Fintech tops Motsepe’s ARC investment priority list

Patrice Motsepe, founder of African Rainbow Capital.

Fintech is becoming an increasingly important component of African Rainbow Capital’s (ARC’s) investment strategy, spanning all elements of the financial services ecosystem.

That’s according to the company, which released its integrated report 2022 on Friday, outlining its fintech plans. ARC says its future position is to have increased exposure to financial services investments.

The investment company says that top of the priority list in the coming financial year is continued focus on key portfolio assets: Rain, TymeBank and Tyme Global.

ARC expects growth from fintech, and is positioning itself to capture opportunities in the sector.

To this end, ARC says it has acquired a stake in Crossfin, one of Africa’s leading independent fintech platforms, measured by the volume and value of transactions processed.

Crossfin has a portfolio that processes over 134 million card and 20 million mobile-enabled payment transactions per year, with a total value of over R79 billion.

“Through this vehicle, the portfolio is exposed to complementary fintech and digital businesses at various stages of maturity and will ensure that the investments remain relevant as the industry evolves,” joint CEOs Johan van der Merwe and Johan van Zyl write in the report.

ARC, through a consortium led by Ethos’ Mid-Market Fund I, snapped up fintech firm Crossfin in November, in a deal valued at R1.5bn.

Van der Merwe and Van Zyl say growth in ARC’s financial services portfolio is expected to “largely be organic, spurred by bolt-on, fit acquisitions or by divesting assets to partners where there is a better fit”.

During the period, ARC says it has made progress in implementing its strategic initiatives, as well as a number of staged transactions in several key investments, positioning them for growth.

Notable achievements for ARC include the entry of well-established international investors in Tyme Bank, Tyme Global and Alexforbes, as well as the acquisition of additional spectrum by Rain.

“TymeBank attracted A-class investment partners in the form of Tencent and CDC Group (known as British International Investment), the UK’s development finance institution and impact investor,” say the joint CEOs.

“This confirms ARC’s decision to inject an additional R242 million into TymeBank and Tyme Global, as part of the capital requirements of the bank, which has maintained momentum in challenging trading conditions.

“Singapore-based Tyme Global is pursuing its digital banking strategy, with plans to launch a digital bank in the Philippines in October 2022 after obtaining a digital banking license. Tyme Global has also applied for a banking license in Pakistan.”

In terms of investments in telecoms, the JSE-listed investment holding company founded by Patrice Motsepe notes that its stake in data network Rain is its “most significant investment”.

ARC has a 20.3% stake in Rain valued at R3 billion. The company’s gross fair value increased in the year from R21.4 billion to R23.4 billion.

Regn has been a rewarding investment for ARC, as the network achieved EBITDA growth of 98% compound annual growth rate (CAGR) over the previous two financial years, with financial year 2022 EBITDA expected to exceed R3bn.

In terms of other key results, Rain retail revenue grew 2.5 times faster than wholesale revenue over the past 30 months, according to ARC, with 5G retail revenue growing at a CAGR of 235%, now accounting for more than 50% of total retail revenue.

Van der Merwe and Van Zyl comment in the report: “Rain is our most important investment. It has done well over a relatively short period, achieving its budgeted R1 billion EBITDA this year. Rain received additional spectrum in two components.

“The first, sitting alongside the existing spectrum, allows disproportionate efficiencies to bring together Rain’s existing fixed wireless 4G and 5G offerings, while the second potentially launches it into mobile – it’s a completely new product offering.”