The group plans to unbundle its Discovery and Momentum Metropolitan assets, along with a rights issue.
Rand Merchant Investments has announced a proposed business shake-up that will result in the unbundling of life insurance assets Discovery and Momentum Metropolitan, and a shift towards a focus on property and casualty (P&C) insurance.
CEO and financial director Herman Bosman says the restructuring marks a significant milestone and is in line with its strategy of investing in unlisted, futurefit, geographically diverse, short-term insurance assets.
“We want a focused and specialist company in RMI focused on P&C first of all. Second, we will have a strong bias for unlisted assets, which are globally relevant but more difficult to access or impossible to access in other ways. We want to have more predictable cash flows to shareholders on an enhanced basis when compared to the recent past. We will be disciplined about creating local non-competing local champions,” he adds.
A fairly simple process
RMI, which is currently the largest shareholder in both life insurers, owning 25 percent of Discovery and 27 percent of Momentum Metropolitan, expects the unbundling to unlock shareholder value through a reduction in the discount at which it currently trades to its underlying intrinsic value.
Herman explains that the process is fairly simple and that RMI will take its approximately 25 percent stake in each company and act as a conduit to convey these shares and push them through the company into the hands of the shareholders. “They will end up with a direct holding in Discovery and Metropolitan in the same proportion as they hold in us,” he says.
He adds that direct ownership for RMI’s shareholders will be more efficient, so there will be no friction costs involved in the interim or conduit structure in the meantime, or in the middle of these two things.
“If we only did the unbundling, our shareholders would have ended up with a disproportionate shareholding in the two companies,” Herman says.
The company is also planning a R6.5 billion rights issue, which it considers the most equitable and efficient mechanism to optimise its capital structure as a result of the unbundling. The restructuring will also help the RMI tackle its R11.8 billion debt and reduce it closer to R6 billion.
“In the past we have raised debt to make certain investments, including Discovery and Momentum stakes we hold as collateral for our lending, or for the banks lending to us,” Herman says.
He explains that, before the banks want to see their collateral being unbundled and distributed, they actually want to see a lending base that’s more commensurate to RMI’s reduced asset base. “So before the unbundling we will raise money from the market. We will have that, so to speak, in the bank, and we will then be able to distribute these two stakes that I described earlier.”
RMI expects the unbundling to be concluded by the end of the second quarter of 2022, with the rights issue scheduled to be approved in November this year.
Refined focus on short-term insurers
Looking to the future, Herman says that on the one hand he is very excited about RMI’s longer-term future as a more focused investment company. “We will have to start off with two unlisted short-term insurers in our portfolio, and OUTsurance and Hastings have also shown not only that they are growing in difficult market times, but they’ve also shown that they have discernible IP that we think can be applied across a wider portfolio, and this is in fact what they’re doing.”
