Ann: Trading Halt, page-42

So I can't understand the $500 million valuation part, and will need to wait until we see the raise presentation to understand the math behind this valuation which is presumably spelled out in the term sheet. For what it's worth I asked ChatGPT and the answer is below. TLDR, we won't know until after the raise when Findi give an update.

I struggle a bit to understand the timing of this raise and not letting the share price presumably run following the interchange fee announcement. It could be related to the Tata WL license but Chat GPT suggested a higher share price could have meant it would have been harder to negotiate with Piramal.

For what it's worth I think having Piramal as an equity holder in TSI at the IPO is the right way to go. They are a conglomerate with deep pockets and respected in India. At the end of the day the TSI IPO is not going to mainly be about buying out Findi shareholders and a return of capital/special dividend, instead it will be largely about raising capital for a major expansion of the TSI footprint, both the ATM and digital side of business.

Presumably Piramal are not looking to sell down at IPO (that was the plan based on the CCD's in the first place, where they would convert to equity at IPO). If they step up to subscribe for shares at the IPO that would be a major boost to the IPO's success. While I acknowledge that there is a lot of scepticism around ATMs in Australia, to be fair if you step out of Australia you realise we are honestly an antiquated backwater with citizens happily being screwed by two US conglomerates every few taps because they can't be arsed carrying and counting notes and coins. This would be considered insane in many places (it's also insane to me at least), just as many in Australia consider using ATMs insane. Given India is a highly underbanked country and ATM penetration is very low, I don't think it's that ridiculous to say the TSI ATM business has a bright future, especially when you look at their unit economics vs competitors, the few of which are exiting/struggling to compete, creating a major opportunity for CMS, TSI (and maybe India1) to step up. That will require capital. If you were an Indian bank in this environment having a stake in TSI via IPO could also be a smart strategic move to safeguard their supply chain.

We'll get a better idea of the thinking behind this raise if/when it's completed. It will be a worry if it isn't but also my mind boggles at the decisions of fund managers in Australia and if this doesn't go well it's not necessarily an indictment on them as much as it would be the multitude of terrible managed funds in Australia delivering crap returns for their subscribers. DMX, who do not fall into this category, have looked to reduce their Findi exposure since about mid-last year and I can't imagine them stepping up like they did last time. Those with deeper pockets like the Flannery family office and whoever runs Norfolk Enchants or that American dude who has become a substantial holder may step up, as presumably will management though they may subscribe via to SPP. If we can attract some new funds that would be amazing.

A lot to look forward to, a lot that's unclear along with quite a bit to worry about as well.

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What ChatGPT said (pretty good)

The debt restructuring involving Piramal Alternatives and the $17.2 million termination coupon is a crucial part of Findi’s financial strategy. Let’s break it down into key parts:

1. What Does the Termination Coupon Mean?

The "termination coupon" of $17.2 million likely refers to a pre-agreed exit payment to Piramal for their investment in compulsory convertible debentures (CCDs) issued by TSI India.

• This does not mean the CCDs are entirely terminated, but rather that Piramal is exiting on renegotiated terms instead of converting into equity at the originally agreed valuation.
• The key question is whether Piramal is accepting this payment as a full settlement or restructuring its claim at a higher valuation.

2. Why Is $17.2 Million Enough to Cover Accrued Interest and an 18% IRR on $37.6 Million?

Piramal originally invested $37.6 million in CCDs, expecting an 18% internal rate of return (IRR). To assess whether $17.2 million is sufficient, we need to estimate the accrued return that Piramal would have expected.

Estimating Expected Returns

The investment was made in late 2023, and Findi is restructuring it in early 2025 (assume ~1.5 years).
Using the future value formula for IRR:

FV=PV×(1+r)tFV = PV \times (1 + r)^tFV=PV×(1+r)t

where:

• $PV=37.6$ million (initial investment),
• $r=18\%$ (annual return),
• $t=1.5$ years.

FV=37.6×(1.18)1.5FV = 37.6 \times (1.18)^{1.5}FV=37.6×(1.18)1.5$$FV\approx 50.2\text{million}$$

So, Piramal would have expected to receive around $50.2 million to achieve the promised 18% IRR.

However, they are instead receiving $17.2 million. This suggests one of two possibilities:

1. Piramal is taking a significant discount on their expected return—potentially due to renegotiation and risk considerations.
2. The remaining value is being converted into an equity stake at a much higher valuation.

3. How is the Restructured Piramal Security Valued at $500 Million?

• The original CCDs valued TSI India at $190.6 million post-money.
• The restructuring suggests that Piramal is now valuing its stake based on a $500 million valuation.
• This implies that instead of cashing out entirely, Piramal is converting some or all of its claim into equity at a higher valuation.

Possible Scenarios:

• Scenario 1: Partial Cash-Out + Equity Upside

  • Piramal accepts $17.2 million in cash as partial settlement.
  • The rest of their claim is converted into equity at a $500 million valuation.
  • If they originally held 16.7% at $190.6 million, their equity stake could now be significantly lower but at a much higher valuation.

