Equity-Accounted Investments And Other Long-Term Assets

9 Months Ended

Mar. 31, 2021

Equity-Accounted Investments And Other Long-Term Assets [Abstract]

Equity-Accounted Investments And Other Long-Term Assets

6.Equity-accounted investments and other long-term assets

Refer to Note 10 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2020, for additional information regarding its equity-accounted investments and other long-term assets.

Equity-accounted investments

The Company’s ownership percentage in its equity-accounted investments as of March 31, 2021, and June 30, 2020, was as follows:

	March 31,			June 30,
	2021			2020
Finbond Group Limited (“Finbond”)		31	%	31	%
Carbon Tech Limited (“Carbon”)		25	%	25	%
Revix (“Revix”)		25	%	25	%
SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”)		50	%	50	%
V2 Limited (“V2”)		50	%	50	%
Bank Frick & Co AG (“Bank Frick”)		-	%	35	%
Walletdoc Proprietary Limited (“Walletdoc”)		-	%	20	%

Bank Frick

On February 3, 2021, the Company, through its wholly-owned subsidiary, Net1 Holdings LI AG (“Net1 LI”), entered into a share sales agreement with the Frick Family Foundation (“KFS”) to sell its entire interest, or 35%, in Bank Frick to KFS for $30 million. Net1 and certain entities within the IPG group also entered into an indemnity and release agreement with KFS and Bank Frick under which the parties agreed to terminate all existing arrangements with Bank Frick and settle all liabilities related to the Company’s activities with Bank Frick through the payment of $3.6 million to KFS. The Company received $15.0 million, net, on closing, which comprised $18.6 million less the $3.6 million due to KFS to terminate all existing arrangements with Bank Frick and settle all liabilities related to IPG’s activities with Bank Frick. The Company included the $18.6 million within cash flows from investing activities and the $3.6 million within cash flows from operating activities in the unaudited condensed consolidated statement of cash flows for the three and nine months ended March 31, 2021. The outstanding balance due by KFS is expected to be paid as follows: (i) $7.5 million on October 30, 2021, which is included in the caption accounts receivable, net and other receivables in the Company’s unaudited condensed consolidated balance sheet as of March 31, 2021, and (ii) the remaining amount, of $3.9 million on July 15, 2022, which is included in the caption other long-term assets, including reinsurance assets in the Company’s unaudited condensed consolidated balance sheet as of March 31, 2021. The parties entered into a security and pledge agreement under which KFS pledged the Bank Frick shares purchased as security for the amounts outstanding under the share sales agreement.

The Company incurred transaction costs of approximately $0.04 million.

The following table presents the calculation of the loss on disposal of Bank Frick on February 3, 2021:

		February 3,
		2021
Loss on sale of Bank Frick:
Consideration received in cash on February 3, 2021		$	18,600
Consideration received with note on February 3, 2021, refer to (Note 3) and other long-term assets below			11,400
Less: transaction costs			(42)
Less: carrying value of Bank Frick			(32,892)
Add: release of foreign currency translation reserve from accumulated other comprehensive loss			2,462
	Loss on sale of Bank Frick(1)	$	(472)

(1) The Company does not expect to pay taxes related to the sale of Bank Frick because the base cost of its investment exceeds the sales consideration received. The Company does not believe that it will be able to utilize any capital loss, if any, generated because Net1 LI does not own any other capital assets.

On April 15, 2020, the Company paid a termination fee of CHF 17.0 million ($17.5 million) to KFS to cancel an option that was previously exercised by the Company. The Company considered the termination of the exercise of the option to acquire a further 35% interest in Bank Frick an impairment indicator. The Company recorded an impairment loss of $18.3 million during the three and nine months ended March 31, 2020, related to the other-than-temporary decrease in Bank Frick’s value, which represented the difference between the determined fair value of the Company’s interest in Bank Frick and the Company carrying value (before the impairment). The impairment loss is included in the caption loss from equity-accounted investments in the Company’s unaudited condensed consolidated statement of operations.

6.Equity-accounted investments and other long-term assets (continued)

Equity-accounted investments (continued)

Finbond

As of March 31, 2021, the Company owned 268,820,933 shares in Finbond representing approximately 31% of its issued and outstanding ordinary shares. Finbond is listed on the Johannesburg Stock Exchange (“JSE”) and its closing price on March 31, 2021, the last trading day of the month, was ZAR 1.65 per share. The market value, using the March 31, 2021, closing price, of the Company’s holding in Finbond on March 31, 2021, was ZAR 443.6 million ($29.9 million translated at exchange rates applicable as of March 31, 2021).

