Australian fintech group EML Payment’s shares soared by as much as a third on Thursday after it moved to wind down its troubled Irish subsidiary PFS Card Services Ireland Ltd (PCSIL), which was acquired four years ago for AU$264.5 million (€159.4 million).
The High Court in Dublin appointed Kieran Wallace and Andrew O’Leary, of Interpath Advisory Ireland, as provisional liquidators to PCSIL, which issues prepaid cards allowing customers to buy goods and services through the EU, late on Wednesday.
The board of PCSIL, which is not currently insolvent, brought the winding-up petition before the court because its business model is no longer commercially viable or sustainable, it is loss-making and it is bound to fail in the coming months. The company is expected to repay all of its debts to creditors, the court was told.
PCSIL currently holds €516 million of segregated funds for its customers with 2.4 million prepaid cards in issue.
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Shares in EML rose as much as 33.6 per cent in Sydney on Thursday before closing 22.2 per cent to give the company a market value of A$341.2 million.
EML acquired PCSIL in 2020 in a cash and stock deal from Co Meath couple Noel Moran and Valerie Moran. The fast-growing area of prepaid cards, which facilitate cashless shopping and digital transactions for people who do not have access to other forms of electronic payments such as standard debit or credit cards, was accelerated by the Covid-19 pandemic.
[ Provisional liquidators appointed to prepaid card issuerOpens in new window ]
The company traces its problems back to May 2021, when the Central Bank had raised concerns about the Irish regulated company’s “Anti-Money Laundering/Counter Terrorism Financing (AML/CTF), risk and control frameworks and governance”.
EML said at the time that the regulator may restrict the activities of the unit, which was responsible for PCSIL’s European business and accounted for 27 per cent of group revenues in the first three months of the year.
While EML clarified months later that the Central Bank had not identified any instances of AML or CTF events, nor deficiencies with respect to safeguarding, capital adequacy, or solvency measures, PCSIL has struggled ever since to secure Central Bank approval for remediation plans for its controls systems.
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EML had already suggested in November that it planned to exit its investment in PCSIL, saying that it planned to “refocus on core, profitable and cash flow positive businesses of gifting, Australia and UK”. EML put its other Irish unit, payments company Sentenial, which was bought in 2021 for an upfront payment of $108.6 million, on the market last year.
PCSIL lost €7.3 million in 2022, is expected to confirm some €15 million in losses for 2023 and is projected to lose an additional €3.7 million this financial year, counsel for the company told the court.
An exit of PCSIL makes sense and was the most likely outcome given ongoing losses, challenging macro and regulatory uncertainty, said RBC Australia analyst Garry Sherriff. “We view the provisional liquidation as relatively low-risk,” he said.
EML said its ongoing exposure to PCSIL is limited to an expected A$20 million cash outflow to settle intercompany balances and a A$25 million impairment charge.
“Following the conclusion of the liquidation and repayment of the intercompany balances, EML expects free cash flow to materially improve,” it said. “EML’s management resource, energy and capital can now be redirected to core businesses.”
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