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NSSA disinvestments a vote of no-confidence

22 Jan, 2021 - 00:01 0 Views
NSSA disinvestments  a vote of no-confidence

eBusiness Weekly

Tawanda Musarurwa  

Over the past few months, the National Social Security Authority (NSSA), has moved to divest from a number of publicly listed companies, namely ZB Financial Holdings (ZBFH), First Mutual Holdings and Turnall. 

But it increased its shareholding in Zimre Holdings. 

So is the Statutory pension fund’s disinvestments an indictment of the performance and outlook of these companies? We take a look at some recent performances of these companies to try and glean an answer.  

Turnall Holdings 

Despite taking an initial hit from the Covid-19 pandemic, Turnall’s sales volumes for the third quarter to September 30, 2020 were 11 percent above comparable period and 81 percent above the previous quarter. The group’s cumulative sales volumes for the nine months to September 30, 2020 were 3 percent above the comparable period last year. Exports were 3 percent of sales volumes for the period, having been negatively affected by the Covid-19 pandemic. But the fact that the company is an exporter puts it on good stead withstand pressure emanating from the health pandemic.  

ZB Financial Holdings 

For the half-year to June 30, 2020 ZB Financial Holdings’ total income came in at $1,997 billion from $838 million recorded in the comparable prior year period, pushing profit for the six months by 375 percent to $1,13 billion compared to $237,8 million recorded in the same period in 2019.  

With the financial institutions having come off the sanctions list in October 2016, management has maintained that it will forge strategic alliances and partnerships, the make of which remains enhancement of correspondent banking relationships for mobilisation of offshore credit lines. Additionally, the group is focusing at diversification of revenue streams as it leverages on technology.  

First Mutual Holdings 

Diversified insurer, First Mutual Holdings reported an underwhelming set of numbers for the six months to June 30, 2020, with Gross Written Premium (GPW) sliding 8 percent to $1,5 billion as most of its operations felt the weight of inflationary pressures. 

But rental income for the period improved by 45 percent to $65,8 million compared to prior year, while investment income rose to $407 million from $346 million in 2019, attributable to fair value gains on listed equities. 

Last October, the group’s shareholders approved a deal that will see the insurance group’s two main units placed under a Botswana based holding company — First Mutual Reinsurance Holdings (Proprietary) Limited (FMRE HoldCo). The group hopes that the restructuring will contribute to a turn of fortune for the business. 

A breakdown of these companies’ recent performances does not point to any intrinsic flaws that would make them ‘bad investments’.  

So what’s at play at NSSA?  

Over the past couple of years, the Authority has moved towards improving its investment strategies, by implementing measures such as bringing in a new investment team and increasing the frequency of actuarial valuations of its investment portfolio as part of wider measures to ensure significant yields. 

And this is guiding the pension fund’s investment vision.  

According to NSSA general manager Arthur Manase, the decision to exit ZBFH was based on the need to streamline its banking portfolio.  

Last February, the Reserve Bank of Zimbabwe indexed minimum capital requirements for Tier 1 and Tier 2 banks at the equivalent of US$30 million and US$20 million, respectively, a development that required the Authority to help capitalise its bank holdings. 

“Management analysed the repercussions of this directive using the December 2019 capital positions, which indicated that NSSA could be called upon to provide an additional capital of up to US$326 million across the banking sector investee companies,” said Manase. 

“As NSSA did not have the capacity to meet this potential demand, a recommendation was made to streamline investments in the banking sector by focusing on institutions that were likely to trade themselves into meeting the capital requirements. This recommendation was adopted by the NSSA board, leading to the May resolution.” 

The authority said as part of the due diligence process it enlisted a reputable financial advisor to do an independent valuation “to ensure NSSA had derived the correct value from the transaction.” 

“The advisor concluded that the deals where the parties agreed to calculate the swap ratio based on a 30-trading day volume-weighted average price (WVAP) to 30 September 2020 after including a 70 percent premium, was favourable. 

“Based on the formula, the VWAP prices for both ZB ($11,3183) and CBZ ($43,2858) using 30-trading information from the 20th of August and came up with a fair swap ratio of 225 ZB shares for 1 CBZ share after including the 70 percent premium. 

“Therefore, for the 50 percent consideration, NSSA received 14,341 million new shares valued at $540 041 800 in CBZ representing 2, 15 percent stake,” he explained.  

“For the other 50 percent NSSA received US$11,646,889, which was equivalent to $947,510,494 after factoring transaction costs. This money was invested in an asset that yields foreign currency.” 

Following the successful US$20 million investment in regional financer Afreximbank, which has yielded over US$2 million in dividends, NSSA also appears to lean in foreign investments that bring significant yields for pensioners’ contributions. And this explains the Authority’s plans to dispose its 32,5 percent shareholding in Turnall Holdings. 

“Proceeds of this disposal are earmarked for strategic foreign currency generating investments,” said the general manager.  

NSSA’s partial divesture from First Mutual is also based on the need to streamline a specific investment portfolio, this time the insurance portfolio.  

The pension fund currently also holds 66,22 percent in First Mutual and has since invited interested investors to submit expressions of interest for 31, 22 percent stake in the insurance company. 

NSSA will keep a majority 35 percent in the group in compliance with Zimbabwe Stock Exchange (ZSE) and Insurance and Pensions Commission (IPEC) requirements. 

“This strategic move will see NSSA keep a majority shareholding at 35 percent in compliance with Zimbabwe Stock Exchange and IPEC requirements while bringing in a strategic investor with solid financial resources, synergistic, technical and strategic benefits to catapult FMHL into a regional insurance powerhouse,” said Manase.  

The latest transaction marks the third phase of its insurance sector consolidation which would see it offloading up to 31,22 percent in First Mutual Holdings to a strategic partner. 

The first phase of this consolidation was came in 2017 and involved the merging of short term insurer NicozDiamond into First Mutual. The transaction, which was motivated by talks with a South African insurance giant at that time, helped strengthen First Mutual’s short term insurance business and solidified its market share. And the second phase was implemented last year after NSSA increased its shareholding in Zimre Holdings through a share swap deal.

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