Jaya

Jaya has entered into a conditional agreement with five individual vendors to acquire the entire stake in Heduru Moni for $232.2m.

The consideration will be satisfied via the issue of 726.6m new shares at $0.32/share. Should this be successful, the deal will result in the reverse takeover of the cash company.

The deal values the Papau New Guinea finance firm at 4.6x P/B based on its FY15 NAV of $50.9m and 12x FY15 P/E.

As part of the agreement, existing Jaya shareholders will be entitled to receive a cash distribution of up to $0.38/share prior to the completion of the RTO.

The proposed acquisition comes after Jaya disposed its previous marine charter operations to become a cash company. It had previously missed two deadlines to acquire a new business and has until 3 Jun to meet SGX listing requirements.

Established 1988, Heduru Moni trades under the name Moni Plus and is a market leader in personal and consumer loans business in PNG. Its competitive advantage lies in its ability to turn loan approvals within 24 hours.

Moni chalked up net profits of $11.4m, $13.9m, and $19.4m for FY13, FY14, and FY15 respectively. FY15 revenue reached $48.3m (+34%). It has low NPL ratio due to direct deductions from salaries of its borrowers to meet loan repayment.

The target company has international aspirations to expand into emerging markets in Southeast Asia.

However, investors should note that PNG is currently facing a foreign exchange liquidity problem with the country seeking aid from the IFC and other partners.

With the development of the country requiring heavy investments from overseas, the shortage of FX reserves could put a dampener to growth with the Asian Development Bank forecasting growth in 2016 to slow to 4.3% from 2015's 9.9%.

Jaya surged 54% today on barely 30 lots traded.