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Fair Value Of Financial Instruments
 6 Months Ended
Dec. 31, 2024
Fair Value Of Financial Instruments [Abstract]  
Fair Value Of Financial Instruments
5.
 
Fair value of financial instruments
Initial recognition and measurement
Financial instruments
 
are recognized
 
when the
 
Company becomes
 
a party
 
to the
 
transaction. Initial
 
measurements are
 
at cost,
which includes transaction costs.
 
Risk management
The Company manages its exposure
 
to currency exchange, translation, interest rate,
 
credit, microlending credit and equity price
and liquidity risks as discussed below.
 
Currency exchange risk
The
 
Company
 
is
 
subject
 
to
 
currency
 
exchange
 
risk
 
because
 
it
 
purchases
 
components
 
for
 
its
 
safe
 
assets,
 
that
 
the
 
Company
assembles, and inventories that it is required to settle in other currencies, primarily the euro, renminbi, and U.S. dollar.
 
The Company
has
 
used forward
 
contracts
 
in order
 
to limit
 
its exposure
 
in these
 
transactions
 
to fluctuations
 
in exchange
 
rates
 
between
 
the South
African rand (“ZAR”), on the one hand, and the U.S. dollar and the euro, on
 
the other hand.
Translation risk
Translation risk relates to
 
the risk that
 
the Company’s results of operations
 
will vary significantly
 
as the U.S.
 
dollar is its
 
reporting
currency,
 
but it earns a
 
significant amount of its
 
revenues and incurs a
 
significant amount of its
 
expenses in ZAR. The
 
U.S. dollar to
the ZAR
 
exchange rate
 
has fluctuated
 
significantly over
 
the past
 
three years.
 
As exchange
 
rates are
 
outside the
 
Company’s
 
control,
there can be no
 
assurance that future fluctuations will
 
not adversely affect the Company’s results of operations and
 
financial condition.
 
5.
 
Fair value of financial instruments (continued)
Risk management (continued)
Interest rate risk
As a result of its
 
normal borrowing activities, the Company’s operating results are exposed to fluctuations in
 
interest rates, which
it
 
manages
 
primarily
 
through
 
regular
 
financing
 
activities.
 
Interest
 
rates
 
in
 
South
 
Africa
 
remained
 
unchanged
 
for
 
the
 
majority
 
of
calendar 2024 however the South African Reserve Bank announced a 25-basis point reduction in the South African repurchase rate in
each of
 
September 2024
 
and November
 
2024, with
 
further reductions
 
expected in
 
the short-term.
 
Therefore, ignoring
 
the impact
 
of
changes
 
to
 
the
 
margin
 
on
 
its
 
borrowings
 
(refer
 
to
 
Note
 
9)
 
and
 
value
 
of
 
borrowings
 
outstanding,
 
the
 
Company
 
expects
 
its
 
cost
 
of
borrowing to decline moderately in the foreseeable future, however,
 
the Company would expect a higher cost of borrowing if interest
rates were to increase in
 
the future. The
 
Company periodically evaluates the
 
cost and effectiveness
 
of interest rate hedging
 
strategies
to
 
manage
 
this risk.
 
The Company
 
generally
 
maintains
 
surplus
 
cash
 
in cash
 
equivalents and
 
held
 
to maturity
 
investments
 
and
 
has
occasionally invested in marketable securities.
Credit risk
Credit
 
risk
 
relates
 
to
 
the
 
risk
 
of
 
loss
 
that
 
the
 
Company
 
would
 
incur
 
as
 
a
 
result
 
of
 
non-performance
 
by
 
counterparties.
 
The
Company
 
maintains
 
credit
 
risk
 
policies
 
in
 
respect
 
of
 
its
 
counterparties
 
to
 
minimize
 
overall
 
credit
 
risk.
 
These
 
policies
 
include
 
an
evaluation
 
of
 
a
 
potential
 
counterparty’s
 
financial
 
condition,
 
credit
 
rating,
 
and
 
other
 
credit
 
criteria
 
and
 
risk
 
mitigation
 
tools
 
as
 
the
Company’s
 
management deems appropriate.
 
