By Maano Andy Thovhakale
Apis Growth Fund I, a private equity fund managed by Apis Partners, has entered into an agreement to sell the whole of its interest in leading South African SME Financing company Retail Capital Proprietary Holdings to TymeBank Holdings Limited.
Retail Capital has provided more than 43 000 business owners in South Africa with over R5.5 billion in working capital over the last 10 years, making it the largest SME funder of its kind in the sector. According Nobesuthu Ndlovu, a director of Old Mutual’s SME unit, there is an estimated R300bn-R500bn funding gap for SMEs in SA”. This means there is a market for more players in the space.
Apis Partners and TymeBank share a very special relationship. We will get to this relationship in a bit.
This article will cover;
- who are TymeBank’s shareholders, and
- how is it performing?
- Who is Ubuntu-Botho Investments Proprietary Limited Group?
Background and Fun Facts:
Tyme Bank Holdings Limited is an investment holding entity incorporated in South Africa. The company does not trade, and all of its activities are undertaken through its principal subsidiary, Tyme Bank Limited.
Tyme Bank Limited provides digital banking services to customers in South Africa. The bank soft-launched in August 2018 and marketed its transaction and savings accounts publicly on 25 February 2019. To date, the Bank has attracted 2 million customers and over R2.2 billion in retail deposits. The Bank has been continually enhancing and increasing its products and features to the market, so as to continually drive adoption by the market and customer activity.
The group’s holding company is African Rainbow Capital Financial Services Holdings Proprietary Limited. The group’s ultimate holding company is Ubuntu-Botho Investments Proprietary Limited
Brief history:
TymeDigital was 90% owned by the Commonwealth Bank of Australia with African Rainbow Capital (ARC) owning 10%. In 2018, ARC acquired the 90% stake for an undisclosed consideration. The transaction comprised TymeDigital in South Africa and the related intellectual property and patents.
The sale agreement between the Commonwealth Bank of Australia and African Rainbow Capital requires that if, at any time, within 5 years after 31 October 2018, the bank declares an audited statutory profit, after providing for an amount of R100,000,000, an amount of R200,000,000 will be payable to the Commonwealth Bank of Australia over a 12 month period.
Quick nuggets:
The factory for manufacturing facility for proprietary hardware innovations is in South Africa. Headquarters of Tyme, business development, strategy, international partnerships and data analytics are in Singapore.
On 1 January 2019, a contract was concluded between Tyme Bank Limited and Tyme Limited. The purpose of the contract is to provide right of use of intellectual property by Tyme Limited to Tyme Bank Limited.
In 2019, ARC got the necessary regulatory approvals from The Prudential Authority of the South African Reserve Bank after the purchased of the remaining 90% by ARC. TymeDigital then changed its name to TymeBank. TymeBank South Africa was the first full greenfield digital bank deployment with ~200 staff.
Now who are some shareholders/equity partners that have joined in the last 2-3 years?
1. Ethos Private Equity.
In 2019, Ethos Artificial Intelligence (AI) Fund invested ~R200 million in TymeBank. The investment by the Ethos AI Fund in TymeBank resulted in the Ethos (Fund) being an 8% shareholder in the bank. This valued TymeBank at ~R1bn in 2019.
2. Series B fund raising
December 2021 saw TymeBank South Africa and Tyme Global concluded their series B capital raising round which raised $70m and saw Tencent (yes Tencent) and CDC Group (UK’s development finance institution) being new shareholders in Tyme.
In 2021, ARC introduced new shareholders in TymeBank SA and Tyme Global.
Combined capital raise amounts to R1.6billion, structured as two tranches;
- Tranche 1 ~R1,163bn
- Tranche 2 ~R436m.
This capital raise gave Tyme a value of R8bn.
The new investors in Tyme via tranche 1 are Apis Growth Fund II, a private equity fund managed by Apis Partners and JG Summit Holdings. The 1st tranche of R1.2bn was concluded in April 2021. Apis (14,9%) and JG Summit (5,13%) became minority shareholders in Tyme. Tencent (leading internet and technology company) and CDC Group (UK’s development finance institution) were added as shareholders after the conclusion of the series B round of funding.
Why did Tyme raise $180m? To enable Tyme to use its digital infrastructure to accelerate the rollout of financial services. The two investors’ capital and expertise will be used to strengthen Tyme’s ability to manage risk and support Tyme’s expansion into emerging markets.
TymeBank was launched to the public in February 2019 and reached one million customers in November 2019. So, 9 months post-launch (>100,000 customer acquired per month). TymeBank has also partnered with Hollard to provide affordable micro-insurance.
Early 2021, TymeBank announced that it has signed it 3-millionth customer. In 2020, TymeBank entered into a partnership with the ZCC church, which will see TymeBank become the financial services partner of choice for the members of the church. ZCC’s membership stands at ~12million.
Of the 12m ZCC members, it was estimated that 6m were economically active in SA. Partnership will work as follows:
- TymeBank debit card that doubles as the official ZCC membership card
- Opportunity to assist with digitising cash-based donations insurance premium collections.
TymeBank’s high-tech high-touch model compares well with other digital banks despite it being in its early stages. TymeBank is forecasting to breakeven in 2023 with a set of rapidly growing revenue streams and expecting to reach monthly profitability before Jun 2022.
The Covid-19 outbreak was good to TymeBank. TymeBank acquired 1.4 million new customers, with increased active customer base from 50% to 60%.
