Tungsten Network Sells Bank – Self Funding Days Over

After giving shareholders an 85% haircut from their trading highs, Tungsten decided to unwind one part of their original IPO strategy – buying a bank license to self fund their network.  The bank was sold to the Gupta family interests for £30m and is subject to approval of the Prudential Regulation Authority. Gupta trades, manufactures and provides supply chain management around steel and industrial interests in the UK.

Tungsten has decided to focus on einvoicing and invoice finance albeit with their non bank partner, BNYM Insight Investment Management.  They signed an agreement in Dec 2014 with them under which Insight agreed to invest in "eligible" Tungsten Early Payment receivables  originated by Tungsten in Europe and North America.

I think the lesson learned here is that taking a technology company and remaking it as a finance company is very hard.  Tungsten was the only electronic network that had a bank.  They had thought that having a cheap pool of deposits would enable it to lend to its captive network.  There were three things they did not completely figure out.

  1. They got into the capital and deposit business, which they found can be very expensive and highly regulated.
  2. Their assumptions about suppliers desire for invoice finance has yet to materialize in a big way. So far invoice values financed are very small, latest figures around GBP62 million.  There is plenty of suppliers they can provide financing to, but right now it’s not materializing as quickly. The question is not where the money will come from, because believe me there is many investors that would fund this paper under the right situations. The question is one of demonstrating a finance value proposition to the suppliers they have access to through their einvoicing platform.
  3. Their relationship is with the large corporate installing their einvoicing platform, not with their suppliers, and selling finance to these suppliers is not as simple as offering an Early Pay button.

The other bad news reported was pretax losses widened to GBP17.8 million in the six months ended October 31, from GBP14.8 million in the corresponding half the prior year, as revenue grew to GBP13.1 million from GBP10.2 million.  And the company continues to burn cash as growth was more than offset by costs, as operating expenses swelled to GBP30.8 million from GBP24.7 million, while a GBP6.8 million goodwill impairment charge was booked in connection to the sale of its banking unit.

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