EbixCash’s IPO filing doesn’t disclose an adverse court order

The firm, a unit of Nasdaq-listed Ebix Inc., received the markets regulator’s approval for a ₹6,000 crore IPO in April.

EbixCash purchased gift card provider ITZCash in 2017 and rebranded it to Ebix Payment Services (EPS), which now forms a big chunk of its business. Vyoman Tradelink Ltd—the original promoter of ITZCash—continues to hold a 20% stake in the business and took Ebix to an arbitration court in 2019 over its failure to make some earn-out payments.

According to a person close with the matter, the Singapore International Arbitration Centre (SIAC) ordered Ebix to buy the remaining 20% from Vyoman and issued a penalty, a development the firm has not disclosed yet as it heads for an IPO.

“On 1 June 2023, SIAC ordered Ebix to buy the remaining 20% from the original promoters," the person said on condition of anonymity. SIAC asked Ebix to purchase the stake at a valuation finalized by an independent valuer. The valuation process is ongoing, but the purchase could cost EbixCash ₹100-200 crore, the person said.

In a separate order, SIAC also asked Ebix to pay $1 million in cost awards to Vyoman within 30 days, plus interest in case of delay.

Vyoman moved SIAC, accusing Ebix of breaching the ITZCash share purchase agreement (SPA) and shareholders’ agreement (SHA), and sought their termination. Vyoman claims EbixCash was supposed to make certain earn-out payments that would have totalled ₹250-300 crore, linked to revenue targets achieved by EPS by the end of FY20; however, revenues stayed flat and then fell over the period, only to shoot up after the earn-out period.

SIAC asked Ebix to buy the residual 20% but did not favour Vyoman’s demand for the earn-outs. “Ebix had no plan to buy this 20%, and this would have become ‘dead stock’ for the promoters; that’s when Vyoman decided to take the matter to arbitration," the person added.

EbixCash’s IPO papers filed earlier did mention the dispute, though. “The claimants have alleged violation of several obligations under the aforesaid agreements, including (i) deliberately adversely impacting the revenue of Ebix Payments to evade the payment of first earn-out and second earn-outs, (ii) submission of delayed and inaccurate financial statements, and (iii) acquisition/ incorporation of entities engaged in competing activities. The claimants have sought specific performance including the purchase of their shares at an enhanced call price and claimed aggregate damage of ₹641 crore," the draft red herring prospectus (DRHP) said.

Later, in a regulatory filing in the US on 8 August, Ebix acknowledged that the arbitration proceedings had concluded, and the arbitral tribunal passed a partial order saying that the termination of the shareholders’ agreement was justified while holding that the Ebix group was obliged to purchase the existing shareholding of Vyoman at a price decided by an independent valuer.

Ebix group had also moved the National Company Law Tribunal seeking a declaration that the articles of association of ItzCash stand amended following the termination of the SHA by its promoters. “Thus, the aforesaid claims are not valid and no liability will devolve on Ebix Group on account of this dispute," the company’s DRHP stated. However, in July, NCLT dismissed the case, citing “non-prosecution of the petitioner".

Questions sent to a spokesperson for EbixCash remained unanswered. Securities and Exchange Board of India (Sebi) is yet to respond to a Mint query on whether EbixCash informed it about the legal developments and updated the DRHP.

Responding to Mint’s queries, Vyoman wrote, “With respect to the arbitration administered by SIAC, please note that as per Rule 39 of the Arbitration Rules of SIAC, 2016, matters pertaining to the arbitration proceedings, including any awards passed, are confidential and cannot be disclosed to any third party. In these circumstances, we are unable to respond to your queries or provide any comments in relation to the arbitration. In view of the strict confidentiality provisions, kindly refrain from publishing in respect of the arbitration."

On 1 June, EbixCash updated its DRHP with “restated" financials, presented in line with the Reserve Bank of India’s (RBI’s) master directive on prepaid cards instruments. This came after a “letter of displeasure" from RBI on 21 March, followed by a Sebi letter. Following this, EPS’ revenue was recognized and reported on a “net basis". This brought the IPO-bound firm’s consolidated revenue significantly down as earlier EPS accounted for 65% of EbixCash’s consolidated revenues, which shrank to less than 3%.

Mint has previously reported on how EbixCash recognized revenue, ongoing litigation and transactions with select companies. Interestingly, shareholders of EPS became aware of the “restated revenue" only at its annual general meeting in June," the person added.

EPS reported ₹4,385 crore in revenue from operations in FY23 against ₹4,622 crore in FY22, while losses during the period rose to ₹24.8 crore from ₹7 crore. Mint has seen a copy of its FY23 financial statement. It also means that EbixCash updated its consolidated revenue, but the revenue reported in the standalone financial document of EPS still shows revenue on a gross basis. “As per restated numbers, this revenue should come down to some ₹120-150 crore," the person added.

As of 12 September, the market cap of its parent Ebix Inc. on Nasdaq was ₹4,530 crore. EbixCash plans to raise ₹6,000 crore ($728 million) from the IPO. On 6 July, the parent issued a “strategic update" detailing its plans to be debt-free this year, mentioning the key role of EbixCash listing and partial asset sale.

In May, Ebix Inc. announced an amendment to its existing credit agreement, extending the maturity date from 23 May 2023 to 30 September 2023. It stated: “Amendment No. 14 also specifically provides for the application of a certain percentage of the proceeds from certain liquidity events towards payment of outstanding principal and interest obligations at that time. These events would include the mandatory public listing of the shares of the company’s subsidiary EbixCash on the Indian stock market by 31 July 2023, the proceeds from the issuance of any additional debt and/or securities if raised by the firm and the proceeds from the monetization of any asset sale, if carried out by the firm."

The “mandatory public listing" to raise money did not materialize as per plans, though. EbixCash did not respond to whether it will look to extend the maturity date of the credit agreement further. As of 31 December, Ebix Inc. had outstanding borrowings of $639.3 million, according to Form 10K filed by the company before the US Securities and Exchange Commission.