Rand Merchant Investment Holdings (RMI) plans to list OUTsurance, the company has confirmed.
The investment holding company won’t have a new listing per se. But it plans to change its name to something along the lines of OUTsurance over the next six to 12 months.
In September last year, RMI unbundled its stakes in Momentum Metropolitan Holdings (MMH) and Discovery to focus more on unlisted short-term insurance.
After the unbundling, which RMI CEO Herman Bosman said should be finalised “in a matter of days”, RMI was left only with stakes in OUTsurance; OUTsurance’s sister company in Australia, Youi; as well as UK tech-based insurer Hastings. But it received a buyout offer for Hastings in December, leaving it with only OUTsurance – including Youi – in its portfolio.
The company currently holds an 89% stake in OUTsurance. Some 96% of RMI’s value sits in OUTsurance.
“When we received a great offer for Hastings and sold the business, we were then left with an interesting fork in the road: are we going to diversify our portfolio again – or focus on OUTsurance?” said Bosman.
He said even though the company would have focused only on short-term insurance if it chose to diversify its portfolio again, it decided to not invest further in new businesses. It made more sense to grow OUTsurance bigger instead.
Also, OUTsurance was yielding good cash.
“So, we’ve decided to stop active investment at RMI,” said Bosman.
Breaking the holding company curse
Stopping investments into new businesses means that RMI – which was originally part of RMB Holdings before listing separately on the JSE – will no longer be an investment holding company.
Investment holding companies have fallen out of favour with investors worldwide. Many in South Africa trade at massive discounts to their net asset value on the JSE, which was part of the reason PSG Group decided to delist from the JSE.
Bosman said RMI had been thinking about moving away from being an investment holding company for the last six years. He said this was the reason RMB Holdings decided to unbundle FirstRand in 2020.
But RMI decided to wait because it had two life insurers among its investee companies – Discovery and MMH – and needed to support them during the onset of the pandemic.
“Investment holding companies trade at a discount, and there’s no prospect of that changing. It is [also] quite an inefficient structure. When we had mixed assets, we were trading at a 30% discount. Our share price was R30,” said Bosman.
He said the unbundling of the life insurers and using the proceeds from the Hastings sale to repay debt had unlocked R35 billion of value for shareholders now that RMI’s share price is trading closer to R50.
“So, unfortunately, for the time being, I don’t see a big future in listed investment holding companies,” said Bosman.
He added that listing OUTsurance would also facilitate a higher dividend payout ratio and remove holding company costs at RMI.
It declared an ordinary and special dividend of R2.54 billion (165.5 cents per share) on Tuesday.
RMI’s share price jumped 9% to R49.54 on Wednesday.
OUTsurance CEO Marthinus Visser said Wednesday’s announcement recognised the significant growth opportunity OUTsurance has. “We’re committed to doing our best to maximise that for the benefit of all our stakeholders,” he said.-fin24
