Trustco plays a new ace

Loss-making Trustco Group Holdings intends to sell 49% of its loss-making subsidiary, Trustco Finance, to loss-making Finbond Group, a financial services institution operating in South Africa and North America.

The price tag of the deal, if approved, is N$60 million.

Trustco Group Holdings (TGH), headquartered in Namibia, last week reported a loss of N$250 million in its unaudited interim results for the six months ended 28 February 2023. The group also stated an accumulated loss of N$1.9 billion.

TGH’s Integrated Annual Report (IAR) for 2022 shows the group has been suffering a headline loss per share since its 2018/19 financial year.

Trustco Finance (TF) made a net loss before tax of N$179 million based on audited results for the year ended 31 August 2022, Finbond said in a statement regarding the proposed deal.

Finbond’s annual report shows the group suffered an operating loss of nearly R312.3 million in the year ended 28 February 2022, compared to a loss of about R313.4 million in the previous months. Its headline loss per share was 17.9c, against 23.9c in its 2021 financial year.

In its latest interim results, Finbond reported a loss before tax of nearly R134.7 million. Its headline loss per share was 8.2c.



Who is Finbond?



According to Finbond’s 2023 IAR, the group specialises in “the design and delivery of unique value- and solution-based savings, insurance and transactional banking products tailored around depositor and borrower requirements, rather than institutional policies and practices”.

The group is based in Pretoria and its chief executive officer is Dr Willem van Aardt, who founded Finbond in 2003.

The group has 392 branches in South Africa, 180 in the USA, 13 in Canada and 9 in Panama.

Its gross consumer short-term loans exceeded R1.4 billion, according to the group’s IAR.

In rand value, 63% on Finbond’s consumer short-term product loans are in the US, 34% in South Africa and 3% in Canada.

In October 2021, GCR Ratings withdrew the South African long and short-term issuer ratings and the international scale long-term rating of Finbond for “business reasons without affirmation”.

This follows after GCR in August 2021 downgraded Finbond’s national and international issuer credit ratings to BB-/B and B- respectively. This indicated moderate to low levels of obligator/obligation creditworthiness.

Finbond’s share price on the JSE has been falling since the beginning of 2019, when it trade for just under R6.00 per share, according to Reuters data.

It closed on Monday at 30c per share. Its 52-week range is between 24c and 55c per share.



‘Strategic decision’



TGH on Friday issued a statement, hailing its “strategic decision to divest a portion of its investment in its banking and finance portfolio”. It “aligns with Trustco's overall investment strategy and reflects the company's commitment to driving long-term investment growth and creating value for its investors”, the group said.

QZ van Rooyen, deputy CEO of TGH, said: “As the markets recognise the importance of diversification of investment assets, we believe that the diversification of investors in an asset can also contribute to positive growth. We are confident that our partnership with Finbond will unlock significant value in our investment as our relationship deepens over the next few years.”

QZ van Rooyen is the son of TGH founder and CEO, Quinton van Rooyen.

Van Rooyen junior added: “Namibia's resurgence as the preferred investment destination in Africa for international investors is truly remarkable. Trustco is proud to be at the forefront, actively contributing to the nation's economic growth and welcoming investors from around the world to participate in our journey of success."



Diversification



Finbond also issued a statement on Friday, saying it has entered into an agreement with TBN Holdings Ltd to buy the 49% stake in TF.

TBN is commonly used an abbreviation of Trustco Bank Namibia, a wholly-owned by TGH. The Bank of Namibia (BoN) is currently fighting in the High Court of Namibia to get TBN liquidated.

There is no other reference in Finbond’s statement about TBN.

Finbond said TF provides both short- and long-term student loans. TF was acquired in 2005 with an initial loan portfolio of N$5 million, which currently exceeds N$650 million.

“Trustco Finance’s management has a long and successful track record within the student lending sector in Namibia. This, combined with well-developed systems, unique branded product offerings and a well-trained and motivated staff complement, provide Trustco Finance with a competitive advantage for achieving its objectives,” Finbond said.

It said the rationale the deal include diversifying earnings with “significant growth opportunity”, expanding Finbond’s operations to Namibia, as well as “further diversification of country and political risk”.



Terms



According to Finbond, the purchase consideration payable by it will be R60 million for 49% of the shares in TF.

Half of the money will be payable in cash on the signature of the definitive agreement on or before 31 July 2023.

The remaining 50% of the purchase consideration will be payable when the balance sheet of TF as at 31 August 2023 has been “restructured to simplify the structure of Trustco Finance and to reflect the intention of the parties and has been audited without any qualification or modification”, Finbond said.

The anticipated effective date of the transaction will be 1 August 2023.

The transaction remains subject to the following conditions precedent: approval of the boards and investment committees of both Finbond and Trustco, all required regulatory approval, and the finalisation of a satisfactory due diligence investigation.

The precedent conditions must be fulfilled by no later than 31 July 2023, Finbond said.



Interesting bedfellows



Two of Finbond’s independent non-executive directors are no strangers to Trustco.

Sean Riskowitz has been an independent non-executive board director of Finbond for about a year.

He is the founder and managing member of Riskowitz Capital Management, to which the Riskowitz Value Fund (RVF) is tied. According to the online website MarketScreener, Riskowitz was previously the CEO and executive director of Conduit Capital Ltd. He was also the founder of Midbrook Lane.

Tyrone Moodley has been an alternate independent non-executive director of Finbond for about two years.

He is the co-founder of Midbrook Lane, a private investment company sold to Conduit Capital.

Riskowitz is the managing member of Protea Asset Management LLC, an investment managing business, incorporated in the US. Moodley is a partner of the company.



Dealings



RVF, Conduit Capital, Midbrook Lane and Protea Asset Management feature regularly in announcements by TGH.

One example is a circular to Trustco shareholders, dated 3 September 2019.

In the circular, RVF was reported to own 18.21% of TGH’s total shares in issue. Conduit’s interest was 4.67%.

“Conduit Capital Limited owns all of the issued share capital of Snowball Wealth, Midbrook Lane and Constantia Insurance Company. Riskowitz Value Fund and Ithuba Investments in turn own 34.17% of Conduit Capital Limited. Riskowitz Value Fund and Ithuba Investments are both managed by Protea Asset Management LLC which is controlled by Mr Sean Riskowitz,” the circular stated.



Trouble



On 8 September last year, Business Report headlined an article with “Conduit Capital won’t oppose liquidation of Constantia Insurance”.

According to the publication, Constantia Insurance Company was placed into provisional curatorship the month before after it failed to find an investor to inject it with capital of at least R450 million.

The Prudential Authority lodged an application to the High Court in South Africa to place Constantia Insurance Company into liquidation.

The company’s shares were suspended from the JSE on 21 September.

In December, News24 reported that Conduit Capital was selling the entire issued share capital in Constantia Life and Health Assurance Company Limited for R20 million to Gauteng-based Affinity Financial Services.

“Conduit announced the sale after another of its subsidiaries, Constantia Insurance Company Limited (CICL), was placed into provisional liquidation in September,” News24 reported.