TRG Pakistan (TRG) Pakistan has notified that its associate, The Resource Group International (TRGI), has entered into a definitive agreement with its portfolio company, IBEX Limited (Nasdaq: IBEX), under which IBEX has repurchased approximately 3.56mn IBEX shares from TRGI, representing 20% of the company’s stake.
§ TRGI owned a 30% stake in IBEX earlier, and after this transaction, TRGI would be left with 12.5% (adjusted for cancellation of 3.56mn shares). Furthermore, if certain conditions are met, IBEX can repurchase this additional stake within 4 years.
§ The deal has clocked in at US$19.65/share, which is on an arms-length basis, i.e., the 5-day volume-weighted average trading price for IBEX on Nasdaq. This translates into proceeds of US$70mn. US$45mn would be paid in cash to TRGI, and the rest, US$25mn, is seller financing. Details of its terms are not available yet.
§ Furthermore, deal valuation based on Trailing Twelve Months (TTM) P/E is 10.5x. Based on EBITDA (US$66mn disclosed in analyst briefing), the multiple is 5.3x. TRG, in its analyst briefing in June 2024, mentioned that the IBEX sector PE is around 5-9x.
§ Furthermore, in the last analyst briefing, TRG also informed that IBEX had a cash balance of US$50mn with no debt. We believe this available cash is now being used to buy back shares from TRGI.
§ Impact on TRG Pakistan (TRG): TRG owns 68.8% of the total share in the issue of the TRGI while 45.3% of the voting power.
§ Our initial understanding suggests that, with a 68.8% stake in the TRGI, we believe the TRG stake in the IBEX divestment of US$70mn would be US$48mn (Cash: US$31mn and Seller Financing: US$17.2mn). This translates into a per-share impact of Rs16-24 (Rs16 cash and an additional Rs9 in seller financing) before tax for TRG Pakistan.
§ As per our channel check, seller financing is also at arm’s length, and IBEX will share details with NASDAQ in due course.
§ The deployment plan of these proceeds by TRGI has yet to be disclosed; however, to recall, proceeds from e-Telequote divestment were previously used for the retirement of debt and purchase of TRG shares (through Greentree, a wholly owned subsidiary of TRGI). This time, we believe the company can either use these proceeds to continue buying shares of TRG, announce dividend payouts, or reinvest in other ventures. We await management’s response on available options for the deployment of capital.
Courtesy- Topline Research
