Fresh from reporting a bumper June quarter result which rounded out their FY22 with a 97% increase in revenue to $32.5 million, digital payments company Novatti Group (ASX: NOV) may have something even bigger brewing having just secured $10.5m in funding by leveraging their assets to issue a bond.
While other listed companies tend to raise capital when targeting aggressive growth initiatives, Novatti’s choice to go down this bond issuance path was underpinned by their preference not to dilute their shareholders by issuing new shares. Instead, Novatti has leveraged their 19.9% equity stake in accounting software company Reckon (ASX: RKN) to secure the funding.
The deal has effectively been tabled using an asset that Novatti doesn’t actively utilise, but has been delivering handsome dividend returns that should include a $12 million payout to Novatti in the next few months.
“This $10.5m in new funding will enable Novatti to further its growth by taking on new and larger markets and transaction volumes and support its funding for the bank licence, where we remain confident of progress being made in securing final approvals,” said Novatti Managing Director, Peter Cook.
“This bond issue highlights the strength of Novatti’s existing business and future prospects and was fully taken up by institutional investors.”
Funding has 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 convertible notes which typically carry interest rates from 8-15% for companies of Novatti’s profile, and can still lead to shareholder dilution if converted to equity.
The application of funds is flagged to be divided between several Novatti divisions but the most notable one may be its use to fulfill capital requirements for the pending banking licence application. While discussions have been continuing behind closed doors between Novatti and APRA – the licence regulator – this is the first major development in several months confirmed by Novatti in regards to their banking licence.
Unlike other banks that have either recently been issued their licence or handed their licence back to the regulator, Novatti is in an enviable position for the launch of their neobank by having a large portfolio of digital payment services that will be leveraged by their banking business.
This effectively means that Novatti is already a long way down the track in the commercialisation of their banking business, compared to those starting from a standing start with no revenue when launching their banks. Novatti, meanwhile, is already generating $32.5 million in annual revenue from their digital payments ecosystem even before being able to offer banking services, loans or mortgages.
In addition to their digitisation of traditional banking services, Novatti is also at the forefront of blockchain technology for use in financial services where company representatives were promoting their soon-to-be launched AUDD stable coin at one of the world’s largest blockchain conventions.
Jarryd is an experienced Investment Adviser at Emerald Financial Group
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