RAND Merchant Bank Investment Holdings (RMI) share price shot up 7.8 percent yesterday after it announced the sale of a 30 percent stake in UK-based Hastings Group to Norway-based Sampo Group for £685 million (R14.6 billion).
The sale has negated the need for RMI to have a R6.5bn rights issue, which it had announced in November as part of a major unbundling at RMI.
Sampo is the 70 percent parent of Hastings. Sampo bought the 30 percent stake from Main Street 1353 Proprietary, which is 51 percent owned by RMI and 49 percent by OUTsurance Holdings - OUTsurance is an RMI subsidiary.
RMI said yesterday that Hastings, a technology-based challenger to traditional insurers in the UK car, van, bike and home insurance market, had delivered a sound operational performance and good financial metrics, despite an extended soft pricing cycle and changing market and regulatory dynamics.
However, when it assessed an approach from Sampo to acquire the 30 percent, RMI had concluded that the sale was an opportunity to monetise the investment in Hastings at an attractive valuation.
Total proceeds to RMI after the sale would be about R8.7bn, which would mostly be used to pay down all RMI’s debt.
In November, RMI had announced a restructure to unbundle its shares in Discovery and Momentum Metropolitan Holdings to shareholders; and that it would raise up to R6.5bn through a rights issue.
RMI said yesterday that the sale of the Hastings stake would have no impact on the unbundling, which was expected to proceed in the first quarter of next year.
The funds raised from the Hastings sale would also be used to settle the funding of R3.1bn in relation to the Hastings interest, which RMI had initially acquired in 2017.
When Hastings was privatised in November 2020 RMI and OUTsurance had an option to increase their ownership from 30 percent to 40 percent, within 18 months of completion of the privatisation, at 250 pence per Hastings share. Due to the sale, this option is no longer be exercisable.
RMI and OUTsurance, however, would receive 342.6 pence in cash per share for the 30 percent stake from Sampo, with the price taking into consideration that the option is gone.
RMI said yesterday the sale price represented a 37 percent premium on the privatisation price; and an internal rate of return for RMI’s investment in Hastings of 18.4 percent in rand terms, and 12.5 percent in UK pound terms.
RMI said it originally invested in Hastings in March 2017 in line with its strategy to diversify its portfolio through partnering with a high quality and entrepreneurial management team to gain exposure to the UK’s property and casualty (P&C) market.
In line with a strategy for exposure to unlisted and geographically diverse P&C businesses, the privatisation of Hastings was undertaken in 2020 in partnership with Sampo.
RMI said yesterday it and OUTsurance had enjoyed a successful partnership with Hastings and Sampo, resulting in collaboration benefits in the form of operational best practice, intellectual property and market knowledge sharing.
The existing arms-length outsourcing agreement between Hastings Insurance Services (HISL) and OUTsurance Shared Services (OSSP), to provide management of local and offshore call centres to HISL, would result in the retention of 650 permanent jobs in South Africa.
RMI said it remained focused on optimising its capital structure and dividend policy, the maintenance a contingency cash buffer of R1bn; and to target a dividend pay-out ratio of 100 percent of free cash flow generated.
Sampo has insurance operations in Finland, Sweden, Norway, Denmark, Estonia, Lithuania, Latvia and the UK.
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