understanding ebix ip asset transfer

7/29/2019 Understanding Ebix IP asset Transfer

1/41

Response to Gotham City Research report

EbixExchange IP asset saleto Ebix Singapore

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2/41

The Singapore IP Transaction with EbixExchange Australia Pty Ltd

Gotham City Research makes the following claims in their second

presentation Ebix: All Distraction, No Clarity:

1. Raina's rather brief (30 second long) and cryptic claim as to how the 2008

intercompany loan to Australia was transferred to Singapore is not supported by

the Singapore or Australian filings.

2. The 2009 Singapore filing clearly shows an in-flow and out-flow of cash, in the

statement of cash flows; these in-flows and out-flows, alone, do not supportRaina's explanation.

3. The 2009 Australian filing shows no in-flow or out-flow of cash, pertaining to the

intangible asset sale to Singapore. This isn't consistent with the 2009 Singapore

filing or Raina's claim.

4. The 2007/2008 intercompany "loan" to Australia was a current liability; the 2009

Singapore loan is a non-current liability.

5. Raina did not address our belief that the 2009 Singapore loan does not fit the

criteria for an arm's length transaction, rendering Ebix's tax benefits dubious.

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3/41

Summary responses:

Cliff-notes version

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4/41


Raina's rather brief (30 second long) and cryptic claim as to how the 2008

intercompany loan to Australia was transferred to Singapore is not supported by the

Singapore or Australian filings.

Summary Point:

Gotham City Research is looking at the wrong subsidiary accounts.

The 50MM intercompany loan referenced is not with Ebix Singapore Pty Ltd. It

is with another unknown Ebix subsidiary and hence will not show up in the

Singapore accounts.

The 50MM loan is an inter-company payable loan in 2007 to allow Ebix

Australia (Vic) Pty Ltd to purchase EbixExchange Australia Pty Ltd from Telstra in

2008.

It is totally separate transaction to the IP Asset Sale between EbixExchange

Australia Pty Ltd to Singapore Pte Ltd that occurred in 2009.

Key Point: The original 50MM loan and the IP asset sale are different

transactions between different EBIX entities.

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5/41


The 2009 Singapore filing clearly shows an in-flow and out-flow of cash, in the

statement of cash flows; these in-flows and out-flows, alone, do not support Raina's

explanation.

Summary point:

Gotham City research is looking at the incorrect Australian Ebix Subsidiary for

the cash flows.

The Ebix Singapore Pte Ltd cash flow statement show a cash outflow to

EbixExchange Australia Pty Ltd. Not Ebix Australia (Vic) Pty Ltd.

We dont see this as a cash inflow into Ebix Australia (Vic) Pty Ltd as Ebix

Australia (Vic) Pty Ltd did not fully consolidate EbixExchange Australia Pty Ltd

until 2011 thus missing the IP asset sale transactions in 2009 in the cash flow

and balance sheet statements.

EbixExchange Australia Pty Ltd accounts are not publically available from ASIC.

Key Point: In 2009 EbixExchange Australia Pty Ltd is not consolidated in Ebix

Australia (Vic) Pty Ltd.

[email protected]


6/41


The 2009 Australian filing shows no in-flow or out-flow of cash, pertaining to the

intangible asset sale to Singapore. This isn't consistent with the 2009 Singapore filing

or Raina's claim.

Summary point:

As for prior point, Gotham City research is looking at the incorrect Australian

Ebix Subsidiary for the cash flows.

The Ebix Singapore Pte Ltd cash flow statement show a cash outflow to

EbixExchange Australia Pty Ltd. Not Ebix Australia (Vic) Pty Ltd.

We dont see this as a cash inflow into Ebix Australia (Vic) Pty Ltd as Ebix

Australia (Vic) Pty Ltd did not fully consolidate EbixExchange Australia Pty Ltd

until 2011 thus missing the IP asset sale transactions in 2009 in the cash flow

and balance sheet statements.

EbixExchange Australia Pty Ltd accounts are not publically available from ASIC.

Key Point: In 2009 EbixExchange Australia Pty Ltd is not consolidated in Ebix

Australia (Vic) Pty Ltd.

[email protected]


7/41


The 2007/2008 intercompany "loan" to Australia was a current liability; the 2009

Singapore loan is a non-current liability.

Summary point:

Gotham City research is looking at the incorrect Ebix Subsidiary for the

counterparty of the non-current loan.

There is no Intercompany loan from Ebix Singapore Pte Ltd to Ebix Australia

(Vic) Pty Ltd.

