Ethos Capital says it is moving closer to winding down the business and has received a non-binding offer from a major local financial institution as it seeks to return value to shareholders.
Since late 2023 the company has been selling off its investments and using the proceeds to pay down debt and buy back its own shares. It has already sold 15 assets, raising about R1.3bn.
In a statement on Monday, the company indicated that the winding down might be completed in the short- to medium-term, leaving it with only a stake in AI-driven digital finance company Optasia, which is set to be listed on the JSE on Tuesday.
Ethos said it would sell part of its Optasia stake at the listing, reducing its indirect holding from 6.5% to 4.5%, and expected to earn about R370m from the sale. The listing is expected to lift the value of Ethos’ net assets per share.
The company is also planning to unbundle its Brait exchangeable bonds and distribute them directly to its shareholders once it receives regulatory approval. The current market value of the exchangeable bonds is R189m.
Ethos said it had received an offer from a financial institution to buy its remaining portfolio. If accepted, the company said the deal would enable it to simplify its structure, cut costs and speed up the process of returning cash to shareholders.
Discussions about the potential sale are still in progress, but it was “presently considering [it] favourably” after “thorough consideration”, Ethos said.
The nonbinding offer values the residual assets at R626m, which reflects a discount of 29% to the NAV of these assets of R881m.
“The board believes that the implied discount is less than the average discount to NAV achieved in secondary sales processes for private equity assets in emerging markets. The implied discount to NAV is also less than the 3- and 5-year average discount at which Ethos Capital shares have traded on the JSE to NAV of 34% and 36%, respectively,” it said.
Ethos’ board has been assessing a number of options to optimise the return of capital to shareholders and ultimately to wind up the company.
With the corporate actions taken in the past three years — the planned Optasia sell-down and the proposed unbundling of the exchangeable bonds — and as the company’s asset portfolio continues to reduce through ongoing disposals, the size and relevance of Ethos Capital as an investment holding company will be affected, it said.
That would affect liquidity and investor interest and would be likely to result in the company trading at an increasing discount to NAV.
Taking into account the total cost saving compared to a rundown scenario, which is estimated to be R87m, this would imply an effective discount to NAV of 19% for the residual assets, it said.
“The board believes that a sale of the residual assets would represent a better solution for Ethos Capital shareholders when compared to a protracted rundown of the residual portfolio,” it added.
The board will first seek the input of the company’s largest shareholders before making a final decision.
“A sale of the residual assets would leave the Optasia stake as the only remaining asset in Ethos Capital. The stake will be optimally monetised over time after the six-month lock-up period post the Optasia listing.”
Meanwhile, CEO Anthonie de Beer has resigned and will be replaced immediately by Jonathan Matthews, an experienced private equity professional, it said. De Beer is pursuing another opportunity with “a reputable SA company”, Ethos said.
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