Fintech is becoming an increasingly important component of African Rainbow Capital’s (ARC’s) investment strategy, straddling all elements of its financial services ecosystem.
So says the company, which released its integrated report 2022 on Friday, outlining its fintech plans. ARC says its future position is to have increased exposure to financial services investments.
The investment firm says top of its priority list over the coming financial year is sustained focus on key portfolio assets: Rain, TymeBank and Tyme Global.
ARC is anticipating growth of fintech, and is positioning to capture opportunities in the sector.
To this end, ARC says it acquired an interest in Crossfin, one of Africa’s leading independent fintech platforms, measured by the volume and value of transactions processed.
Crossfin has a portfolio that processes over 134 million card and 20 million mobile-enabled payment transactions per annum, with an aggregated value of over R79 billion.
“Through this vehicle, the portfolio is exposed to complementary fintech and digital businesses at various stages of maturity and will ensure the investments remain relevant as the industry evolves,” joint-CEOs Johan van der Merwe and Johan van Zyl write in the report.
ARC, through a consortium led by Ethos’s Mid-Market Fund I, swooped up fintech firm Crossfin in November, in a deal valued at R1.5 billion.
Van der Merwe and Van Zyl say growth in ARC’s financial services portfolio is expected to “be largely organic, spurred by bolt-on, fit-for-purpose acquisitions or by disposing of assets to partners where there is a better fit”.
In the period under review, ARC says it made progress in implementing its strategic initiatives, as well as a series of step-change transactions in several key investments, positioning them for growth.
Notable achievements for ARC include the entry of well-established international investors at Tyme Bank, Tyme Global and Alexforbes, as well as the acquisition of additional spectrum by Rain.
“TymeBank attracted A-grade investment partners in the form of Tencent and the CDC Group (known as British International Investment), the UK’s development finance institution and impact investor,” the joint-CEOs say.
“This affirms ARC’s decision to inject an additional R242 million into TymeBank and Tyme Global, as part of the capital requirements for the bank, which has sustained its momentum in challenging trading conditions.
“Singapore-based Tyme Global is pursuing its digital banking strategy, with plans to launch a digital bank in the Philippines in October 2022 after successfully obtaining a digital banking licence. Tyme Global has also applied for a banking licence in Pakistan.”
Crown jewel
Turning to investments in telecoms, the JSE-listed investment holding company founded by Patrice Motsepe notes its stake in data-only network Rain is its “most significant investment”.
ARC holds a 20.3% stake in Rain valued at R3 billion. The company’s gross fair valuation increased in the year from R21.4 billion to R23.4 billion.
Rain has been a rewarding investment for ARC, as the network achieved an EBITDA growth of 98% compound annual growth rate (CAGR) over the previous two financial years, with fiscal year 2022 EBITDA expected to surpass R3 billion.
On other key performance metrics, Rain retail revenue increased 2.5 times faster than wholesale revenue over the last 30 months, according to ARC, with 5G retail revenue growing at a CAGR of 235%, and now accounts for more than 50% of total retail revenue.
Van der Merwe and Van Zyl comment in the report: “Rain is our most significant investment. It has done well over a relatively short period and achieved its budgeted R1 billion EBITDA this year. Rain acquired additional spectrum in two components.
“The first, which sits alongside its existing spectrum, allows for disproportionate efficiencies to bulk up Rain’s existing fixed wireless 4G and 5G offerings, while the second potentially launches it into mobile − that is an entirely new product offering.”
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