Fintech player IOUpay (ASX:IOU) issues update on IDSB transaction

Highlights

• IOUpay has determined the total amount to be paid under the second tranche payment for its investment in IDSB.
• The BNPL company has also secured an extension to the settlement period of the transaction until 31 August 2022.
• IOUpay has already settled the first tranche payment of RM63 million (approx. AU$20 million), which was financed from its existing cash holdings.

ASX-listed BNPL player IOUpay Limited (ASX:IOU) has provided a significant update concerning its investment in Malaysian finance company I.Destinasi Sdn Bhd (IDSB).

Last year in September, the fintech player executed binding documents to acquire 42% of the total issued capital of IDSB. The first tranche payment was made in late-December 2021. 

In the latest development, the fintech player has confirmed the amount to be paid under the second tranche payment to the vendors. Also, the company has reached an agreement with the vendors for an extension of the settlement period of this transaction.

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Extension of the settlement period

IOU Pay (Asia) Sdn Bhd, a wholly owned subsidiary of IOU, has signed a share purchase agreement (SPA) with IDSB shareholders – Jiraniaga Sdn Bhd (JSB) and Dato’ Zainalabidin Mohamed Husain (DZA) – collectively, the vendors.

The SPA allows IOU to complete the settlement of the second tranche payment by 20 June 2022.  

Source: © Rawpixelimages | Megapixl.com

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Lately, IOUpay Asia and the vendors formally agreed to extend the date for settlement of the second tranche payment to no later than 31 August 2022. Moreover, the company’s lawyers have prepared and arranged execution of documents to confirm the amount of the second tranche payment and to extend the settlement period.

First tranche payment by IOU

The first tranche payment of RM63 million (approx. AU$20 million) was financed from IOU’s existing cash holdings. The first tranche settlement was formally completed on 20 December 2021 with the registration of the transfer of shares (indicating 21% of the total issued capital of IDSB) to IOUpay Asia.

Source: © Vladwel | Megapixl.com

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Calculation of the second tranche payment

The SPA provides for an adjustment to the Purchase Price in case there is a variance of over 10% to the RM30 million Profit Before Tax (PBT) threshold for the FY21 ended 31 December 2021. Under such an event, the Adjusted Purchase Price will be calculated as 10x PBT for FY21.  

Now that the audited statutory accounts of IDSB for FY21 are available, IOUpay Asia and the vendors have determined the amount for the second tranche payment to be RM21,684,033 (approx. AU$6.9 million) based on the following calculation:

Source: IOU Announcement 20/06/22

Description: IOUpay (ASX:IOU) second tranche payment calculation

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Notably, IOU had allocated funds to an escrow account, which currently stands at RM9.5 million (AU$3 million).

The company plans to utilise this amount towards finalising the second tranche payment. After applying the funds held in escrow, IOUpay Asia will be required to pay a net amount of RM12,184,033 (~AU$3.9 million) for the second tranche of the investment.

Once the second tranche payment is settled, IOU will double its shareholding in IDSB to 42%, representing completion of the investment transaction.

IOU has previously reported that it is working with IDSB to develop a marketing programme to market myIOU BNPL services into IDSB’s high-credit quality, civil servant customer base.  The marketing programme is anticipated to be rolled out in stages commencing from the September quarter (Q1 FY23).

IOU shares traded at AU$0.048 on 20 June 2022.