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7/29/2019 Understanding Ebix IP asset Transfer
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Response to Gotham City Research report
EbixExchange IP asset saleto Ebix Singapore
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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.
7/29/2019 Understanding Ebix IP asset Transfer
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Summary responses:
Cliff-notes version
7/29/2019 Understanding Ebix IP asset Transfer
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The Singapore IP Transaction with EbixExchange Australia Pty Ltd
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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The Singapore IP Transaction with EbixExchange Australia Pty 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.
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.
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The Singapore IP Transaction with EbixExchange Australia Pty Ltd
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.
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The Singapore IP Transaction with EbixExchange Australia Pty Ltd
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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The Singapore IP Transaction with EbixExchange Australia 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.
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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Before we delve into the detail:
Some Background
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The Singapore IP Transaction with EbixExchange Australia Pty Ltd
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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The Singapore IP Transaction with EbixExchange Australia Pty Ltd
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]
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The Singapore IP Transaction with EbixExchange Australia Pty Ltd
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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The Singapore IP Transaction with EbixExchange Australia Pty Ltd
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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The Singapore IP Transaction with EbixExchange Australia Pty Ltd
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]
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First Transaction:
Raise the Cash and buy EbixExchange
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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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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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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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At the end of 2008 the setup look like this:
50MM owing
Asset:
50MM Receivable from
Ebix Australia (Vic) Pty Ltd
Asset:
50MM Investment in
EbixExchange Australia Pty Ltd
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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Second Transaction:
Raise the Cash to Buy the IP Assets
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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
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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
Ebix Australia (Vic) Pty Ltd
Sub #2: 9% USD /82MM SGD Loan
from Ebix Singapore Pte Ltd
Asset:
50MM Investment in
EbixExchange Australia Pty Ltd
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:
Unknown Ebix Subsidiary
Sub
#2
Sub
#1
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Third Transaction Part (a):
Buy the IP Assets
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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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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:
The Singapore IP Transaction Third Transaction part (a); Sell the IP assets
76MM related to Ebix Australia IP assets
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50MM owing
Asset:
50MM Receivable from
Ebix Australia (Vic) Pty Ltd
82MM Loan receivable from
Ebix Singapore Pte Ltd
Asset:50MM Investment in
EbixExchange Australia Pty Ltd
Liability :
50MM Payable to related party
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:
The Singapore IP Transaction Third Transaction part (a); Sell the IP assets
Asset:
76MM Cash
Pay Cash: 76MM
SGD/64MM AUD
Transfer 76MM SGD/64MM AUD
IP assets
Unknown Ebix Subsidiary
Sub
#2
Sub
#1
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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?
The Singapore IP Transaction Third Transaction part (a); Sell the IP assets
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Well a bit of basic accounting may help.
Auditors report for 2009
Auditors report for 2011
The Singapore IP Transaction Third Transaction part (a); Sell the IP assets
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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
The Singapore IP Transaction Third Transaction part (a); Sell the IP assets
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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.
The Singapore IP Transaction Third Transaction part (a); Sell the IP assets
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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
h h d (b) h h f b h
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The Singapore IP Transaction Third Transaction part (b); Get the cash out of EbixExchange
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.
h Si i hi d i (b) G h h f bi h
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50MM owing
Asset:
50MM Receivable from
Ebix Australia (Vic) Pty Ltd
82MM Loan receivable from
Ebix Singapore Pte Ltd
76MM Cash
Asset:50MM Investment in
EbixExchange Australia Pty Ltd
Liability :
50MM Payable to related party
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:
The Singapore IP Transaction Third Transaction part (b); Get the cash out of EbixExchange
Transfer 76MM
IP Sale Cash
Unknown Ebix Subsidiaries
Sub#1
Sub#2
Sub#3
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Third Transaction Part (c):
Back to the original 50MM loan:
Unwinding the loan used to purchase
EbixExchange
Th Si IP T ti Thi d T ti t ( ) U i d th i i l 50MM l
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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
Th Si IP T ti Thi d T ti t ( ) U i d th i i l 50MM l
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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
The Singapore IP Transaction Third Transaction part (c); Unwind the original 50MM loan
Th Si IP T ti Thi d T ti t ( ) U i d th i i l 50MM l
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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.
The Singapore IP Transaction Third Transaction part (c); Unwind the original 50MM loan
The Singapore IP Transaction Third Transaction part (c) Unwind the original 50MM loan
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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.
The Singapore IP Transaction Third Transaction part (c); Unwind the original 50MM loan
50MM loantransferred/
extinguished Asset:
50MM Investment in
EbixExchange Australia Pty Ltd
Written down to 0 as part of Loan
transfer
Liability :
50MM Payable to related party
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
Unknown Ebix Subsidiary
Transfer 76MM
IP Sale Cash
Sub
#1Sub
#2
Sub
#3
Did Unknown Sub#1,#2,#3
perform intercompany
transactions to extinguish the
50MM loan?
The Singapore IP Transaction Summary points
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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.
The Singapore IP Transaction Summary points
The Singapore IP Transaction Summary points
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The Singapore IP Transaction Summary points
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.
h h i h ll k bl i i h i