Finbond published its half-year results to August 2020 in October 2020, which included the financial impact of the COVID-19 pandemic on its reported results during that reporting period. Finbond incurred losses during the six months to August 2020, and experienced a slow-down in its lending activities. Finbond reported that its lending activities had increased again since August 2020, albeit at a slower pace compared with the prior calendar period. Finbond’s share price declined substantially during the period from its fiscal year end (February 2020) to September 30, 2020, and the weakness in its traded share price continued post September 30, 2020. The Company considered the combination of the slow-down in business activity and the lower share price as impairment indicators. The Company performed an impairment assessment of its holding in Finbond as of September 30, 2020. The Company recorded an impairment loss of $16.8 million during the quarter ended September 30, 2020, related to the other-than-temporary decrease in Finbond’s value, which represented the difference between the determined fair value of the Company’s interest in Finbond and the Company’s carrying value (before the impairment). There is limited trading in Finbond shares on the JSE because it has three shareholders that own approximately 90% of its issued and outstanding shares between them. The Company calculated a fair value per share for Finbond by applying a liquidity discount of 15% to the September 30, 2020, Finbond closing price of $1.04.

The Company performed a further impairment assessment of its holding in Finbond as of December 31, 2020, following a modest decline in its market price during the quarter ended December 31, 2020. The Company recorded an impairment loss of $0.8 million during the quarter ended December 31, 2020, related to the other-than-temporary decrease in Finbond’s value, which represented the difference between the determined fair value of the Company’s interest in Finbond and the Company’s carrying value (before the impairment). The Company calculated a fair value per share for Finbond by applying a liquidity discount of 15% to the December 31, 2020, Finbond closing price. The total impairment charge for the nine months ended March 31, 2021, was $17.7 million.

V2 Limited

In June 2020, V2 Limited drew down $0.5 million of the $5.0 million working capital facility granted by the Company to V2. In December 2020, the Company no longer expected to recover its carrying value in V2 and impaired its remaining interest in V2 recording an impairment loss of $0.5 million during the nine months ended March 31, 2021. The Company sold its investment in V2 on April 22, 2021, for one dollar.

In September 2020, the Company and V2 agreed to reduce the $5.0 million working capital facility to $1.5 million. In October 2020, V2 drew down the remaining available $1.0 million of the working capital facility. The Company also created an allowance for doubtful loans receivable of $0.5 million during the nine months ended March 31, 2021, related to a portion of the working capital facility outstanding as of March 31, 2021.

Other

In November 2020, the Company’s subsidiary, Net1 SA, signed an agreement with Walletdoc under which Walletdoc agreed to repay the loan due to Net1 SA in full and Net1 SA agreed to dispose of its entire interest in Walletdoc to Walletdoc.

DNI – impairments in fiscal 2020

During the nine months ended March 31, 2020, the Company recorded impairment losses of $13.1 million. These impairment losses included (i) an amount of $11.5 million related to the difference between the fair value of consideration received on April 1, 2020 following the sale of its remaining interest, and the carrying value of DNI as of March 31, 2020, which included $11.3 million included in accumulated other comprehensive loss as of March 31, 2020, and (ii) an amount of $1.6 million representing the excess of recorded earnings from DNI over its carrying value, calculated as the amount that the Company could receive pursuant to the call option granted to DNI in May 2019.

6.Equity-accounted investments and other long-term assets (continued)

Equity-accounted investments (continued)

Summarized below is the movement in equity-accounted investments and loans provided to equity-accounted investments during the nine months ended March 31, 2021:

					Bank Frick		Finbond		Other(1)		Total
Investment in equity
	Balance as of June 30, 2020				$	29,739	$	30,876	$	4,601	$	65,216
		Stock-based compensation				-		(40)		-		(40)
		Comprehensive (loss) income:				1,156		(18,579)		(987)		(18,410)
			Other comprehensive income			-		1,688		-		1,688
			Equity accounted (loss) earnings			1,156		(20,267)		(987)		(20,098)
				Share of net (loss) income		1,156		(2,617)		(439)		(1,900)
				Impairment		-		(17,650)		(548)		(18,198)
		Dividends received				-		-		(125)		(125)
		Disposal of equity-accounted investment				(32,892)		-		(13)		(32,905)
		Foreign currency adjustment(2)				1,997		3,004		120		5,121
	Balance as of March 31, 2021				$	-	$	15,261	$	3,596	$	18,857
Investment in loans:
	Balance as of June 30, 2020				$	-	$	-	$	620	$	620
		Loans granted				-		-		1,238		1,238
		Allowance for doubtful loans				-		-		(738)		(738)
		Loans repaid				-		-		(134)		(134)
		Foreign currency adjustment(2)				-		-		14		14
	Balance as of March 31, 2021				$	-	$	-	$	1,000	$	1,000
							Equity		Loans		Total
Carrying amount as of :
		June 30, 2020					$	65,216	$	620	$	65,836
		March 31, 2021					$	18,857	$	1,000	$	19,857

(1) Includes Carbon, SmartSwitch Namibia, V2 and Walletdoc.

