Borrowings

9 Months Ended

Mar. 31, 2020

10. Borrowings

Refer to Note 12 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2019, for additional information regarding its borrowings.

South Africa

The amounts below have been translated at exchange rates applicable as of the dates specified.

July 2017 Facilities, as amended, comprising a short-term facility and long-term borrowings

On September 4, 2019, Net1 SA further amended the July 2017 Facilities agreement, which included adding Main Street 1692 (RF) Proprietary Limited (“Debt Guarantor”), a South African company incorporated for the sole purpose of holding collateral for the benefit of the Lenders and acting as debt guarantor. In September 2019, Net1 SA entered into a pledge and cession agreement with the Debt Guarantor pursuant to which, among other things, Net1 SA agreed to cede its shareholdings in Cell C, DNI and FIHRST to the Debt Guarantor. The cession of the shareholdings in FIHRST and DNI were released pursuant to the transactions to dispose of these entities during fiscal 2020.

Short-term facility - Facility E

On September 26, 2018, Net1 SA further revised its amended July 2017 Facilities agreement with RMB to include an overdraft facility (“Facility E”) of up to ZAR 1.5 billion ($83.8 million, translated at exchange rates applicable as of March 31, 2020) to fund the Company’s ATMs. The Facility E overdraft facility was subsequently reduced to ZAR 1,2 billion ($67,1 million, translated at exchange rates applicable as of March 31, 2020) in September 2019. Interest on the overdraft facility is payable on the last day of each month and on the final maturity date based on the South African prime rate. The overdraft facility will be reviewed in September 2020. The overdraft facility amount utilized must be repaid in full within one month of utilization and at least 90% of the amount utilized must be repaid with 25 days. The overdraft facility is secured by a pledge by Net1 SA of, among other things, cash and certain bank accounts utilized in the Company’s ATM funding process, the cession of an insurance policy with Senate Transit Underwriters Managers Proprietary Limited, and any rights and claims Net1 SA has against Grindrod Bank Limited. As at March 31, 2020, the Company had utilized approximately ZAR 0,8 billion ($44,3 million) of this overdraft facility.

This ZAR 1,2 billion overdraft facility may only be used to fund ATMs and therefore the overdraft utilized and converted to cash to fund the Company’s ATMs is considered restricted cash. The prime rate on March 31, 2020, was 8,75% and reduced to 7,75% on April 15, 2020, and to 7,25% on May 22, 2020, following reductions in the South African repo rate.

Long-term borrowings facility - Facility F

On September 4, 2019, Net1 SA further amended its amended July 2017 Facilities agreement with RMB and Nedbank to include a facility (“Facility F”) of up to ZAR 300,0 million ($16,8 million, translated at exchange rates applicable as of March 31, 2020) for the sole purpose of funding the acquisition of airtime from Cell C. Net1 SA may not dispose of the airtime acquired from Cell C without the prior consent of RMB, Absa Bank Limited and Investec Asset Management Proprietary Limited. Facility F comprises (i) a first Senior Facility F loan of ZAR 220,0 million (ii) a second Senior Facility F loan of ZAR 80,0 million, or such lesser amount as may be agreed by the facility agent. Facility F was required to be repaid in full within nine months following the first utilization of the facility. Net1 SA was required to prepay Facility F subject to customary prepayment terms. Interest on Facility F is based on JIBAR plus a margin of 5,50% per annum and is due in full on repayment of the loan. JIBAR was 5,61% on March 31, 2020. The margin on the Facility F increased by 1% on November 1, 2019, because the Company had not disposed of our remaining shareholding in DNI and FIHRST by that date. Net1 SA paid a non-refundable structuring fee of ZAR 2.2 million ($0.1 million) to the Lenders in September 2019, and the Company expensed this amount in full during the first quarter of fiscal 2020. The Company settled the facility in full on April 1, 2020, utilizing a portion of the proceeds received from the sale of its remaining stake in DNI.