TymeBank had 3.45m customers as at 30 Jun 2021. How does TymeBank fare against others?
Let’s compare apples and oranges in terms of active clients;
- Discovery Bank ~ 300 000 customers with 556,000 accounts
- Capitec ~15 million,
- Standard Bank ~9.1 million
- Absa ~ 9.7 million.
Tyme is entering the Philippines next. Tyme partnered with the JG Summit, which operates a diversified portfolio of businesses with 8 million loyalty members, to apply for a digital banking license and expand financial access to underbanked and under-served Filipinos. The Philippines has;
· population of 108m,
· adoption of digital financial services has accelerated in the Philippines,
· GDP per capita growth (2020-23) 6.9%,
· smartphone penetration – 52%,
· underbanked or unbanked – 78%.
TymeBank says that it has a sustainable structural advantage over incumbents.
- Exhibit A: Retail ops expenses per customer (ZAR)
- Exhibit B: comparison of retail cost-to-income ratio
- Exhibit C: comparison of average Jaws ratio (Revenue growth rate net of expenses growth rate).
It seems like more and more customers are depositing into their TymeBank accounts. Below image shows the monthly gross inflow of deposits.
If you look at the quarterly operating expenses vs customer base, TymeBank’s operating costs are reducing as the bank continues to scale. TymeBank’s operating expenses (excluding depreciation and amortisation) in 2020 were ~R1.06 billion.
Tymbank has also made an application for a digital banking licence in Pakistan.
During FY21, Tyme Bank Holdings Limited impaired its investment in Tyme Bank Limited by R nil vs R1,274,129,787 in FY20.
The impairment was calculated with reference to the valuation of Tyme Bank Limited using the free cashflow equity method. The valuation of the bank has incorporated a projected growth rate of 6%, a discount rate of 23% and a marketability discount of 15% .
The impact of COVID-19 pandemic has also been considered when determining the valuation for Tyme Bank Limited. In addition Tyme Bank Holdings Limited also impaired its investment in Tyme Technical Solutions (Proprietary) Limited by R nil vs R195,696,882 in FY20 due to the fact that management has taken the decision to wind up the entity.
Big losses
At 30 June 2021, the group had accumulated losses of R4,992,795,213 and incurred a loss of R926,441,278 for the year then ended. These losses substantially represent bank establishment and build costs.
The sale agreement between the Commonwealth Bank of Australia and African Rainbow Capital requires that if, at any time, within 5 years after 31 October 2018, the bank declares an audited statutory profit, after providing for an amount of R100,000,000, an amount of R200,000,000 will be payable to the Commonwealth Bank of Australia over a 12 month period. Based on the bank’s current performance of FY21, the payable has been valued at zero.
The ability of the group to continue as a going concern is dependent on ongoing procurement of capital and funding for the operations of the group. During the current financial year, the Ubuntu–Botho Investments Proprietary Limited Group, as majority shareholder, along with other shareholders, continued to provide adequate capital and funding to the group.
In addition, the Ubuntu-Botho Investments Proprietary Limited Group continues to give assurance that the group will have access to continued capital and funding from them to be able to settle its debts as they fall due and is able to continue business as a going concern for the period ending 31 October 2022.
The ability of the group and the company to continue as a going concern beyond the period 31 October 2022 is dependent on a number of factors, the most significant ones being the ongoing support from existing shareholders, the sourcing of capital from potential new shareholders, raising of working capital facilities as required, along with the execution plans for the scaling of existing services and delivery of new products and features into the market, and the impact of the COVID-19 pandemic on socio-economic conditions in the country.
These conditions give rise to a material uncertainty for the period beyond 31 October 2022, which may cast significant doubt on the group’s and company’s ability to continue as a going concern, and therefore that it may be unable to settle its debts as they become due in the normal course of business.
Who is Ubuntu-Botho Investments Proprietary Limited Group?
Ubuntu-Botho Investments Proprietary Limited Group has a 13.3% stake in Sanlam valued at R17 billion.
It all started in 2003 when Sanlam established a black owned and controlled company.
The deal saw the Ubuntu-Botho consortium take an initial 8% stake in Sanlam. Shareholding was extended to include broad-based groups; trade union companies, religious organisations, women and youth groups,provincial companies from all the provinces, representing 700 shareholders
By 31 December 2013, the 8% equity stake had grown to 14% through a combination of share buybacks and the reclassification of an additional 66.5 million deferred shares to ordinary shares.
UBI’s shareholding of ~14% in Sanlam has declined slightly over the years and as at 31 Dec 2020 was 13,3%. This stake is currently valued at R17 billion based on Sanlam’s current share price. UBI is the biggest shareholder in Sanlam.
At the beginning of 2014, the initial 10-year lock-up period and all of UBI’s contractual obligations towards Sanlam came to an end with the repayment of the original debt (initial investment of R1.3-billion (all debt and interest on debt was fully settled).
Ubuntu-Botho Investments used the returns on its 14% shareholding in Sanlam to establish African Rainbow Capital.
ARC Investments was registered and incorporated in Mauritius as a private company on 30 June 2017 and was converted to a public company on 2 August 2017.
The acquisition of Retail Capital will give TymeBank a fighting chance in the SME banking space as the Bank’s SME bank offering will target businesses earning less than R10m in annual turnover, a threshold that is often ignored by SA’s traditional big four lenders.
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