Rand Merchant Investment Holdings (RMI) has unveiled a plan to tap shareholders for R6.5bn and unbundle its stakes in Discovery and Momentum Metropolitan, intending to narrow its focus upon its core short-term insurance businesses, while also seeking to reduce the discount at which its shares trade.
The insurer, which owns Outsurance and Hastings in the UK, said it already has support from about two-thirds of its shareholders for its strategic shift, expecting the unbundlings to occur in the second quarter of 2022.
The news sent RMI’s shares rocketing as much as 17.7% to R36.29 before paring gains. It was still on track for its best day since March 2020. Discovery slipped 5.98% to R122.29, while Momentum was trading 2.14% lower at R19.22.
Valued at R47.2bn on the JSE, RMI holds 24.8% of Discovery worth R20.8bn at end-June and 26.8% of Momentum Metropolitan worth R7.8bn.
Its 89.1% stake in Outsurance had a market value of R35.4bn at end-June, and its 30% stake in Hastings was worth R9bn.
RMI has been the largest strategic investor in the two principally life insurers since 1992, adding it has generated “stellar returns” from both. Discovery and Momentum Metropolitan have delivered about 308% and 115% total return respectively since RMI’s listing in 2011. Total return takes into account not only capital appreciation but also income received, such as dividends.
The proceeds of the equity raise of up to R6.5bn will be used to reduce debt, which stood at a gross R11.8bn at end-June. That rights offer would take place prior to any unbundling.
“We’re excited about the potential to leverage the short-term insurance platform we have founded through our investments in Outsurance and Hastings to evolve this business,” said CEO Herman Bosman in a statement.
“These are innovative and data-driven businesses with underwriting at their core, underpinned by unique intellectual property, and primed for growth,” said Bosman.
The net value per share of the group’s portfolio increased 19% to R43.37 in its year to end-June, meaning its shares were trading at about a 28% discount at the time.
RMI said it already had support from 65% of shareholders, including its largest shareholder, Remgro, as well as Royal Bafokeng Holdings. As of RMI’s 2020 financial year, their shareholdings were at 30.6% and 14.5% respectively.
The group said it also had the support of the founders of the RMB group of companies — Laurie Dippenaar, Paul Harris, Gerrit Thomas Ferreira and Pat Goss. It has also won the backing of large institutional shareholders, Coronation Asset Management, Allan Gray and and Abax Investments on behalf of various clients.
Update: September 20 2021
This article has been updated with additional information.
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