IOUpay is deepening its coverage of the fast-growing Malaysian market with its 42% stake in IDSB. Pic via Getty Images.
IOUpay on track to sew up 42% IDSB stake with second tranche payment figures confirmed
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IOUpay’s stake in the Malaysian specialised finance company will open doors to big customer networks of national retail banks and enable it to access high credit quality civil servants.
Malaysia focused fintech, IOUpay (ASX:IOU), has confirmed the amount of the second tranche payment for the 50% balance of its investment in I.Destinasi Sdn Bhd (IDSB).
The second tranche payment has been determined as RM21,684,033 (~A$6.9million), with the net amount being RM12,184,033 (~A$3.9 million) after applying funds already held in escrow.
IOUpay has also reached a deal to extend payment of the second tranche until August 31, 2022.
Synergies between two companies
IOUpay announced in September 2021 that its wholly owned subsidiary IOUpay Asia had executed binding documents to acquire 42% of the total issued capital of IDSB for cash consideration of RM126 million (~A$40 million).
IDSB is a specialised finance company focusing on providing instalment-based consumer credit services to civil servants for and on behalf of Malaysian banks.
Under bi-lateral collaboration agreements with its Malaysian bank partners, IDSB acts as a specialist contracted service provider for the banks providing in-field execution, credit processing, account set up and ongoing account management services that generate upfront transaction fees and recurring account servicing revenues.
Each bank partner provides funding for and assumes the credit risk of the customers they refer.
The business complements IOUPay’s own offering and opens the door to collaboration and cross-selling opportunities between the two companies.
The company said there are clear cross-selling opportunities between IOUPay’s short term BNPL offering (up to 6 months), and IDSB’s longer term consumer loan products (10 years).
The Company announced in its mid-June quarter BNPL Update on June 1, 2022, development of a marketing programme to promote its myIOU BNPL services into IDSB’s high credit quality, civil servant customer base.
The marketing programme is scheduled to be rolled out in stages commencing in the September quarter (Q1 FY23).
First tranche settled in December
The deal was for 50% to be paid upfront and 50% payable following completion of the audit of IDSB’s FY21 statutory accounts, or six months after settlement of the first tranche.
The first tranche payment of RM63 million (~A$20 million) was funded from existing cash holdings.
Settlement of the first tranche was completed on December 20, 2021, with registration of transfer of shares (representing 21% of the total issued capital of IDSB) to IOUpay Asia.
That date became the effective settlement date for the purposes of determining the date by which the second tranche payment was due.
However, now that the settlement period has been extended, the Company has until the end of August to complete the transaction.
Calculation of second tranche payment
The deal provides for an adjustment to the purchase price if there is more than a 10% variance to the RM30 million profit before tax (PBT) threshold for the financial year ending December 31, 2021 (FY21).
In the situation where there is more than a 10% variance in PBT then the adjusted purchase price will be calculated as 10 x PBT for FY21.
The audited statutory accounts of IDSB for FY21 are available to determine the second tranche payment.
IOUpay Asia and IDSB’s shareholders have agreed the following calculation:
- PBT for FY21 confirmed as RM20,162,865
- Adjusted Purchase Price =10 x PBT = RM201,628,650
- Total Amount Payable is 42% of RM201,628,650 = RM84,684,033
- Second Tranche Payment = Total Amount Payable less First Tranche Payment
- Second Tranche Payment = RM84,684,033 less RM63,000,000 = RM21,684,033
The company allocated funds to an escrow account with its lawyers pending completion of the transaction. The escrow amount is currently RM9.5 million (~A$3million) and will be applied to complete the second tranche payment.
Note: Assumed MYR/AUD exchange rate 3.15 using RBA sourced reference.
This article was developed in collaboration with IOUpay, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
