Subsequent Events

9 Months Ended

Mar. 31, 2022

Subsequent Events [Abstract]

Subsequent Events

20. Subsequent events

2022 Acquisitions

April 2022 acquisition of Connect

On October 31, 2021, the Company entered into a Sale of Shares Agreement (the “Sale Agreement”) with the Sellers (as defined in the Sale Agreement), Cash Connect Management Solutions Proprietary Limited (“CCMS”), Ovobix (RF) Proprietary Limited (“Ovobix”), Luxiano 227 Proprietary Limited (“Luxiano”) and K2021477132 (South Africa) Proprietary Limited (“K2021” and together with CCMS, Ovobix and Luxiano, “Connect”). Pursuant to the Sale Agreement, and subject to its terms and conditions, the Company’s wholly-owned subsidiary, Net1 SA, agreed to acquire, and the Sellers agreed to sell, all of the outstanding equity interests and certain claims in Connect. The transaction closed on April 14, 2022. The Company has commenced the purchase price allocation related to this transaction however the process had not been completed as of the date of filing this Quarterly Report on Form 10-Q on May 10, 2022. The Company expects to include its preliminary allocation of the purchase consideration related to this acquisition in its audited financial statements to be included in its Annual Report on Form 10-K for the year ended June 30, 2022.

The total purchase consideration was ZAR 3.8 billion ($262.0 million), comprising ZAR 3.5 billion ($238.2 million) in cash and ZAR 0.4 billion ($23.9 million) in 3,185,079 shares of the Company’s common stock. The 3,185,079 shares of common stock will be issued in three tranches on each of the first, second and third anniversaries of the closing and was calculated as ZAR 350.0 million divided by the sum of $7.50 multiplied by the closing date exchange rate (as defined in the Sale Agreement) of $1:ZAR 14.65165.

The closing of the transaction was subject to customary closing conditions, including (i) approval from the competition authorities of South Africa, Namibia and Botswana, (ii) exchange control approval from the financial surveillance department of the South African Reserve Bank, and (iii) obtaining certain third-party consents. In addition, the closing of the transaction was subject to entry into definitive financing agreements by each of Net1 SA and CCMS for an aggregate of ZAR 2.35 billion in debt financing provided by Rand Merchant Bank and satisfying the conditions precedent for funding thereunder, of which ZAR 1.1 billion relates to the financing agreements described below and ZAR 1.25 billion related to finance agreements signed between CCMS and RMB. Of the ZAR1.25 billion related to CCMS, ZAR 250 million related to new debt as part of the funding of the acquisition. The definitive loan agreements became effective upon closing the transaction.

The South African competition authorities approved the transaction subject to certain public interest conditions relating to employment, increasing the spread of ownership by historically disadvantaged people (“HDPs”) and workers, and investing in supplier and enterprise development. Further to increasing the spread of ownership by HDPs, Net1 is required to establish an employee share ownership scheme (“ESOP”) within 24 months of the implementation of the Connect acquisition, that complies with certain design principles for the benefit of the workers of the merged entity to receive a shareholding in Net1 equal in value to at least 3% of the issued shares in Net1 at the date of the Connect acquisition. If within 24 months of the implementation date of the transaction, Net1generates a positive net profit for three consecutive quarters, the ESOP shall increase to 5% of the issued shares in Net1 at the date of the Connect acquisition. The final structure of the ESOP is contingent on Net1 shareholder approval and relevant regulatory and governance approvals. The ESOP had not been established as of May 10, 2022.

The Company believes that the acquisition significantly advances its vision to transform into the leading fintech platform for underserved consumers and merchants in South Africa. The combination is strategically important because it combines complementary product offerings to drive stronger unit economics, facilitates expansion of the addressable market to informal MSMEs, Connect has an attractive financial profile with strong and profitable growth, merges highly skilled teams with complementary expertise and allows the combined group to better serve the underserved in South Africa through the provision of dignified financial services to people and businesses who are underserved by the financial system.

