Sanlam has announced details of its much-anticipated BEE deal which will see it increasing its direct black shareholding to 18% and black economic ownership, which combines direct and indirect holdings, to 35%.
The deal has three parts to it.
In the first, the company will issue new shares, equivalent to 5% of the enlarged share pool, to a group of new shareholders that include women, youth, employees as well as its existing shareholder Ubuntu Botho, which is controlled by Patrice Motsepe and has been invested in Sanlam since 2004. Of the 5%, the majority (80%) will be allocated to the new broad-based shareholders and the minority (20%), to its established partner.
This transaction is worth about R8 billion, depending on the final price of the Sanlam shares, and will be funded by Sanlam and Standard Bank. It is structured over a seven-year period. The first BEE deal, which was structured in 2004 and saw 14% of the firm transferred to its partner Ubuntu Botho, is debt free.
The second leg of the deal will see Sanlam loan R2 billion, at commercial rates, to Ubuntu Botho. It will use this to acquire a 25% stake in Sanlam Investment Management (SIM), taking its controlling stake to over 51%. “This is a repositioning of SIM,” says Sanlam CEO Ian Kirk. The balance of the funds will be used to invest in other financial sector businesses. These investments, he explains, will be in areas where Sanlam has traditionally been weak, such as healthcare, employee benefits, and entry-level life.
The third leg of the deal will see Sanlam acquire a 25% stake in ARC Financial Services from African Rainbow Capital. “What we are doing is deepening and extending our relationship with Ubuntu Botho [UB],” Kirk says.
The issuance of new shares will also strengthen Sanlam’s balance sheet. The proceeds from the BEE transaction will be used to redeem about R4 billion of the short-term debt facilities raised in acquiring the remaining 53.37% shareholding in Morocco-based Saham Finances. This will enable Sanlam to stabilise and strengthen its balance sheet. “Sanlam is very conservative in this way as their balance sheet could easily have handled the debt,” says Glen Heinrich an analyst with Perpetua Investment Managers. “However they like to keep flexibility by having a strategic facility of excess capital handy for whatever may come their way. In this case, they utilised the opportunity to better strategically position their SA business through the BEE deal.”
Increased black ownership at group and operating subsidiary level is important to realising Sanlam’s vision to lead in all market segments in South Africa. “While direct broad-based black ownership at the listed company level is key, increasingly clients want to see broad-based empowerment in the operating businesses with which they are going to be doing business,” Kirk says.
“Strategically the deal makes sense,” adds Heinrich. “The company is thinking long-term and is positioning the parts of their SA business where they are not the market leader to better compete. Also, the partnership with UB has been very successful and the further relationship with ARC FS has been discussed in the market for a while, so this was no surprise. Ultimately the relationship should be symbiotic given UB’s large stake in Sanlam but investors should always be aware of any potential conflicts of interest and monitor them accordingly.”
“Sanlam has a history of supporting empowerment – first for the Afrikaaners and now for black South Africans,” says Kirk. “I firmly support the government’s assertion that our task is to build a country driven by enterprise and innovation and to develop an economy that is diverse, resilient and prosperous.”