There is a non-current loan from Ebix Singapore Pte Ltd to a unknown EBIX

related subsidiary.

The Current-liability seen in Ebix Australia (Vic) Pty Ltd is a trade payable

mentioned earlier used to fund the purchase of EbixExchange from Telstra. Theloan counterparty is with an unknown Ebix subsidiary.

Key Point: Ebix Singapore Pte Ltd does have a non-current loan to fund the

purchase of the IP assets of EbixExchange Australia Pty Ltd but the loan is not

with Ebix Australia (Vic) Pty Ltd.

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8/41


Raina did not address our belief that the 2009 Singapore loan does not fit the criteria

for an arm's length transaction, rendering Ebix's tax benefits dubious.

Summary point:

No comment on this point as this is up to the tax lawyers to answer if it is an

arms length transaction or not.

Key Point: Perhaps Gotham City can provide a Tax opinion from a reputable

well known IP Tax Specialist Lawyer that the IP transaction was not arms length.

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9/41

Before we delve into the detail:

Some Background

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10/41


Background:

Ebix uses Singapore as a part of their Tax strategy to reduce income tax

expense. They do this via transfer pricing arrangements with various

subsidiaries.

Ebix has entered into many Transfer Pricing agreements with various

subsidiaries in Brazil, India and United States.

This presentation focuses on one large Transfer Pricing arrangement in

Australia with EbixExchange Australia Pty Ltd.

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11/41


Background:

The main Ebix subsidiaries in Australia are:

Ebix Australia (Vic) Pty Ltd

EbixExchange Australia Pty Ltd

Ebix Australia (Vic) Pty Ltd owns 100% of EbixExchange Australia Pty Ltd

EbixExchange was purchased from Telstra in 2008 and was previously

known as Telstra eBusiness Services.

In Australia the Australian Securities and Investment Commission (ASIC) is

the corporate regulator.

ASIC generally requires large proprietary and public companies inAustralia to file annual reports with ASIC

ASIC only requires certain entities to disclose their corporate filings

publically

Only Ebix Australia (Vic) Pty Ltd accounts are publically available from ASIC

EbixExchange Australia Pty Ltd accounts are NOT publically available fromASIC [email protected]


12/41


Background:

There are three separate and distinct transactions to understand between

Singapore, other Ebix subsidiaries and Australia regarding the EbixExchange

Australia Pty Ltd IP transaction.

First transaction:

This transaction relates to Ebix Australia (Vic) Pty Ltd borrowing 50MM AUD so

that it can purchase EbixExchange Australia Pty Ltd from Telstra.

Second Transaction:

This transaction relates to how Ebix Singapore Pte Ltd borrows 82MM SGD cash

via a USD loan, most of which is used to purchase the IP assets from Ebix

Exchange Australia Pty Ltd.

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13/41


Background:

Third Transactions:

This is a series of transactions to:

a) Sell the Intellectual Property Assets from EbixExchange Australia Pty Ltd

to Ebix Singapore Pte Ltd

b) Getting the cash received from Ebix Singapore Pte Ltd back out of

EbixExchange Australia Pty Ltd so it isnt stranded and available to be used

by the wider Ebix corporate entity

c) Unwinding the original 50MM AUD loan to Ebix Australia (Vic) Pty Ltd

(The First Transaction)

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14/41


Background:

We only have an incomplete set of finings for 2007-2009 for all the Ebix

Subsidiaries.

For example we have no filings for EbixExchange Australia Pty Ltd

As such for the First and Second Transaction we can identify that they occurred

but not the counterparty on the other side of certain transactions.

For the Third transactions b) and c) we can only speculate on the specific

transactions as the EbixExchange Australia Pty Ltd accounts are not available

publically and related Ebix subsidiary counterparties to certain trades are not

known.

But this is ok as the US GAAP 2010/2011 10-k filings consolidate all subsidiarity

cash flows and net out intercompany transactions in the cash flow and balance

sheet statements.

We just cant see all the individual detail at each Ebix subsidiary As much as

we would like all the individual detail, its not publically available and its notrequired to be disclosed by Ebix. [email protected]


15/41

First Transaction:

Raise the Cash and buy EbixExchange

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16/41

The Singapore IP Transaction First Transaction

In 2007 an unknown subsidiary lent 50MM to Ebix Australia (Vic) Pty Ltd.

