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Last year we informed investors about the changes in MyBucks S.A. (“MyBucks”). As there have been several important developments after that, we feel that they should be described in more detail. The CEO of MyBucks, Timothy Nuy, took the time to chat with Mintos about the situation in the company.
Description of the situation
Timothy Nuy: “MyBucks S.A. (“MyBucks”) was incorporated in 2011 as GetBucks Limited in Mauritius, as a pure consumer lender. It focused on operating profitability in initial years and deployed all financial capital into its loan book. Its primary founder & Executive Chairman/CEO (Dave van Niekerk) did not want to dilute his controlling stake, and in turn pushed for funding of the business with a mezzanine debt of c. US $30 million at a cost of 20-30% p.a. As of 2014, the Group had lending operations in Botswana, Kenya, Malawi, South Africa, Swaziland and Zimbabwe.
In 2015, the Group took a strategic view to convert its operations into banks in order to facilitate a more sustainable funding model. This strategy was successful, and banks in Malawi, Mozambique and Uganda were acquired, whilst the Zimbabwean operations were converted into a microfinance bank. This drove significant growth in profitability in underlying financial institutions and was further aided by technology launched ahead of the market and competition in Africa. However, capital raised was only sufficient to fund M&A, with the significant debt at holding company level now increased to c. EUR 35 million.
Significant capital was furthermore lost in ill-advised over-expansion into Poland, Spain and Australia (non-core geographies) due to a global expansion strategy pushed by the Founder of the Company. In 2018 I was Deputy CEO and departed from the Group, after a strategic difference of opinion with the Executive Chairman and Founder Dave van Niekerk. The areas of differences included the Founder having pushed for MyBucks to construct a new head-office building in Pretoria for c. EUR 10 million (funded by the same mezzanine capital and this was completed in 2018), the Founder having grown the head-office staff component of MyBucks to approximately 100 people. The Founder believed he could raise capital on the back of a tech-led model built on excessive cost structures – however, he failed to do so and had instead created massive overhead structures without corresponding growth in operations resulting in a ballooned holding company debt of c. EUR 108 million. This included significant amounts due to the operating subsidiaries in Botswana, South Africa and Zambia, as the Group had to borrow from the operating subsidiaries to fund its operations.”
Timothy Nuy: “In March 2019, one of MyBucks Group lenders, Ecsponent Limited, asked the Board of MyBucks to relieve the Executive Chairman of his duties and requested me to return to the company to lead it through the Debt Recapitalization and clean up exercise. MyBucks further appointed Riaan Paul as CFO and reduced the head-office component from over a 100 to 6 staff members. It furthermore agreed to a debt recapitalization, in which c. EUR 64 million claims were converted from debt to equity to ensure the Company would return from negative equity to positive equity. This was implemented with all necessary regulatory approval in November 2019.”
In order to obtain this approval, the Group had to fast-track its envisioned strategy of splitting the banking and lending operations, as the South African regulator would only approve the conversion of the c. EUR 64 million of claims if the “loop structure” (a structure in which a South African investor has more than 40% of a foreign entity that in turn is invested in South Africa) would be resolved beforehand. In addressing this, Finclusion Africa Holdings Limited acquired the entities in South Africa, Swaziland, Namibia, Kenya and Tanzania, leaving MyBucks with its banking operations in Malawi, Mozambique, Uganda, Zambia and Zimbabwe as well as the lending operation in Botswana it believes it can convert into a bank over time.
MyBucks further successfully sold the office park in South Africa, disposed of its non-core operations in Poland and Australia, and closed its former Spanish operations. In January 2020, MyBucks further announced changes to its non-executive board composition.
That being said, the Company remains liquidity constrained in the short-term, as its asset base is fully committed into long-term loans. The Company will need to complete a capital raising exercise, in order to reduce the residual holding company debt and bolster its equity further to enhance its ability to backstop its subsidiaries and support their respective growth. This capital raising exercise was originally anticipated for the second quarter of 2020, on the back of the audited financial statements for 31st December of 2019 with positive equity following the Debt Recapitalization.
As a result of the recent developments – particularly surrounding Covid-19, the Company acknowledges that this capital raising may be delayed to later in 2020 or even 2021. In the interim, the Company will focus on driving profitability in its operating subsidiaries and maintaining good relationships with its holding company funders.
Strategy Going Forward
MyBucks is now implementing a clear strategy to focus on building a regional digital African banking platform, serving retail consumers and MSMEs. It will run its subsidaries as efficiently as possible, based on a liability-driven model and a key focus on profitability.
Finclusion Africa Holdings Limited will operate as an investment holding company, bringing strategic partners into the different underlying lenders with a view of enhancing profitability and creditworthiness.
What it means for Mintos investors
In the first instance, the creditworthiness of MyBucks and its subsidiaries is now restored. All subsidiaries are profitable – but the Group remains liquidity constraint owing to poor strategic decisions done by previous management.
Finclusion Group entities Kenya and South Africa have now secured their ability to pay the settlement on time. GetBucks Botswana remains significantly cash flow constrained, particularly due to its guaranteeing of the Zambian payments (which entity has unfortunately not been able to make independent payments since over a year). GetBucks Botswana, however, has restored its balance sheet to financial health, and now only suffers from a liquidity mismatch resulting from long-term assets with short-term funding. In order to address this, the Group has agreed to launch a cash-back campaign for all loans longer than two years to drive liquidity on long-term loans and correct this liquidity mismatch. The Group plans to place c. EUR 2-3 million in long-term loans, to permanently address this mismatch. Moreover – the Group remains committed to cover any shortfall from capital raised by the Group.
What emerges from the restructure is an operationally strong business with the right cost structure to deliver profitable and efficient banking and lending operations where obligations are paid in a timely manner. MyBucks loans on Mintos are currently guaranteed by MyBucks Group and these guarantees have already been used to support some of the group companies with delayed payments. In the medium term, the Guarantees for South Africa and Kenya are envisioned to switch from MyBucks to Finclusion Africa Holdings Limited, however, this will not impact existing investments and Mintos will inform investors about the timeframe of this change.
Timothy Nuy: “We have worked closely with Mintos during the restructuring in order to ensure that Mintos investors are receiving their payments as timely as possible and we are confident that we can fulfil the future obligations to Mintos investors. We plan on continuing our partnership with Mintos as one of the funding sources in the future and offer Mintos investors the opportunity to invest in MyBucks loans”.
About the current market situation
MyBucks S.A is monitoring the situation regarding COVID-19 closely. Currently – we have deferred all international travel and limited local travel to the absolute minimum. Moreover – we have put in place working from home policies for our employees. We have amended policies in branches to ensure minimization of risk.
Operationally – the Group’s operations in South Africa are most immediately impacted with COVID-19 following the closure of schools. The Company is preparing for potential implementation of short-time measures, leading to a drop in disposal income and a potential requirement to reschedule loan repayments.
The group is currently assessing any potential impact on its funding structures, including those exposures raised through Mintos and will continue to endeavour to make all repayments in a timely manner. Our core focus is on the health of our employees and clients. We are aware these are challenging times for everyone, and we will work together to get through it.