20. Subsequent events (continued)

New borrowings – South Africa

July 2017 Facilities, as amended, comprising long-term borrowings (Facility G and Facility H) and a short-term facility (Facility E)

Long-term facilities - Facility G and Facility H

The Company, through Net1 SA, entered into a Fourth Amendment and Restatement Agreement, which includes, among other agreements, an Amended and Restated Common Terms Agreement, a Senior Facility G Agreement and a Senior Facility H Agreement (collectively, the “Loan Documents”) with RMB and 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, and certain other parties. The Loan Documents were further amended through letter agreements, which form part of the Loan Documents, in March 2022 and the disclosure in this note includes the amended terms. Net1 agreed to guarantee the obligations of Net1 SA to the Lenders. The Loan Documents became effective upon closing the transaction and the Company drew down on the facilities on April 14, 2022.

The Loan Documents contain customary covenants that require Net1 SA to maintain a specified total asset cover ratio, maintain group cash balances (as defined in the Loan Documents) above ZAR 300.0 million, and restrict the ability of Net1, Net1 SA, and certain of its subsidiaries to make certain distributions with respect to their capital stock, prepay other debt, encumber their assets, incur additional indebtedness, make investment above specified levels, engage in certain business combinations and engage in other corporate activities. The group cash balances may go below ZAR 300 million to the extent equivalent credit support is provided by the VCP Investment Fund and/ or VCP Investment Portfolios (“VCP Investors”), and such support exceeds ZAR 350 million, but such reduction below ZAR 300 million is limited by a further ZAR 80 million to ZAR 220 million.

Pursuant to the Senior Facility G Agreement, Net1 SA may borrow up to an aggregate of ZAR 768.975 million (“Facility G”) for the sole purposes of funding the acquisition of the Target Companies and paying transaction costs. Facility G is required to be repaid on the date which is 18 months after the first utilization of Facility G. Interest on Facility G is payable quarterly in arrears based on the 3-month Johannesburg Interbank Agreed Rate (“JIBAR”) in effect from time to time plus a margin of (i) 3.00% per annum for the first nine months occurring after the effective date (as defined in the Loan Documents); and then (ii) from the date after the nine month period in (i), (x) 2.50% per annum if the Facility G balance outstanding is less than or equal to ZAR 250.0 million, or (y) 3.00% per annum if the Facility G balance is between ZAR 250.0 million to ZAR 450.0 million, or (z) 3.50% per annum if the Facility G balance is greater than ZAR 450.0 million. The interest rate shall increase by a further 2.00% per annum in the event of default (as defined in the Loan Documents). Net1 SA paid a non-refundable deal origination fee of ZAR 11.25 million to the Lenders related to Facility G on closing.

Pursuant to the Senior Facility H Agreement, Net1 SA may borrow up to an aggregate of ZAR 350.0 million (“Facility H”) for the sole purposes of funding the acquisition of the Target Companies and paying transaction costs. Facility H is required to be repaid on the date which is 18 months after the first utilization of Facility H. Interest on Facility H is payable quarterly in arrears based on JIBAR in effect from time to time plus a margin of 2.00% per annum which increases by a further 2.00% per annum in the event of default (as defined in the Loan Documents). Net1 SA paid a non-refundable deal origination fee of ZAR 5.25 million to the Lenders related to Facility H on closing.

Facility G and Facility H are secured by a pledge of certain of the Company’s bank accounts, and the cession of Net1’s shareholding in certain of its subsidiaries.

The Facility H Agreement provides the Lenders with a right to discuss the capitalization of the Net1 group with its management and Value Capital Partners Proprietary Limited (“VCP”) if Net1’s market capitalization on the NASDAQ Global Select Market (based on the closing price on the NASDAQ Global Select Market) on any day falls below the USD equivalent of ZAR 3.250 billion (or such other amount agreed by the parties). VCP is required to maintain an asset cover ratio above 5.00:1.00, calculated as the total VCP investment fund net asset value (as defined in the Facility H agreement) divided by the Facility H borrowings outstanding, measured as of March, June, September and December each year (as applicable) (each a “Measurement Date”). The Lenders require Net1 SA to deliver a compliance certificate procured from VCP as of each applicable Measurement Date, which shows the computation of the asset cover ratio.

20. Subsequent events (continued)

Connect’s borrowing

The Company, through CCMS, entered into a Facilities Agreement (the “CCMS Facilities Agreement”) with RMB in January 2022. The CCMS Facilities Agreement was further amended through letter agreements, which form part of the CCMS Facilities Agreement, in March and April 2022, respectively, and the disclosure in this note includes the amended terms. The CCMS Facilities Agreement became effective upon closing the transaction.