This was done through a short term unsecured note payable

Unknown Ebix

Subsidiary

Lends 50MM Cash

Lends 50MM Cash

Asset: 50MM Receivable Asset: 50MM CashLiability 50MM Payable

Ebix Australia

(Vic) Pty Ltd

We cant pull the 2007 Ebix Australia (Vic) Pty Ltd filings for a clue of the lending

entity.

We can only guess which entity is the Unknown Ebix entity but we know one thingIt wasn't the Singapore subsidiary Ebix Singapore Pte Ltd lending the cash as there is

no account receivable or note receivable for any amount similar to the amount lent.

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17/41

The Singapore IP Transaction First Transaction

Ebix Singapore Pte Ltd didnt lend Ebix Australia (Vic) Pty Ltd the money as there is no

related short term receivable or long term loan due in 2008 Ebix Singapore Pte Ltd filings

there for the money came from a different EBIX subsidiary.

No short term or long term

asset to reflect the 50MM loan

to Ebix Australia (Vic) Pty Ltd

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18/41

In 2008 Ebix Australia (Vic) Pty Ltd. Purchased

EbixExchange Australia Pty Ltd from Telstra for

50MM.

Ebix Australia

(Vic) Pty Ltd

Pays 50MM Cash

Receives 100% EbixExchange Equity

Telstra

The Singapore IP Transaction First Transaction; Getting the loan and buying EbixExchange

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19/41

At the end of 2008 the setup look like this:

50MM owing

Asset:

50MM Receivable from


Asset:

50MM Investment in


Liability :50MM Payable to related party

Ebix Australia

(Vic) Pty Ltd

Owns 100%

Ebix Exchange

Australia Pty Ltd

Ebix ExchangeAustralia Pty Ltd

The Singapore IP Transaction First Transaction; Getting the loan and buying EbixExchange

Unknown Ebix Subsidiary

Sub

#1

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20/41

Second Transaction:

Raise the Cash to Buy the IP Assets

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21/41

Where did Ebix Singapore Pte Ltd get the cash to pay EbixExchange Australia Pty Ltd for

the IP assets?

A related company lent them the money via a 9% USD cash loan. In 2009 we get a cashinflow of 82MM SGD which is the USD loan translated into SGD at the then prevailing

exchange rate.

Which is now a non-current liability as a loan payable

Who lent Ebix Singapore Pte Ltd the money?

The Singapore IP Transaction Second Transaction; Getting the loan to buy IP assets


22/41

We cant tell which related company lent the money as it isnt disclosed in the

Singapore filings.

Its an unknown Ebix related company. Could it be the same unknown entity that lent

Ebix Australia (Vic) Pty Ltd the 50MM to buy EbixExchange Australia?

Perhaps it is, we cant be sure with out further company disclosure.

50MM owing

Asset:

Sub#1: 50MM Receivable from


Sub #2: 9% USD /82MM SGD Loan

from Ebix Singapore Pte Ltd

Asset:

50MM Investment in


Liability :

50MM Payable to related party

Ebix Australia

(Vic) Pty Ltd

Owns 100%

Ebix Exchange

Australia Pty Ltd

Ebix Exchange

Australia Pty Ltd82MM Cash

82MM Loan payable

Ebix

Singapore Pte Ltd

The Singapore IP Transaction Second Transaction; Getting the loan to buy IP assets

Asset:

82MM Cash

Liability :82MM Loan Payable to related party

At the end of the second transaction in 2009 the setup looks like this:


Sub

#2

Sub

#1


23/41

Third Transaction Part (a):

Buy the IP Assets

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24/41

In 2009 Ebix Singapore Pte Ltd enters into Intellectual property transaction directly with

EbixExchange Australia Pty Ltd. It buys the IP assets for 76MM SGD or about 64MM AUD.

IP assets transferred from EbixExchange

Australia Pty LTD to EBIX Singapore Pte Ltd

IP Transferred 76.11MM Singapore $ / 64 AUD

@1.188)

Bulk of EbixExchange Australia IP

The Singapore IP Transaction Third Transaction part (a); Sell the IP assets

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25/41

Ebix Singapore Pte Ltd pays cash to EbixExchange Australia Pty Ltd for the IP assets.