Nedbank facility, comprising short-term facilities

As of March 31, 2020, the aggregate amount of the Company’s short-term South African credit facility with Nedbank Limited was ZAR 450,0 million ($25,2 million). The credit facility comprises an overdraft facility of (i) up to ZAR 300,0 million ($16,8 million), which is further split into (a) a ZAR 250,0 million ($14,0 million) overdraft facility which may only be used to fund mobile ATMs and (b) a ZAR 50,0 million ($2,8 million) general banking facility and (ii) indirect and derivative facilities of up to ZAR 150,0 million ($8,4 million), which include letters of guarantees, letters of credit and forward exchange contracts. The ZAR 250,0 million component of the primary amount may only be used to fund ATMs and therefore this component of the primary amount utilized and converted to cash to fund the Company’s ATMs is considered restricted cash. The short-term facility provides Nedbank with the right to set off funds held in certain identified Company bank accounts with Nedbank against any amounts owed to Nedbank under the facility. As of March 31, 2020, the Company had total funds of $4,9 million in bank accounts with Nedbank which have been set off against $12,0 million drawn under the Nedbank facility, for a net amount drawn under the facility of $7,1 million. As of March 31, 2020, the interest rate on the overdraft facility was 7,60%, and reduced to 6,60% on April 15, 2020, and to 6,10% on May 22, 2020, following reductions in the South African repo rate.

10. Borrowings (continued)

As of March 31, 2020, the Company had utilized approximately ZAR 127,1 million ($7,1 million) of its ZAR 300,0 million overdraft facility to fund ATMs, and none of its ZAR 50,0 million general banking facility. As of March 31, 2020 and June 30, 2019, the Company had utilized approximately ZAR 93,6 million ($5,2 million) and ZAR 93.6 million ($6.6 million), respectively, of its indirect and derivative facilities of ZAR 150 million to enable the bank to issue guarantees, letters of credit and forward exchange contracts, in order for the Company to honor its obligations to third parties requiring such guarantees (refer to Note 21).

United States, a short-term facility

The Company’s $20 million facility from Bank Frick was settled in full and cancelled in March 2020. The Bank Frick shares pledged as security were released.

Movement in short-term credit facilities

Summarized below are the Company’s short-term facilities as of March 31, 2020, and the movement in the Company’s short-term facilities from as of June 30, 2019 to as of March 31, 2020:

						South Africa				United States		Total
						Amended July 2017		Nedbank		Bank Frick
Short-term facilities available as of
March 31, 2020					$	67 068	$	25 152	$	-	$	92 220
	Overdraft					-		2 795		-		2 795
	Overdraft restricted as to use for ATM funding only					67 068		13 973		-		81 041
	Indirect and derivative facilities					-		8 384		-		8 384

Movement in utilized overdraft facilities:
	Balance as of June 30, 2019					69 566		5 880		9 544		84 990
		Utilized				505 659		62 230		17 384		585 273
		Repaid				(519 262)		(59 063)		(26 928)		(605 253)
		Foreign currency adjustment⁽¹⁾				(11 697)		(1 943)		-		(13 640)
			Balance as of March 31, 2020⁽²⁾			44 266		7 104		-		51 370
				Restricted as to use for ATM funding only		44 266		7 104		-		51 370

Movement in utilized indirect and derivative
facilities:
	Balance as of June 30, 2019					-		6 643		-		6 643
		Foreign currency adjustment⁽¹⁾				-		(1 414)		-		(1 414)
			Balance as of March 31, 2020		$	-	$	5 229	$	-	$	5 229

(1) Represents the effects of the fluctuations between the ZAR and the U.S. dollar.

(2) Nedbank balance as of March 31, 2020, of $7.1 million comprises the net of total overdraft facilities withdrawn of $12.0 million offset against funds in bank accounts with Nedbank of $4.9 million.

Movement in long-term borrowings

Summarized below is the movement in the Company’s long term borrowing from as of June 30, 2019 to as of March 31, 2020:


			South Africa
			Amended July 2017		Total
Balance as of June 30, 2019		$	-	$	-
Current portion of long-term borrowings			-		-
Long-term borrowings			-		-
	Utilized		14 798		14 798
	Repaid		(11 313)		(11 313)
	Foreign currency adjustment⁽¹⁾		(295)		(295)
Balance as of March 31, 2020			3 190		3 190
	Current portion of long-term borrowings		3 190		3 190
	Long-term borrowings	$	-	$	-

(1) Represents the effects of the fluctuations between the ZAR and the U.S. dollar.

Interest expense incurred under the Company’s South African long-term borrowing during the three months ended March 31, 2020 and 2019, was $0,1 million and $0,9 million, respectively. Interest expense incurred during the nine months ended March 31, 2020 and 2019, was $0,6 million and $2,1 million, respectively. There was no prepaid facility fee amortization during the three and nine months ended March 31, 2020. Prepaid facility fees amortized during the three and nine months ended March 31, 2019, was $0,1 million and $0,2 million, respectively.