• Scenario 2: Full Exit at a Discount

  • Piramal takes a large discount and exits completely for $17.2 million.
  • The valuation boost to $500 million is then driven purely by market sentiment, strategic positioning, and new investors.

Key Takeaways

1. The $17.2 million "termination coupon" does not necessarily mean full termination of the CCDs—it is more likely a negotiated settlement.
2. Piramal expected ~$50 million under the original IRR terms but is likely accepting equity at a higher valuation or taking a discount.
3. The $500 million valuation suggests a shift in market perception of TSI India’s potential, with the IPO now targeting much higher multiples.

On point 1, why would Piramal be in a better position to negotiate if the share price went higher?

ChatGPT said:

If Findi’s share price increased, Piramal could have gained more leverage in negotiations for the following reasons:

1. Higher Valuation Strengthens Piramal’s Conversion Option

• Piramal’s CCDs were initially structured to convert into ~16.7% of TSI India at a pre-IPO valuation of AU$153M (post-money AU$190.6M).
• If Findi’s share price surged, the market might start pricing TSI India at a much higher valuation ahead of its IPO.
• This could make conversion more attractive than accepting a negotiated settlement at a lower valuation.
• Piramal could demand better terms or refuse to accept $17.2M as full settlement.

2. Piramal Could Push for a Larger Cash Payment

• If Findi’s market cap increased, investors might assume it could afford a larger settlement.
• Piramal might argue that their 18% IRR expectation should be fully honored, not discounted.
• Instead of settling for $17.2M, they could push for a higher payout.

3. Stronger IPO Outlook Could Make Piramal Hold Out for More

• If Findi’s valuation increased, it might signal strong demand for TSI India’s IPO.
• Piramal could delay negotiations and insist on a greater equity stake instead of converting at the old valuation.
• This could complicate Findi’s pre-IPO financial structure, making it less attractive to IPO investors.

4. Piramal Could Demand Equity in Findi Instead

• A rising Findi share price could make Piramal rethink its exit strategy.
• Instead of accepting cash, they might ask for equity in Findi, betting on further upside.
• This could dilute existing shareholders more than the planned capital raise.

Why Findi Acted Before a Potential Share Price Increase

• By settling now, Findi preempted any potential renegotiation risks.
• The $500M valuation used for restructuring is already significantly higher than the original CCD valuation.
• If they waited and the share price rose, they could have been forced into a worse deal.

Conclusion: Findi Moved to Control the Narrative

By restructuring Piramal’s position now, Findi ensured:

1. Piramal exits or converts on Findi’s terms, reducing uncertainty.
2. A clean balance sheet ahead of the IPO, making TSI India more investable.
3. No risk of Piramal holding out for a better deal if Findi’s valuation surged.

Would you like a deeper dive into how this restructuring impacts Findi’s IPO prospects?

4o

You said:

In the Indian IPO is Piramal allowed to increase their equity share of TSI (e.g. subscribe for a portion of the equity that would allow a cash return to Findi shareholders)?

ChatGPT said:

In the Indian IPO of TSI India, whether Piramal is allowed to increase its equity stake depends on several factors, including:

1. Terms of the Original CCD Agreement

• The original CCD structure gave Piramal a fixed conversion rate (~16.7% of TSI India).
• If there were no pre-emptive rights or restrictions, Piramal could participate in the IPO like any other investor.
• However, if Findi or other investors have first rights to any new equity issuance, Piramal might be limited in how much they can buy.

2. IPO Allocation and SEBI Regulations

• India’s Securities and Exchange Board (SEBI) has rules on pre-IPO investors increasing their stake at listing.
• If TSI India raises primary capital in the IPO, existing investors like Piramal could subscribe to new shares—but this would depend on:
  • The allocation process (book-building, anchor investors, etc.).
  • Regulatory caps on pre-IPO investors increasing their stake.
• If TSI India is only listing existing shares, Piramal would need to buy from other investors instead.

3. Can Piramal's Subscription Result in Cash for Findi Shareholders?

Yes, but only under specific conditions:

1. If Piramal buys IPO shares directly from Findi:

   • If Findi sells part of its TSI India stake in the IPO, Piramal could purchase those shares.
   • This would result in cash proceeds flowing to Findi, which could be distributed to Findi shareholders.

2. If Piramal participates in a pre-IPO secondary sale:

   • Findi could negotiate a private sale to Piramal before the IPO at the IPO valuation.
   • This would give Findi cash upfront rather than waiting for post-IPO liquidity.

3. If Piramal buys in the open market post-IPO:

   • If Findi shareholders or other investors sell shares after listing, Piramal could acquire more equity.
   • However, this would not directly benefit Findi shareholders unless Findi itself sold down its stake.

Key Takeaways

• Piramal may be allowed to increase its stake in the IPO if there are no restrictions in the CCD agreement and SEBI regulations permit it.
• If TSI India raises new capital, Piramal can subscribe to new shares.
• If Findi sells part of its TSI stake to Piramal pre-IPO or in the IPO, it could return cash to Findi shareholders.
• Findi would need to disclose its sell-down strategy in the IPO documents if this is planned.

Would you like me to analyze the potential impact of a sell-down scenario for Findi shareholders?

4o