Value Capital Partners takes R580m stake in Net1

Second-largest shareholder will use influence and voting power to promote good governance.
Net1’s technology is seen as able to play a positive role in financial inclusion, ‘when properly applied'. Image: Shutterstock

Since initial publication Moneyweb has been informed the auditors checking CPS’ profits were appointed by Sassa and not Black Sash and freedom under law. The story has been amended to reflect this.

Sam Sithole, CEO of Value Capital Partners (VCP), believes Net1’s technology has the ability to significantly ease the cost and risk burden for the unbanked and underbanked and play a positive role in financial inclusion, “when properly applied”.

Sithole was commenting on Monday, after it emerged that VCP had become Net1’s second-largest shareholder following the purchase of over seven million Net1 shares between mid-March and mid-April.

The shares, which are equivalent to a 13.4% stake in Net1, were bought at prices between R47 and R66 for a total investment of around R580 million.

The International Finance Corporation, a member of the World Bank group, remains the single largest shareholder with 17.65%. Allan Gray, which was previously a major shareholder, no longer appears on the company’s list of top holders.


Sithole told Moneyweb that as a result of the recent sale of its 100% stake in KSNET in South Korea for $237 million and the sale of its 27.5% stake in DNI in South Africa for R860 million, “Net1 currently has net cash on its balance sheet that exceeds the market capitalisation (R4.4 billion) of the company”.

In addition, said Sithole: “Net1 has a portfolio of financial and payment technology businesses that are not reflected in the current share price.”

In its submission to the Securities and Exchange Commission (SEC), Net1, which is listed on the Nasdaq as well as the JSE, said that VCP had acquired the shares because it believes it represents an attractive investment. According to the submission VCP has had discussions with the Net1 board as well as other interested parties and has indicated “an interest in providing candidates to serve on the board”.

Ball is back

The acquisition sees VCP chairman Antony Ball make a return to Net1. The fintech company has been embroiled in considerable controversy as a result of its subsidiary Cash Paymaster Services’s contract with the South African Social Services Agency (Sassa) to distribute social grants.

Ball, who was previously an executive of investment holding company Brait, had served as a director of Net1 between 2004 and 2012. Brait has played a key role in Net1’s growth strategy. Chris Seabrooke, a director of Brait is also a long-serving director of Net1.

VCP’s investment comes just one month after Net1 applied to put CPS into business rescue. The move followed the loss of the contract to distribute social grants.

It comes in the midst of litigation about how much money CPS has to pay back to Sassa as a result of a Constitutional Court ruling that CPS could not profit from an illegal contract. That ruling triggered an accounting dispute over the amount of profit CPS had made with auditors appointed by Sassa contending it was in excess of R1 billion. CPS’s appointed auditors indicated the figure was closer to R200 million.

High court order

CPS is also battling a high court order obliging it to repay R316 million plus interest (of almost R200 million) that Sassa had paid for the registration of additional beneficiaries. The order was prompted by legal action taken by NGO Corruption Watch.

Sithole told Moneyweb that as a shareholder in a publicly listed business VCP will not get directly involved in Net1’s legal action. “However we will use our influence and voting power as the second-largest shareholder to promote good governance at Net1.”

In a statement to Moneyweb, Corruption Watch’s David Lewis said he trusted that VCP “will ensure Net1’s subsidiary CPS makes good on its debt to South Africa”.

One analyst that has tracked Net1 for decades said the VCP executives must have felt confident that little would come of the CPS litigation before making the investment.



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There is never only the one cockroach that you see

What is the return on VCP funds since formation, Seems they take big bets on fallen angle’s.

Net-1’s ship has sailed. They are paying the consequences for all their dodgy dealings.

These days banks like Capitec and FNB offer as good value propositions as anything that Net-1 offered.

CPS were basically a pensioner rip-off scheme.

I wonder who are those poor folks that their fund is being managed by VCP

Insightful buy, good luck to them.

End of comments.



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