With respect
 
to credit risk on
 
financial instruments, the
 
Company maintains a
 
policy of
entering
 
into such
 
transactions only
 
with South
 
African
 
and European
 
financial institutions
 
that have
 
a credit
 
rating of
 
“B” (or
 
its
equivalent) or better, as determined by credit
 
rating agencies such as Standard & Poor’s, Moody’s
 
and Fitch Ratings.
Consumer microlending credit
 
risk
The Company
 
is exposed
 
to credit
 
risk in
 
its Consumer
 
microlending activities,
 
which provides
 
unsecured short-term
 
loans to
qualifying customers.
 
Credit bureau
 
checks as
 
well as
 
an affordability
 
test are
 
conducted as
 
part of
 
the origination
 
process, both
 
of
which are in line with local regulations. The Company considers this
 
policy to be appropriate because the affordability test it
 
performs
takes into account
 
a variety of
 
factors such
 
as other debts
 
and total expenditures
 
on normal household
 
and lifestyle expenses.
 
Additional
allowances
 
may
 
be required
 
should the
 
ability of
 
its customers
 
to make
 
payments when
 
due
 
deteriorate
 
in the
 
future. Judgment
 
is
required to assess
 
the ultimate recoverability
 
of these finance
 
loan receivables, including
 
ongoing evaluation
 
of the creditworthiness
of each customer.
Merchant lending
The Company maintains an allowance for
 
doubtful finance loans receivable related to
 
its Merchant services segment with
 
respect
to short-term loans to qualifying merchant customers. The
 
Company’s risk management procedures include adhering to its proprietary
lending criteria which uses
 
an online-system loan application
 
process, obtaining necessary customer transaction-history
 
data and credit
bureau checks.
 
The Company considers
 
these procedures
 
to be appropriate
 
because it takes
 
into account
 
a variety of
 
factors such
 
as
the customer’s credit capacity and customer-specific
 
risk factors when originating a loan.
Equity price and liquidity risk
Equity price risk relates to the risk of loss that the Company would incur as a result of the volatility in the exchange-traded price
of equity
 
securities that
 
it holds.
 
The market
 
price of
 
these securities
 
may fluctuate
 
for a
 
variety of
 
reasons and,
 
consequently,
 
the
amount that the Company may obtain in a subsequent sale of these securities may significantly differ
 
from the reported market value.
 
Equity liquidity risk
 
relates to the risk
 
of loss that the
 
Company would incur as
 
a result of the lack
 
of liquidity on the
 
exchange
on
 
which
 
those
 
securities
 
are
 
listed.
 
The
 
Company
 
may
 
not be
 
able
 
to
 
sell some
 
or
 
all
 
of
 
these
 
securities
 
at
 
one
 
time,
 
or
 
over
 
an
extended period of time without influencing the exchange-traded price,
 
or at all.
 
5.
 
Fair value of financial instruments (continued)
Financial instruments (continued)
The following
 
section describes
 
the valuation
 
methodologies the
 
Company uses
 
to measure
 
its significant
 
financial assets
 
and
liabilities at fair value.
In general, and where applicable, the Company uses quoted prices in
 
active markets for identical assets or liabilities
 
to determine
fair value.
 
This pricing
 
methodology would
 
apply to
 
Level 1
 
investments. If quoted
 
prices in
 
active markets
 
for identical
 
assets or
liabilities are
 
not available
 
to determine
 
fair value,
 
then the
 
Company uses
 
quoted
 
prices for
 
similar assets
 
and
 
liabilities or
 
inputs
other
 
than
 
the
 
quoted
 
prices
 
that
 
are
 
observable
 
either
 
directly
 
or
 
indirectly. These
 
investments
 
would
 
be included
 
in
 
Level
 
2
investments. In
 
circumstances
 
in
 
which
 
inputs
 
are
 
generally
 
unobservable,
 
values
 
typically
 
reflect
 
management’s
 
estimates
 
of
assumptions that market participants would use in pricing the asset or liability.
 
