Sanlam, Africa’s biggest insurer, has underscored its ambition to expand by tapping into growth opportunities in markets where it already has a presence with a near R2bn acquisition plan in Morocco.
The Cape Town-based group said on Monday that its subsidiary, SAN JV, will increase its direct and indirect stake in Saham Assurance Maroc, a leading property and casualty insurer, to 84.5%.
SAN JV, a special purpose vehicle that is majority-owned by Sanlam Emerging Markets and the group’s short-term insurance unit Santam, will acquire an additional 22.8% of the issued shares of Saham for 1.241-billion Moroccan dirham (about R2bn), the Cape Town-based insurer said in a statement.
While Sanlam is looking to tap into new growth markets with low insurance penetration in the rest of Africa and India, CEO Paul Hanratty told Business Day in March the group would deploy capital "judiciously" within existing businesses to grow organically rather than through acquisitions.
"We’ve said all along that we would favour investing further in our core markets and strengthening our position and that moving to new markets, while not out of the question in the longer term, is certainly not on our radar in the short term," Hanratty said in an investor call on Monday.
"We believe this will further strengthen our position in North and West Africa."
By allocating some of its expansion capital to Morocco, the insurance group’s joint venture with Santam, SAN JV will up its stake in Saham Assurance Maroc from 61.7%.
The transaction is expected to be concluded by the end of the third quarter of 2021, but it remains subject to conditions and approvals from regulators in both countries.
The additional 22.8% stake is payable in cash, though it will be funded by tapping Sanlam’s debt facilities.
"Financially, right now, it’s very attractive for us to use short-term debt financing," Hanratty said. "Our discretionary capital right now would not be sufficient."
In response to investor questions, Hanratty said Sanlam’s decision to increase its stake in Saham, even though it already owns a controlling stake, is to give it the "strategic optionality" to sell a portion of the business in the future while still retaining control of it. Though Moroccan regulators prefer Saham to remain listed, Sanlam will consider delisting it in the future should that option become viable, Hanratty said.
Saham has been listed on the Casablanca Stock Exchange since 2010.
While Sanlam will view its Moroccan expansion as a sign of its long-term growth ambitions in the rest of Africa and other emerging markets, its venture into the North Africa-Middle East region has not been with-out difficulty.
Expanding into new territories brings new insurance challenges, as evidenced by the devastating port explosion in Beirut, Lebanon, last year, which has affected Sanlam’s 2020 results. Sanlam also said in August 2020 that the bulk of the R7.8bn in impairment charges suffered in its 2020 fiscal first half related largely to its 2018 acquisition of Saham Finances.
Nevertheless, Santam, which is 61% owned by Sanlam and is a co-investor in Saham through the SAN JV, has said it supports the Moroccan transaction. Though Santam will still have to confirm the extent of its participation in the deal after its board meeting in September, the transaction is not conditional on that meeting.
Sanlam said on Monday as part of its planned Moroccan transaction the sellers have agreed to reinvest 50% of the total deal amount to acquire shares in Sanlam on the open market at the prevailing price over the next few months. They have also agreed to hold those shares for at least two years.
Saham will continue to provide Sanlam with strategic and commercial advice on matters related to its activities in Morocco "for a period in the years to come", Sanlam said in its Sens statement.
Sanlam’s share price closed 1.2% lower on Monday at R55.35.
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