Trustco Group Holdings plans to issue new shares to US fund Riskowitz Value Fund LP (RVF) for an equity investment of up to Namibian $950 million (R948m), via an option granted to RVF.
Trustco said in a JSE notice yesterday that RVF would make a cash investment of up to N$950m into Trustco, entrenching itself as a key anchor investor.
The investment would also enable the “acceleration of value creation activities already underway at Trustco, including share buybacks and the payment of dividends.”
Trustco would also increase its equity stake in Legal Shield Holdings (LSH), to 91.35% by acquiring a 11.35% stake from RVF.
Additionally, Next Capital and entities affiliated with Trustco’s founder, Dr Quinton van Rooyen, made an offer to convert debt in the amount of N$1.48bn into new ordinary shares in Trustco.
“This transformation of debt into equity is a proactive approach to debt management that unlocks free cash flows for future investment, frees up capital for dividends in the medium term, and more than doubles Trustco’s net asset value,” the group said.
The conversion option would optimise Trustco’s capital structure and align the interests of founder shareholders with minority holders and key debtholders, it said.
"With our country's wealth of natural resources, stable governance and strategic location, Namibia's economic future is filled with promise," said Deputy CEO, Quinton Z van Rooyen.
LSH owns Trustco Life and Trustco Insurance which house the Namibian long term and short term insurance licences respectively, and it was also the holding company of Constantia Insurance Group in South Africa that was liquidated by the Prudential Authority, in 2022.
Trustco said that if the transaction with RVF was successful, it might materially affect the share price, which was untraded at 50 cents yesterday.
Last month Trustco, in results for the 12 months to August 31, said its net asset value per share (NAVPS) fell by 37% to 117 cents, compared to 186 cents for the year to August 31, 2022
Directors said however the company had closed the year on a “solid financial footing,” with N$1.15bn in shareholders' equity.
The investment portfolio, valued at N$3.1bn as of August 31, comprised unlisted African entities across various sectors, including short- and long-term insurance, real estate, commercial banking, micro-finance, education and mining.
During this financial year, the portfolio experienced a decline in valuations largely due to the surge in discount rates totalling 11.68% (approximately N$650m, or 66c per share). Forecasts suggested a potential moderation in these rates, hinting at their reduction in the coming years, which may reverse the valuation declines.
The real estate portfolio saw a 42% decline in property values over the past few years due to loan-to-value (LTV) restrictions imposed by the Bank of Namibia. However, post-financial year end, the Bank of Namibia revised its LTV ratio prerequisites for prospective homebuyers, reducing mandatory deposits from up to 50% to a maximum of 10% for properties beyond the second.
This was only effected after a High Court challenge by Trustco, the company said.
The mining portfolio (Meya Mining) achieved commercial diamond production, bolstering the monetisation of Trustco's $116m investment, directors said.
In commercial banking and micro-financing, higher interest rates had helped to grow revenue. The micro-financing portfolio had allocated N$210m since 2020 for expected credit losses and credit relief to students.
In the insurance portfolio, higher interest rates boosted investment returns, but they also raised liabilities and capital requirements.
“Trustco’s insurance portfolio has encountered a significant rerating this year...Market conditions have not progressed as initially assumed, impacting the niche insurance business’s expected recovery and consequently leading to downward cash flow adjustments. In light of the anticipated increase in student funding availability, Trustco foresees a potential valuation recovery as these cash flows materialise.” the company said in its annual report.
The insurance portfolio generating gross premium income of N$74.6m for the period.
Meanwhile Trustco Bank was in legal proceedings that resulted in a temporary suspension of its banking licence.