Financial technology (fintech) company iFAST Corporation Limited (SGX: AIY) made a stunning announcement last week.
It announced that it had signed an agreement with its partner, Eagles Peak Holding Limited, to acquire an 85% stake in BFC Bank Limited (“BFC”), a UK bank.
The remaining 15% will be held by Mandeep Ahluwalia, who will also spearhead the team at BFC on behalf of iFAST.
BFC is a fully-licensed UK Bank and will enable iFAST to add a digital bank to its fintech ecosystem.
The acquisition amount will be £25 million or around S$45.9 million.
In addition, the group intends to inject an amount of £15 million (around S$27.5 million) as a capital injection to fund BFC’s operations.
The total investment amount will come up to S$73.4 million.
This move follows iFAST’s previous failed attempts at obtaining a digital banking licence in both Hong Kong and Singapore.
Here are four things you should know about the group’s bold move.
A coveted digital bank licence
Acquiring BFC is in line with iFAST’s five-year plan where point three talks about pursuing more financial licences in different jurisdictions.
Digital banks can be run in a capital-efficient way and are also asset-light and scalable.
Some technology upgrades will need to be implemented, after which iFAST’s clients can have access to services such as online account opening, multi-currency deposits, remittances and banking-as-a-service (BaaS).
The group believes that banks act as the “foundation layer” in the financial industry, and having access to this layer will be the catalyst that allows iFAST to innovate and progress at a more rapid clip.
Attractive characteristics of BFC Bank
At first glance, BFC may not look like a great investment.
For the first nine months of 2021, the UK bank reported a net loss of £1.9 million, or around S$4 million, of which S$3.4 million will be recognised by iFAST based on its 85% stake.
By comparison, the bank made a net loss of £4 million in its fiscal year 2020 (FY2020) and £5.1 million in FY2019.
However, CEO Lim Chung Chun is quick to point out several positives.
First off, the bank has a strong balance sheet with no loan book, thereby eliminating any need for write-offs.
Also, BFC has a strong remittance business and has been earning consistent fee income. iFAST can tap on this capability and extend it to cross-border clients.
iFAST is acquiring the bank at around a 1.62 times book value which it believes is reasonable considering the merits above.
Building a truly global network
With a digital bank under its belt, iFAST believes that it can acquire customers globally at a quicker pace.
The acquisition is in line with its target to achieve S$100 billion in assets under administration (AUA) by 2028.
It believes there will be synergies in adding BFC’s capabilities into its existing digital wealth management platform.
By doing so, it will accelerate its vision of becoming a global wealth management business that can help to open up further opportunities in the future.
A private placement to raise funds
To fund the acquisition, iFAST has raised a total sum of S$105 million through a private placement of shares to institutional and accredited investors.
The placement was well-received with over S$150 million in total subscriptions, more than double the initial deal size of S$75 million.
iFAST priced the placement at the top end of the price range at S$7.50 per share, and a total of 14 million shares were issued.
The dilution to earnings per share will be around 5%.
Interestingly, one of the anchor investors in iFAST’s placement is Mr Lee Thiam Wah, founder and major shareholder of 99 Speed Mart Sdn Bhd, who took up a total of S$51 million in the group’s shares.
Mr Lee is one of iFAST’s consortium partners in its bid for a Malaysian digital banking licence.
Get Smart: Ambitious plans
iFAST’s latest move signals the group’s ambitious plans for growing its business.
After securing a major win for its Hong Kong division, the fintech company is now setting its sights on beefing up its platform with this acquisition.
Time will tell whether BFC will be an asset or a liability for the group.
The narrative may sound compelling, but execution is also key for iFAST to make the most of this acquisition.
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Disclaimer: Royston Yang owns shares of iFAST Corporation Limited.