This cash payment is disclosed on the Ebix Singapore Pte Ltd cash-flow statement:


76MM related to Ebix Australia IP assets

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26/41

50MM owing

Asset:



82MM Loan receivable from

Ebix Singapore Pte Ltd

Asset:50MM Investment in


Liability :


Ebix Australia

(Vic) Pty Ltd

Owns 100%

Ebix Exchange

Australia Pty Ltd

Ebix Exchange

Australia Pty Ltd

82MM Loan payable

Ebix

Singapore Pte Ltd

Asset:

8MM Cash

76MM IP Assets from EbixExchange Australia Pty LTD

Liability :

82MM Loan Payable to related party

At the end of the third transaction part (a) in 2009 the setup looks like this:


Asset:

76MM Cash

Pay Cash: 76MM

SGD/64MM AUD

Transfer 76MM SGD/64MM AUD

IP assets


Sub

#2

Sub

#1

[email protected]


27/41

So where is the 76MM SGD/64MM AUD Cash inflow to Australia?

There is no 64MM AUD/76MM SD

cash inflow in the cash flow

statement in cash flow from

investing or financing.

Did a related-party walk away with

64M AUD in their back pocket?

Are there questions to answer?

Should we call the Fraud Squad?

Can we get Whistle blower fast-cash?


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28/41

Well a bit of basic accounting may help.

Auditors report for 2009

Auditors report for 2011


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29/41

Ebix Australia (Vic) Pty Ltd didnt become a consolidating entity until 2011.

As such all the 2009 IP transactions between Ebix Singapore Pte Ltd and EbixExchange

Australia Pty Ltd are not reflected in the 2009 Cash flow statement of Ebix Australia

(Vic) Pty Ltd as it doesn't consolidate EbixExchange Australia Pty Ltd.

Consolidated entities

reflected hereParent entity only

reflected here

2009 accounts arent consolidated entity so

wont see EbixExchange Australia CashFlow

transaction with Ebix Singapore Pte Ltd



30/41

Three important summary points to note:

EbixExchange Australia Pty Ltd accounts are not available to the public. We cant

directly see the 2009 IP transactions impact on the cash flow statement.

Ebix Australia (Vic) Pty Ltd didnt become a consolidating entity for reporting

purposes until 2011 as such the Ebix Australia (Vic) Pty Ltd cash flow accounts dont

reflect the Ebix Exchange Australia Pty Ltd 2009 IP transactions.

Ebix isnt required to disclose all the intercompany transaction details regardless of

how much detail we would like.


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31/41

Third Transaction Part (b):

Distribute the EbixExchange IP sale Cash

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As the EbixExchange Australia Pty Ltd filings are not available we cant see how

EbixExchange Australia Pty Ltd transferred the cash received from the sale of the IP

assets to other parts of the Ebix corporate structure

But we know that there was an EbixExchange Australia Pty Ltd transaction in 2009 with

another Ebix party to transfer the cash.

We know this because the 2011 Ebix Australia (Vic) Pty Ltd accounts show that for2010 the consolidated cash balances are much lower.

The Singapore IP Transaction Third Transaction part (b); Get the cash out of EbixExchange

IP cash transferred out in 2009. Why: As part of the overall IP transaction

How: We dont know we dont have the accounts Where: We dont know, we dont have the accounts

Cash Balances indicate 76MMSGD/64MMAUD

IP sale cash wasnt retained in

EbixExchange Australia Pty ltd

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h h d (b) h h f b h


33/41


Could the cash transfer be to the same subsidiary that

a) Lent the 50MM cash in the first transaction?

b) Lent the 82MM cash in the second transaction?

We dont know as we dont have the accounts. We cant tell which subsidiary the inter-

company transaction was with.

What we do know is that there was a transaction.

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h Si i hi d i (b) G h h f bi h


34/41

50MM owing

Asset:



82MM Loan receivable from

Ebix Singapore Pte Ltd

76MM Cash

Asset:50MM Investment in


Liability :


Ebix Australia

(Vic) Pty Ltd

Owns 100%

Ebix Exchange

Australia Pty Ltd

Ebix Exchange

Australia Pty Ltd

82MM Loan payable

Ebix

Singapore Pte Ltd

Asset:

8MM Cash

76MM IP Assets from EbixExchange Australia Pty LTD

Liability :

82MM Loan Payable to related party

At the end of the third transaction part (b) in 2009 the setup looks like this:


Transfer 76MM

IP Sale Cash

Unknown Ebix Subsidiaries

Sub#1

Sub#2

Sub#3

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35/41

Third Transaction Part (c):

Back to the original 50MM loan:

Unwinding the loan used to purchase

EbixExchange

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Th Si IP T ti Thi d T ti t ( ) U i d th i i l 50MM l


36/41

What about that 50MM loan from Ebix Australia (Vic) Pty Ltd and the Unknown

Ebix entity Its now gone and there is no cash flow shown

Without further detail from Ebix its difficult

to know how this loan was repaid.