The fair values are therefore determined using model-
based techniques that include
 
option pricing models,
 
discounted cash flow models,
 
and similar techniques. Investments
 
valued using
such techniques are included in Level 3 investments.
Asset measured at fair value using significant observable inputs – investment in MobiKwik
The Company’s
 
owns
6,215,620
 
equity shares of
 
One MobiKwik Systems Limited
 
(“MobiKwik”). MobiKwik
 
listed on the
National Stock Exchange of India (“NSE”) on December 18, 2024. Up until its listing MobiKwik did not have a readily determinable
fair value and the
 
Company elected to measure
 
its investment in MobiKwik
 
at cost minus impairment,
 
if any,
 
plus or minus changes
resulting from observable price changes in orderly transactions
 
for the identical or a similar investment of the same issuer
 
(“cost plus
or minus changes
 
in observable prices equity
 
securities”). From the date
 
of MobiKwik’s
 
listing, the Company has
 
used MobiKwik’s
closing price reported
 
on the NSE
 
on the last
 
trading day related
 
to last day
 
of the Company’s
 
reporting period to
 
determine the fair
value of the equity securities
 
owned by the Company.
 
The Company has determined
 
a fair value per MobiKwik
 
share of $
6.85
 
(INR
586.15
 
per share at the USD: INR exchange rates applicable as of December 31, 2024).
 
Refer to Note 6 for additional information.
Asset measured at fair value using significant unobservable inputs – investment
 
in Cell C
The Company’s
 
Level 3 asset represents
 
an investment of
75,000,000
 
class “A” shares in Cell
 
C, a significant
 
mobile telecoms
provider in South Africa.
 
The Company used a discounted cash flow model developed by the Company to determine
 
the fair value of
its investment in Cell C as of December 31, 2024 and June 30, 2024, respectively,
 
and valued Cell C at $
0.0
 
(zero) and $
0.0
 
(zero) as
of December 31, 2024, and
 
June 30, 2024, respectively.
 
The Company incorporates the payments
 
under Cell C’s
 
lease liabilities into
the cash
 
flow forecasts
 
and assumes
 
that Cell
 
C’s
 
deferred tax
 
assets would
 
be utilized
 
over the
 
forecast period.
 
The Company
 
has
assumed a marketability discount of
20
% and a minority discount of
24
%. The Company utilized the latest business plan provided by
Cell C management for the
 
period ending December 31, 2027, for
 
the December 31, 2024, and June
 
30, 2024, valuations. Adjustments
have been made to the WACC
 
rate to reflect the Company’s assessment
 
of risk to Cell C achieving its business plan.
The following key valuation inputs were used as of December 31, 2024
 
and June 30, 2024:
 
 
 
 
 
 
 
 
 
 
 
 
Weighted Average
 
Cost of Capital ("WACC"):
Between
21
% and
25
% over the period of the forecast
Long term growth rate:
4.5
% (
4.5
% as of June 30, 2024)
Marketability discount:
20
% (
20
% as of June 30, 2024)
Minority discount:
24
% (
24
% as of June 30, 2024)
Net adjusted external debt - December 31, 2024:
(1)
ZAR
7.4
 
billion ($
0.4
 
billion), no lease liabilities included
Net adjusted external debt - June 30, 2024:
(2)
ZAR
7.9
 
billion ($
0.4
 
billion), no lease liabilities included
(1) translated from ZAR to U.S. dollars at exchange rates applicable as of
 
December 31, 2024.
(2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30,
 
2024.
The following table presents the impact on the carrying value of the Company’s
 
Cell C investment of a
1.0
% decrease and
1.0
%
increase in
 
the WACC
 
rate and
 
the EBITDA
 
margins respectively
 
used in
 
the Cell C
 
valuation on
 
December 31,
 
2024, all
 
amounts
translated at exchange rates applicable as of December 31, 2024:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sensitivity for fair value of Cell C investment
1.0% increase
1.0% decrease
WACC
 
rate
$
-
$
426
EBITDA margin
$
1,059
$
-
The aggregate
 
fair value
 
of the
 
MobiKwik and
 
Cell C’s
 
shares as
 
of December
 
31, 2024,
 
represented
6.6
% of
 
the Company’s
total assets,
 
including
 
these shares
 
.
 
