A group of investors have pulled financial support for Novatti’s bid to secure a banking licence from APRA.
Novatti’s board told the ASX on Wednesday that an investment group comprising the Hong Kong-based Fortune Fund Investment (Asia) and the locally-based Sydney Digital Currency Exchange had backed out of an arrangement to take equity in the holding company for proposed banking operation.
The collapse of the deal has forced Novatti to scramble for new equity partners as it tries to advance its case for a restricted banking licence with the prudential regulator.
FFIA and SDCE announced their participation in the venture in the first week of January but decided to back out of the arrangement because of the uncertainties triggered by Covid-19 including APRA’s six month moratorium on issuing new banking licences.
“The investor group for the banking unit as announced to ASX on 6 January 2020 has decided to withdraw from the investment, given uncertainty caused by COVID-19 and the above-mentioned APRA delays rendering the conditions precedent unachievable by the stipulated sunset date,” Novatti directors said in the filing.
“Accordingly, investment funds held in escrow will be released.”
Under the now abandoned deal, FFIA and SDCE agreed to invest up to A$18 million in the holding company if the licence was secured this year.
The investment comprised $10 million in cash and up to $8 million is technology hardware and services.
The withdrawal of support is another indication of the tightening funding environment for neobanks in the Australian market.
Novatti said it was now “actively engaging” with other investment groups seeking exposure to the neobank sector and would “provide an update to the market on these activities in due course”.
Novatti scrip closed down 2.6 per cent to 18.5 cents.
The stock was one of the few financial services listings to lose ground as most banks and payments services companies rallied strongly.
The ASX financials index posted its strongest day of trading this calendar year closing up more than 5 per cent.