The CCMS Facilities Agreement provides for total facilities of ZAR 1.3 billion comprising a Facility A term loan of ZAR 700 million (“Facility A Loan”), a Facility B term loan of ZAR 350 million (“Facility B Loan”), and a general banking facility of ZAR 205.0 million. The amount available under the general banking facility will reduce to ZAR 125.0 million on March 23, 2023. CCMS paid a non-refundable structuring fee of approximately ZAR 4.8 million in April 2022. Interest on the loans is payable quarterly based on JIBAR plus a margin in effect from time to time.

On April 14, 2022, the CCMS utilized the entire amount of Facility A and Facility B and approximately ZAR 211.0 million of the general banking facility to repay its existing borrowings and to settle obligations under the Sales Agreement. Principal repayments related to the Facility A Loan and the Facility B Loan are due at the end of each of the Company’s fiscal quarters. The table below presents payments due within the twelve months ended March 31, for each of the periods specified:

		Facility A Loan		Facility B Loan
		ZAR '000		ZAR '000
Total facility		ZAR	700,000	ZAR	350,000
Repayments due within the twelve months ended:
	March 31, 2023		-		(56,250)
	March 31, 2024		-		(75,000)
	March 31, 2025		-		(93,750)
	March 31, 2026		-		(118,750)
	March 31, 2027		(137,500)		(6,250)
	March 31, 2028	ZAR	(562,500)	ZAR	-

Borrowings under the CCMS Facilities Agreement are secured by a pledge by CCMS of, among other things, all of its equity shares, its entire equity interests in equity securities it owns and any claims outstanding. The CCMS Facilities Agreement contains customary covenants that require CCMS to maintain a specified debt service and interest cover and leverage ratio.

Interest on the Facility A Loan and the Facility B Loan is payable quarterly in arrears based on the Johannesburg Interbank Agreed Rate (“JIBAR”) in effect from time to time for the interest period (as defined in the CCMS Facilities Agreement) plus a margin of (i) 4.00% per annum while the leverage ratio is greater than or equal to 3.50 times; (ii) 3.75% per annum while the leverage ratio is between 2.50 times and 3.50 times, or (iii) 3.40% per annum while the leverage ratio is less than or equal to 2.50 times.

VCP Securities Purchase Agreement

On March 22, 2022, Net1 and Net1 SA entered into a Securities Purchase Agreement (the “VCP Agreement”) with Value Capital Partners Proprietary Limited (“VCP”) whereby VCP will procure that one or more funds under its management (the “Purchasing Funds”) will subscribe for, and Net1 will have the obligation to issue and sell to the Purchasing Funds, ZAR 350.0 million of common stock of Net1 if (i) an event of default occurs under Facility G or Facility H, (ii) Net1 SA fails to pay all outstanding amounts in respect of Facility H on the maturity date of such facility, or (iii) the market capitalization of Net1 on the Nasdaq Global Select Market (based on the closing price on such exchange) falls and remains below the U.S. dollar equivalent of ZAR 2.6 billion on more than one day. The VCP Agreement contains customary representations and warranties from Net1 and VCP and covenants from Net1 and Net1 SA. In connection with the VCP Agreement, Net1 SA agreed to pay VCP a commitment fee in an amount equal to ZAR 5.25 million.

Additionally, Net1, Net1 SA and VCP entered into a Step-In Rights Letter on March 22, 2022 with RMB, which provides RMB with step in rights to perform the obligations or enforce the rights of Net1 and Net1 SA under the VCP Agreement to the extent that Net1 and Net1 SA fail to do so and do not remedy such failure within two business days of notice of such failure.

Grant of shares of restricted stock to Connect employees

On April 14, 2022, the Company granted 1,250,486 shares of restricted stock to employees of Connect pursuant to the Sale Agreement. The award includes an equalization mechanism to maintain a return of $7.50 per share of restricted stock upon vesting through the issue of restricted stock units. The conversion of restricted stock units to shares cannot exceed 50% under the terms of the award. The Company has not finalized the accounting for the grant of these equity awards and expects to conclude this matter together with its purchase accounting process referenced above.