The Company
 
expects that
 
there will
 
be short-term
 
equity price
 
volatility with
 
respect to
 
these
shares, and with respect to Cell C specifically,
 
particularly given that Cell C remains in a turnaround process.
5.
 
Fair value of financial instruments
The following table
 
presents the
 
Company’s assets measured at
 
fair value on
 
a recurring
 
basis as
 
of December 31,
 
2024, according
to the fair value hierarchy:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Investment in Cell C
$
-
$
-
$
-
$
-
Investment in MobiKwik
42,566
-
-
42,566
Related to insurance
business:
 
Cash, cash equivalents and
restricted cash (included
in other long-term assets)
 
217
-
-
217
Fixed maturity
investments (included in
cash and cash equivalents)
4,532
-
-
4,532
Total assets at fair value
 
$
47,315
$
-
$
-
$
47,315
The following table presents the
 
Company’s assets measured
 
at fair value on a recurring basis as of
 
June 30, 2024, according to
the fair value hierarchy:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Investment in Cell C
$
-
$
-
$
-
$
-
Related to insurance business
Cash and cash equivalents
(included in other long-term
assets)
216
-
-
216
Fixed maturity investments
(included in cash and cash
equivalents)
4,635
-
-
4,635
Total assets at fair value
 
$
4,851
$
-
$
-
$
4,851
There have been
no
 
transfers in or out of Level 3 during the six months ended December 31, 2024 and 2023,
 
respectively.
There was
no
 
movement in the carrying value of assets measured at fair value on a recurring basis, and categorized within Level
3, during the six months ended December 31, 2024 and 2023.
Summarized below is the movement in the carrying value of
 
assets and liabilities measured at fair value on a recurring
 
basis, and
categorized within Level 3, during the six months ended December 31, 2024:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Carrying value
Assets
Balance as of June 30, 2024
$
-
Foreign currency adjustment
(1)
-
Balance as of December 31, 2024
$
-
(1) The foreign currency adjustment represents the effects of the fluctuations of the
 
South African rand against the U.S. dollar on
the carrying value.
5.
 
Fair value of financial instruments
Summarized below is the movement in the carrying value
 
of assets and liabilities measured at fair value on
 
a recurring basis, and
categorized within Level 3, during the six months ended December 31, 2023:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Carrying value
Assets
Balance as of June 30, 2023
$
-
Foreign currency adjustment
(1)
-
Balance as of December 31, 2023
$
-
(1) The
 
foreign currency
 
adjustment represents the
 
effects of
 
the fluctuations
 
of the South
 
African rand
 
against the U.S.
 
dollar
on the carrying value.
Assets measured at fair value on a nonrecurring basis
The Company
 
measures equity
 
investments without
 
readily determinable
 
fair values
 
at fair value
 
on a
 
nonrecurring basis.
 
The
fair values of
 
these investments
 
are determined
 
based on
 
valuation techniques
 
using the best
 
information available
 
and may include
quoted market prices, market comparables, and discounted cash flow
 
projections. An impairment charge is recorded when the cost
 
of
the
 
asset
 
exceeds
 
its
 
fair
 
value
 
and
 
the
 
excess
 
is
 
determined
 
to
 
be
 
other-than-temporary.
 
Refer
 
to
 
Note
 
6
 
for
 
impairment
 
charges
recorded during the
 
reporting periods presented
 
herein. The Company
 
has
no
 
liabilities that
 
are measured at
 
fair value
 
on a
 
nonrecurring
basis.