Fresh from reporting a bumper June quarterresult which rounded out their FY22 witha 97% increase in revenue to $32.5 million, digitalpayments company Novatti Group (ASX: NOV) may have something even biggerbrewing having just secured $10.5m in funding by leveraging their assets toissue a bond.
Whileother listed companies tend to raise capital when targeting aggressive growthinitiatives, Novatti’s choice to go down this bond issuance path wasunderpinned by their preference not to dilute their shareholders by issuing newshares. Instead, Novatti has leveraged their 19.9% equity stake in accountingsoftware company Reckon (ASX: RKN) to secure the funding.
Thedeal has effectively been tabled using an asset that Novatti doesn’t activelyutilise, but has been deliveringhandsome dividend returns that should include a $12 millionpayout to Novatti in the next few months.
“This$10.5m in new funding will enable Novatti to further its growth by taking onnew and larger markets and transaction volumes and support its funding for thebank licence, where we remain confident of progress being made in securingfinal approvals,” said Novatti Managing Director, Peter Cook.
“Thisbond issue highlights the strength of Novatti’s existing business and futureprospects and was fully taken up by institutional investors.”
Fundinghas been secured under a 5 year term with an interest at 90 day BBSW plus 6.5%.This is generally less than small cap funding instruments, such as convertiblenotes which typically carry interest rates from 8-15% for companies ofNovatti’s profile, and can still lead to shareholder dilution if converted toequity.
Theapplication of funds is flagged to be divided between several Novatti divisionsbut the most notable one may be its use to fulfill capital requirements for thepending banking licence application. While discussions have been continuingbehind closed doors between Novatti and APRA – the licence regulator – this isthe first major development in several months confirmed by Novatti in regardsto their banking licence.
Unlikeother banks that have either recently been issued their licence or handed theirlicence back to the regulator, Novatti is in an enviable position for thelaunch of their neobank by having a large portfolio of digital payment servicesthat will be leveraged by their banking business.
Thiseffectively means that Novatti is already a long way down the track in thecommercialisation of their banking business, compared to those starting from astanding start with no revenue when launching their banks. Novatti, meanwhile,is already generating$32.5 million in annual revenuefrom their digital payments ecosystem even before being able tooffer banking services, loans or mortgages.
Inaddition to their digitisation of traditional banking services, Novatti is alsoat the forefront of blockchain technology for use in financial services wherecompany representatives were promoting theirsoon-to-be launched AUDD stable coinat one of the world’s largest blockchain conventions
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