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SmartPay launches own funding facility in bid to reduce finance costs

Tuesday 23rd November 2010

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SmartPay, the merchant services provider, is hoping to tap wealthy private investors with the launch of a bulk funding facility to lower its finance costs and better manage cash flows as it expands its services in Australia and New Zealand.

The offer, which is only open to individuals with $500,000 or more to invest, will be sold through wholly-own subsidiary SmartPay Subscriptions, using the parent company's assets, rental contracts and cash flows as security, the company said in a statement today.

As the minimum investment is $500,000 the offer falls outside the scope of the Securities Act 1978, and the company does not have to issue a prospectus.

"We're looking for people we can form long-term relationships with, who are willing to invest large tranches of capital with us rather than lots of small investments of low value" managing director Ian Bailey said.

SmartPay has been using mezzanine finance arrangements to fund its expansion in New Zealand and Australian markets after it acquired the payments division of collapsed ProvencoCadmus for an undisclosed sum last year.

Under its current business model customers contractually lease electronic merchant equipment and services from the company for a fixed period, which it then securitises to generate working capital. It has also been using an overdraft facility from Kiwibank and Finance Now to fund the existing contracts on its rental book.

Finance costs have been a major concern for the company this year, and it said it was constantly looking for ways to lower its borrowing costs.

"Our interest rates are quite high at around 16 to 18% and we need to get that down," Bailey said. "We're looking 12% plus (interest on the offer), which offers substantial value to investors over bank interest rates."

In October the company said floated the possibility of listing on the ASX as part it is major push into the Australian market, although no further announcements have been made.

The company, through its Australian subsidiary, already has 12,000 terminals in the market with Bank of Bendigo and Live Group (TaxiEPay).

As of March 31 the company had $14 million of debt on its books, of which $4.6 million was used to fund the rental book. The company said today that rental book funding had subsequently grown to $11 million as of September 30, underpinned by future cash flows of $16 million.

The balance of SmartPay's borrowings is interest bearing corporate debt and non interest bearing debt, which it said had been reduced to $5.6 million in November, with $3.5 million due for repayment in September 2011 and $2.1 million to be refinanced between December 2010 and February 2011.

Shares fell 6.7% to 2.8 cents on the NZX today.

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