We do know that:

i) no cash changed hands as no cashflows

in the cashflow statement;

ii) The 50MM loan and 50MM investment

was removed

The Singapore IP Transaction Third Transaction part (c); Unwind the original 50MM loan

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37/41

We also know that non-cash transactions dont need to be shown on the cash-

flow statement. International Financial Reporting Standards for the Cash flow

statement disclose:

44. Many investing and financing activities do not have a direct impact on current cash

flows although they do affect the capital and asset structure of an enterprise. The

exclusion of non-cash transactions from the cash flow statement is consistent with the

objective of a cash flow statement as these items do not involve cash flows in the current

period. Examples of non-cash transactions are:

(a) the acquisition of assets either by assuming directly related liabilities or by means of afinance lease;

(b) the acquisition of an enterprise by means of an equity issue, and

(c) the conversion of debt to equity


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38/41

We have incomplete information to decode the removal of the 50MM trade payable.

We cant be sure what transactions happened.

Transactions 3(a), 3(b) and 3(c ) would all be part of the overall 2009 IP sale and be

interrelated.

We are trying to put the jig-saw together with out the picture to work from:

We dont have EbixExchange Australia Pty Ltd Accounts Ebix Australia (Vic) Pty Ltd did not consolidate Ebix Exchange Australia Pty Ltd in

2009 when Transactions Three (a), (b) and (c ) all occurred.

We dont know who the unknown Ebix Subsidiary #1, #2 and #3 are

We dont know what or if any inter-related transactions between Unknown Ebix

Subsidiary #1, #2 and #3 occurred as part of the 2009 Ebix Exchange Australia IP

asset sale.


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The Singapore IP Transaction Third Transaction part (c) Unwind the original 50MM loan


39/41

With out further guidance from the company we cant be sure, but one possibility is

that the that the 50MM investment asset and 50MM note payable was

extinguished as a non-cash transaction as a part of the Third transaction part (b)when the cash was transferred out of EbixExchange Australia to the unknown Ebix

subsidiary.


50MM loantransferred/

extinguished Asset:

50MM Investment in


Written down to 0 as part of Loan

transfer

Liability :


transferred/extinguished

Ebix Australia

(Vic) Pty Ltd

Owns 100%

Ebix Exchange

Australia Pty Ltd

Ebix Exchange

Australia Pty Ltd

82MM Loan payable

Ebix

Singapore Pte Ltd


Transfer 76MM

IP Sale Cash

Sub

#1Sub

#2

Sub

#3

Did Unknown Sub#1,#2,#3

perform intercompany

transactions to extinguish the

50MM loan?

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The Singapore IP Transaction Summary points


40/41

1) We dont have all the unknown subsidiary accounts where key inter-

company transactions were performed.

2) We dont have EbixExchange Australia Pty Ltd accounts as they arent

public.

3) Consolidation in Ebix Australia (Vic) Pty Ltd didnt start until 2011 so the key

IP transactions in 2009 aren't reflected.

4) The Unknown Ebix Subsidiaries #1, #2, #3 could well have performed inter-

company transactions to explain the extinguishment of the intercompany

50M loan. They even could be the same subsidiary.

5) As IFRS states, not all capital transactions need to be reflected on the cash

flow statement.


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41/41


Back to Gotham City Research:

Raina's rather brief (30 second long) and cryptic claim as to how the 2008 intercompany loan to

Australia was transferred to Singapore is not supported by the Singapore or Australian filings.

Gotham City is looking at the wrong accounts: The loan is not with Ebix Singapore Pte Ltd

The 2009 Singapore filing clearly shows an in-flow and out-flow of cash, in the statement of cash

flows; these in-flows and out-flows, alone, do not support Raina's explanation.

Gotham City is looking at the wrong accounts: EbixExchange Australia is not consolidated FY09

The 2009 Australian filing shows no in-flow or out-flow of cash, pertaining to the intangible asset

sale to Singapore. This isn't consistent with the 2009 Singapore filing or Raina's claim.

Gotham City is looking at the wrong accounts: EbixExchange Australia is not consolidated FY09

The 2007/2008 intercompany "loan" to Australia was a current liability; the 2009 Singapore loan

is a non-current liability.

Gotham City is looking at the wrong accounts: The non-current loan is not with Ebix Australia

(Vic) Pty Ltd

Raina did not address our belief that the 2009 Singapore loan does not fit the criteria for an arm's

length transaction, rendering Ebix's tax benefits dubious.

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