Understanding Ebix IP Asset Transfer

Response to Gotham City Research report EbixExchange IP asset sale to Ebix Singapore
spinvestor2003@yahoo.com
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 support Raina'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.
Summary responses: Cliff-notes version
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.

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.

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.

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. The loan 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.

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.
Before we delve into the detail: Some Background
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.
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 in Australia 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 from ASIC spinvestor2003@yahoo.com
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.
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)
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 not required to be disclosed by Ebix. spinvestor2003@yahoo.com
First Transaction: Raise the Cash and buy EbixExchange
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
Ebix Australia (Vic) Pty Ltd
Asset: 50MM Receivable
Asset: 50MM Cash Liability 50MM Payable
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 thing It 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.
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
The Singapore IP Transaction First Transaction; Getting the loan and buying EbixExchange 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 At the end of 2008 the setup look like this:
Unknown Ebix Subsidiary Sub #1 50MM owing Ebix Australia (Vic) Pty Ltd Asset: 50MM Investment in EbixExchange Australia Pty Ltd Liability : 50MM Payable to related party
Asset: 50MM Receivable from Ebix Australia (Vic) Pty Ltd Owns 100% Ebix Exchange Australia Pty Ltd
Ebix Exchange Australia Pty Ltd
Second Transaction: Raise the Cash to Buy the IP Assets
The Singapore IP Transaction Second Transaction; Getting the loan to buy IP assets
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 cash inflow 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
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. At the end of the second transaction in 2009 the setup looks like this:
Unknown Ebix Subsidiary
Asset: Sub#1: 50MM Receivable from Ebix Australia (Vic) Pty Ltd
Sub #2: 9% USD /82MM SGD Loan from Ebix Singapore Pte Ltd
Sub #2
Sub #1
50MM owing
Asset: 50MM Investment in EbixExchange Australia Pty Ltd

Liability : 50MM Payable to related party
Owns 100% Ebix Exchange Australia Pty Ltd 82MM Cash Ebix Exchange Australia Pty Ltd
82MM Loan payable Asset: 82MM Cash Ebix Singapore Pte Ltd Liability : 82MM Loan Payable to related party
Third Transaction Part (a): Buy the IP Assets
The Singapore IP Transaction Third Transaction part (a); Sell the IP assets 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 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
The Singapore IP Transaction Third Transaction part (a); Sell the IP assets At the end of the third transaction part (a) in 2009 the setup looks like this:
Unknown Ebix Subsidiary Sub #2 Sub #1 Ebix Australia (Vic) Pty Ltd Asset: 50MM Investment in EbixExchange Australia Pty Ltd Liability : 50MM Payable to related party Owns 100% Ebix Exchange Australia Pty Ltd Ebix Exchange Australia Pty Ltd Asset: 76MM Cash
50MM owing
Asset: 50MM Receivable from Ebix Australia (Vic) Pty Ltd 82MM Loan receivable from Ebix Singapore Pte Ltd
82MM Loan payable
Pay Cash: 76MM SGD/64MM AUD Transfer 76MM SGD/64MM AUD IP assets
Ebix Singapore Pte Ltd
Asset: 8MM Cash 76MM IP Assets from EbixExchange Australia Pty LTD Liability : 82MM Loan Payable to related party
The Singapore IP Transaction Third Transaction part (a); Sell the IP assets 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 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 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 here Parent 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
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.
Third Transaction Part (b): Distribute the EbixExchange IP sale Cash
The Singapore IP Transaction Third Transaction part (b); Get the cash out of EbixExchange
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 for 2010 the consolidated cash balances are much lower.
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
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 intercompany transaction was with. What we do know is that there was a transaction.
The Singapore IP Transaction Third Transaction part (b); Get the cash out of EbixExchange At the end of the third transaction part (b) in 2009 the setup looks like this:
Unknown Ebix Subsidiaries Sub #2 Asset: 50MM Receivable from Ebix Australia (Vic) Pty Ltd 82MM Loan receivable from Ebix Singapore Pte Ltd 76MM Cash Ebix Exchange Australia Pty Ltd Owns 100% Ebix Exchange Australia Pty Ltd
Sub #3
Sub #1
50MM owing
Asset: 50MM Investment in EbixExchange Australia Pty Ltd Liability : 50MM Payable to related party
82MM Loan payable
Transfer 76MM IP Sale Cash
Asset: 8MM Cash 76MM IP Assets from EbixExchange Australia Pty LTD Liability : 82MM Loan Payable to related party
Third Transaction Part (c): Back to the original 50MM loan: Unwinding the loan used to purchase EbixExchange
The Singapore IP Transaction Third Transaction part (c); Unwind the original 50MM loan 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 We also know that non-cash transactions dont need to be shown on the cashflow 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 a finance 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 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 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. Did Unknown Sub#1,#2,#3 perform intercompany transactions to extinguish the Unknown Ebix Subsidiary 50MM loan? 50MM loan
Sub #2 Sub #3 Sub #1 transferred/ extinguished Ebix Australia (Vic) Pty Ltd 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
Owns 100% Ebix Exchange Australia Pty Ltd Ebix Exchange Australia Pty Ltd
82MM Loan payable
Transfer 76MM IP Sale Cash
The Singapore IP Transaction Summary points 1) We dont have all the unknown subsidiary accounts where key intercompany 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 intercompany 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 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. Perhaps Gotham City can share a well know reputable IP Tax Lawyers opinion that its not arms length transaction? spinvestor2003@yahoo.com

Understanding Ebix IP Asset Transfer

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Understanding Ebix IP Asset Transfer

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Response to Gotham City Research report EbixExchange IP asset sale to Ebix Singapore

Summary responses: Cliff-notes version

The Singapore IP Transaction with EbixExchange Australia Pty Ltd

The Singapore IP Transaction with EbixExchange Australia Pty Ltd

The Singapore IP Transaction with EbixExchange Australia Pty Ltd

The Singapore IP Transaction with EbixExchange Australia Pty Ltd

The Singapore IP Transaction with EbixExchange Australia Pty Ltd

Before we delve into the detail: Some Background

First Transaction: Raise the Cash and buy EbixExchange

Unknown Ebix Subsidiary

Lends 50MM Cash Lends 50MM Cash

Ebix Australia (Vic) Pty Ltd

Asset: 50MM Receivable

Asset: 50MM Cash Liability 50MM Payable

Ebix Exchange Australia Pty Ltd

Second Transaction: Raise the Cash to Buy the IP Assets

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

Who lent Ebix Singapore Pte Ltd the money?

Ebix Australia (Vic) Pty Ltd

Asset: 50MM Investment in EbixExchange Australia Pty Ltd

Third Transaction Part (a): Buy the IP Assets

Bulk of EbixExchange Australia IP

76MM related to Ebix Australia IP assets

82MM Loan payable

Ebix Singapore Pte Ltd

Auditors report for 2011

Third Transaction Part (b): Distribute the EbixExchange IP sale Cash

IP cash transferred out in 2009.

Ebix Australia (Vic) Pty Ltd

82MM Loan payable

Transfer 76MM IP Sale Cash

Ebix Singapore Pte Ltd

We do know that: i) no cash changed hands as no cashflows in the cashflow statement;

82MM Loan payable

Transfer 76MM IP Sale Cash

Ebix Singapore Pte Ltd

The Singapore IP Transaction Summary points Back to Gotham City Research:

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