1 chairman and CEO Serge Belamant says the company "remains committed to these critical transformative policies and we hope to conclude a new transaction in the near future which will achieve a similar result".
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