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Value Capital Partners acquires stake in under-fire Net1

Read time 3min 20sec

Value Capital Partners (VCP), an investment firm which holds minority positions in listed companies, has acquired a 13% shareholding in Net1 UEPS Technologies, making it the second largest shareholder in the multinational financial technology group.

The deal comes as weekend reports by Bloomberg say Net1 UEPS Technologies is seeking to place subsidiary, Cash Paymaster Services (CPS), which has been ordered to repay hundreds of millions of rand to the welfare department, in business rescue.

CPS is reportedly also facing a legal challenge from human rights organisation Freedom Under Law, which alleges it understated its profit by at least R800 million and must repay the monies.

The company has liabilities that exceed its assets, Net1 said in an application to South Africa’s High Court to take CPS into business rescue.

It is not clear how this development will impact the VCP transaction, which was announced on Friday, a day before the business rescue story was splashed in the news.

Net1 has a portfolio of financial and payments technology businesses in SA, Asia and Europe. These include EasyPay, a South African Reserve Bank-approved third-party payment processor for major retailers, traffic departments and other utilities.

It also holds 12% of MobiKwik, the second largest mobile wallet in India; 35% of Bank Frick, a leading bank in Liechtenstein; and 28.5% of Finbond, a JSE-listed bank.

Net1 also owns the proprietary Universal Electronic Payment System (UEPS), which enables real-time payments in offline environments.

Commenting on picking up the 13% stake in Net1, VCP CEO Sam Sithole says: “We would like to announce our investment into Net1, a company with unique financial and payments technology.

“In line with our business model as an engaged and active shareholder, we want to work with key stakeholders to fix the governance issues and support Net1’s various businesses to deploy their unique technology in a fair and responsible manner.”

Net1 has had tumultuous time in the past few years and VCP says it will help the company to emerge from this situation.

Sithole says: “We believe Net1 has a highly compelling investment case and that its financial and payments technologies can add significant value to businesses and underbanked populations. We will work with Net1’s various stakeholders to reform the governance of the group.”

Net1’s challenges in SA include cancellation of the contract to distribute social grants for the South African Social Security Agency, in the second quarter of 2019. The company distributed grants to more than nine million beneficiaries through its CPS subsidiary.

The social security agency had, from 2012, relied on the services of CPS to pay millions of beneficiaries through cash payments, direct deposits and electronic payments.

The South African Post Office took over the payment of social grants from the beginning of October last year.

Net1 suffered further losses in Cell C. Net1 owns a 15% shareholding in the telco. In September, Net1 issued a statement, saying it “believes the fair value of Cell C at 30 June [Net1’s fiscal year end] is nil”.

However, in January this year, smarting from these losses in SA, the financial services and technology group announced it will this year scale-up operations in the country while remodelling itself as a fintech.

Net1 also told shareholders it was planning to use part of the proceeds from its R3.4 billion sale of its South Korean payment processor KSNET to grow its operation in SA.

On 27 January 2020, Net1 UEPS agreed to sell 100% of KSNET, a Republic of Korea payment processor, to Payletter Holdings, for approximately $237 million.

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