South Africa

SassaGate

High Court ruling on Sassa grants sees Net1 US market value plunge

CAPE TOWN, SOUTH AFRICA – MARCH 07: Social Development Minister Bathabile Dlamini appears before Parliament’s Standing Committee on Public Accounts (Scopa) on March 07, 2017 in Cape Town, South Africa. Dlamini said there’s no “national crisis” regarding the payment of social grants. (Photo by Gallo Images / Beeld / Lulama Zenzile)

A ruling by the North Gauteng High Court on Thursday, reversing a portion of an interim November 2018 ruling that the South Africa Social Security Agency (Sassa) continue to pay social grants into Net1 Easy Pay Everywhere (EPE) accounts, has triggered a plunge in US-listed Net1 UEPS’s market value.

The Pretoria high court on Thursday, 31 January reversed a portion of its 28 November 2018 interim order that Sassa pay social grants into the EPE accounts of recipients who had provided biometric details but had done so without submitting a Sassa prescribed consent form.

The ruling effectively means that Sassa can change those recipients’ accounts from EPE accounts to South African Post Office accounts.

Sassa failed to implement the High Court’s interim order and pay the social grants for the December, January or February payment cycles into the EPE accounts for those customers who have previously been auto-migrated without consent,” said Net1 CEO Herman Kotzé.

In November, Judge Hans Fabricius ordered Sassa to process by 1 December 2018, the consent forms of 14 applicants who, along with Moneyline Financial Services, had turned to the court following Sassa’s decision to pay social grants into South Africa Post Office and not EPE accounts. The EPE accounts are held by Grindrod Bank and are administered by Money Financial Services.

While Net1 was in the process of evaluating options available, including an appeal, said Kotze, “unfortunately, this has had a material adverse impact on our financial results, and we expect to report a significant loss for the second quarter of fiscal 2019”.

Kotzé said that the loss had arisen primarily “from the deployment of our full infrastructure to service current and new customers during that time, and a substantial increase in our allowance for doubtful finance loans receivable on loans extended to our EPE account holder base”.

Our near-term focus is to ensure that we right-size our South African operations and get them to a breakeven level by Q4 2019. We remain in a net-cash position, and our non-EPE-related businesses remain meaningful positive contributors to the Group.”

Net1’s shares dropped by 38.5% to US$ 2.85 on Nasdaq after Thursday’s court ruling. The company, which is also listed on the JSE, recorded a loss of $5.1m for the three months to end-September from a profit of $19.72m the previous year.

Net1’s subsidiary, Cash Paymaster Services, reported an 87% decline due to the loss of the Sassa contract. DM

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