SINGAPORE (Nov 26): On Nov 22, loss-making circuit board manufacturer CPH said it was pivoting from its competition-ridden core business to financial technology via a reverse takeover (RTO) of alternative financing provider oCap in a deal worth $61.8 million.
Under the terms of the deal, CPH will issue 5.15 billion new shares at 1.2 cents apiece. oCap is now held by an entity called Delphinium Capital, in turn owned by insurer Swiss Life Holding. It has a paid-up share capital of $21 million.
For shareholders of CPH, which has been in the red since 2014, this seems like good news at long last. The business of manufacturing electronic parts faces tough competition from Malaysia and Taiwan. CPH chairman Lee Teong Sang explains that the deal will help the company turn profitable and attract new investors. “This is one way to transform ourselves,” he adds.
CPH shares traded at 0.7 cent prior to the announcement on Nov 22. It closed the day at 0.9 cent, suggesting that there are investors cheering this latest fintech deal.
Will the upbeat mood last? Investors can get little comfort from earlier fintech-related deals. Back in Oct 31, 2017, Artivision Technologies announced that it was acquiring payment solutions provider MC Payment for no less than $80 million. When its shares resumed trading on Nov 1, it surged by 23.5% from 1.7 cents to close at 2.1 cents.
One year on, the acquisition has yet to be completed. For long-suffering Artivision shareholders, it remains to be seen if the new venture will pay off. Year to date, Artivision shares are down more than 42%. It last traded at 0.8 cent on Nov 19. Investors might be right to be wary. For 1HFY2019 ended September, MC Payment generated neither revenue nor earnings.
Another fintech play, social-trading platform ayondo, has not quite met expectations either. The company first attempted a listing via an RTO of Starland Holdings, but eventually held its own IPO. Since it was listed at 26 cents in March this year, ayondo shares have dropped to close at an all-time-low of 6.3 cents on Nov 22.
For 3QFY2018 ended Sept 30, its losses widened 31% y-o-y to CHF1.59 million ($2.19 million). For what has been touted as a growth story, ayondo’s reported number of active users for 3QFY2018 was actually down 1% y-o-y to 25,237.
Will oCap, which claims its business of lending to SMEs is profitable, be a different story? Since 2017, oCap has lent US$100 million ($137 million), with 80% of the borrowers being Singapore small and medium-sized enterprises (SMEs) and the rest from Europe. It says there have not been any defaults (though it must be noted that many alternative financing providers define default differently) and that its interest rate is comparable to bank rates.
oCap reports earnings, but investors need to look at what constitutes the top and bottom lines. It was in the business of oil trading before ditching that to double down on trade financing and working capital loans. That means its financial statements for FY2016 and FY2017 still reflect its wholesale trade business, making it tougher for investors to gauge how lucrative the fintech business is. oCap does not disclose its interest rates or the monthly growth rate of transactions.
Between Sept 16, 2015 and Dec 31, 2016, oCap recorded revenue of US$79.2 million and earnings of US$2 million. For the whole of 2017, it reported revenue of US$52.7 million and earnings of US$1.5 million. The profit margin for both periods is almost the same, around 3%. oCap declined to give a breakdown of its revenue and earnings.
Spearheaded by the government, Singapore is aiming to be a global fintech hub. The community is vibrant and growing. The industry will develop — and mature, eventually. Investors just have to ensure they have all the information before buying in, and will have to be patient to see returns.