CPS: Liquidation won’t be opposed by parent company Net1

The move to liquidate Cash Paymaster Services (CPS) will have little bearing on its JSE- and Nasdaq-listed parent company Net1, says one of its business rescue practitioners, Indalo Business Consulting CEO Lebogang Mpakati.

CPS went into business rescue in April after losing the contract to pay out social grants on behalf of the South African Social Security Agency (Sassa), a service the Post Office took over in November 2018.

This eventually saw Indalo Business Consulting along with Concord Administrators taking over the running of CPS from Net1.

Sassa, which is owed about R316 million by CPS, has now applied to have it liquidated in the South Gauteng High Court in a hearing set to be held on October 16. Mpakati says the application looks set to go ahead as Net1 has not opposed it.

Net1 says that is the business rescue practitioners’ call to make. “The decision on whether to continue to oppose the action or abide by the application rests with the business rescue practitioners,” says Net1 CFO and designate interim CEO Alex Smith.

Net1 says it has no means of exercising any control over CPS or the business rescue process. This is because it ceded control to the business rescue practitioners on commencement of the business rescue process.

“The business rescue practitioners are independent third parties and control CPS through the business rescue process,” says Smith. “The company no longer controls CPS and therefore it is determined to deconsolidate CPS.”

If liquidation goes ahead, it will see about R15 million worth of assets being disposed of.

Mpakati says that as Net1 is an investor in CPS, it would be last in line to get anything out of the liquidation.

In its latest results, Net1 said its “deconsolidation” of CPS led to a $7.1 million (R118 million) loss.

Though the move to liquidate CPS is not likely to result in Sassa getting back the total amount due to it, it will allow the agency to start an inquiry into CPS’s finances.

Smith would not be drawn on whether the liquidation of CPS would end its dispute with Sassa, only saying that questions on the matter should be referred to the business rescue practitioners.

Loss after loss

Having CPS go into business rescue has hurt Net1’s earnings. It incurred an operating loss of R777.3 million for the year to end June. This follows it incurring a R1.92 billion loss in the corresponding prior period.

Despite the poor set of results, Smith is cautiously optimistic about Net1’s prospects.

“We do intend to focus more intently on the South African market, and while we expect monthly Ebitda [earnings before interest, taxes, depreciation and amortisation] to turn positive during the course of the year, we believe it is prudent to get a few more months of data before we would be in a position to offer full-year guidance or profitability targets for the full year.”

Since Net1 has deconsolidated CPS, it has increasingly looked at moving into consumer and merchant financial services, which it says is about a R150 billion market. It sees itself becoming a significant player in the short-term and unsecured lending, transactional banking, insurance, merchant payments, merchant lending and bill payments markets.

Even so, challenges persist.

In its latest Form 10-K submitted to the US Securities and Exchange Commission, it warns that one revenue stream might soon be closed to it.

“The South African National Credit Regulator has applied to cancel the registration of our subsidiary, Moneyline Financial Services (Pty) Ltd, as a credit provider. If the registration is cancelled, we will not be able to provide loans to our customers, which would harm our business.”

Read: Net1 eyes fintech services after life without Sassa (Feb 2018)