(2) The foreign currency adjustment represents the effects of the fluctuations of the Swiss franc, ZAR, Nigerian naira and Namibian dollar, against the U.S. dollar on the carrying value.

Other long-term assets

Summarized below is the breakdown of other long-term assets as of March 31, 2021, and June 30, 2020:

		March 31,			June 30,
			2021		2020
Total equity investments		$	52,935	$	26,993
	Investment in 15% of Cell C, at fair value (Note 5)		-		-
	Investment in 12% of MobiKwik		52,935		26,993
	Investment in 87.5% of CPS(1)		-		-
Total held to maturity investments			-		-
	Investment in 7.625% of Cedar Cellular Investment 1 (RF) (Pty) Ltd 8.625% notes		-		-
Long-term portion of amount due related to sale of interest in Bank Frick(2)			3,890		-
Long-term portion of amount due from DNI related to sale of remaining interest in DNI			-		2,857
Policy holder assets under investment contracts (Note 8)			441		490
Reinsurance assets under insurance contracts (Note 8)			1,181		1,006
	Total other long-term assets	$	58,447	$	31,346

(1) On October 16, 2020, the High Court of South Africa, Gauteng Division, Pretoria ordered that CPS be placed into liquidation.

(2) Long-term portion of amount due related to sale of interest in Bank Frick represents the amount due by the purchaser in July 2022.

6.Equity-accounted investments and other long-term assets (continued)

Other long-term assets (continued)

MobiKwik

In early November 2020, MobiKwik entered into an agreement to raise additional capital through the issuance of additional shares to a new shareholder at a valuation of $135.54 per share. In mid-March 2021, MobiKwik raised additional capital through the issuance of shares to new shareholders at a valuation of $170.33 per share. The Company considered each of these transactions to be an observable price change in an orderly transaction for similar or identical equity securities issued by MobiKwik. The Company used the November 2020 valuation as the basis for its adjustment to increase the carrying value in its investment in MobiKwik by $15.1 million from $27.0 million to $42.1 million as of December 31, 2020. The Company used the March 2021 valuation as the basis for its adjustment to increase the carrying value in its investment in MobiKwik by $10.8 million from $42.1 million to $52.9 million as of March 31, 2021. The change in the fair value of MobiKwik for the three and nine months ended March 31, 2021, of $10.8 million and $25.9 million, respectively, is included in the caption “Change in fair value of equity securities” in the unaudited condensed consolidated statement of operations for the three and nine months ended March 31, 2021.

Summarized below are the components of the Company’s equity securities without readily determinable fair value and held to maturity investments as of March 31, 2021:

				Cost basis		Unrealized holding		Unrealized holding		Carrying
						gains		losses		value
Equity securities:
	Investment in MobiKwik		$	26,993	$	25,942	$	-	$	52,935
	Investment in CPS			-		-		-		-
Held to maturity:
	Investment in Cedar Cellular notes			-		-		-		-
		Total	$	26,993	$	25,942	$	-	$	52,935

Summarized below are the components of the Company’s equity securities without readily determinable fair value and held to maturity investments as of June 30, 2020:

				Cost basis		Unrealized holding		Unrealized holding		Carrying
						gains		losses		value
Equity securities:
	Investment in MobiKwik		$	26,993	$	-	$	-	$	26,993
	Investment in CPS			-		-		-		-
Held to maturity:
	Investment in Cedar Cellular notes			-		-		-		-
		Total	$	26,993	$	-	$	-	$	26,993

Contractual maturities of held to maturity investments

Summarized below is the contractual maturity of the Company’s held to maturity investment as of March 31, 2021:

			Cost basis		Estimated fair value(1)
Due in one year or less		$	-	$	-
Due in one year through five years(2)			-		-
Due in five years through ten years			-		-
Due after ten years			-		-
	Total	$	-	$	-

(1) The estimated fair value of the Cedar Cellular note has been calculated utilizing the Company’s portion of the security provided to the Company by Cedar Cellular, namely, Cedar Cellular’s investment in Cell C.

(2) The cost basis is zero ($0.0 million).