Namibian investment company Trustco — whose latest financial statements still show a worrying disparity between reported earnings and actual cash flows — will launch IPOs for its loss-making financial services division and fledgling diamond mining operations this year.
Deputy CEO Quinton van Rooyen confirmed at a recent virtual investor conference that both divisions could be listed in the early part of this year — with the diamond interests most likely set for a listing on the Toronto Stock Exchange.
The separate listing of the two subsidiaries would give Trustco – which has most of its shares controlled by Van Rooyen and entities associated with US-based investor Sean Riskowitz — an opportunity to raise much-needed fresh capital.
Trustco has battled to show reassuring operational cash flows, and recently restructured its legacy debt structures.
Van Rooyen eased the pressure on the group’s balance sheet by writing off a loan of R1bn which it owed him personally.
But whether there will be widespread investor interest in the mooted IPOs remains to be seen.
Trustco’s financial services division is made up of niche Legal Shield insurance and banking interests but also holds a Namibian property portfolio over which the group has pegged a R2.4bn valuation and pencilled in future cash flows of over R40bn.
In December Trustco proposed paying R2bn — in scrip issued by soon-to-be listed subsidiary Legal Shield — for the loss-making Constantia Insurance operations owned by Conduit Capital, a company controlled by Riskowitz-aligned entities.
The mining operations include the Meya Mining enterprise in Sierra Leone and diamond operations acquired from Van Rooyen in a staggered scrip-funded deal worth almost R3bn.
A divisional breakdown of Trustco’s business segments makes for fascinating reading ahead of the mooted IPOs.
While Trustco claims a net profit of R738m for the six months to February 2019, the "quality" of these earnings can be called into question with the cash flow statement showing an outflow of almost R70m.
The divisional breakdown shows the insurance and investment segment generated revenue of R144m but posted a net loss of over R180m. The banking segment reported revenue of R183m — but a net loss of R8m.
The mining segment recorded revenues of just over R10.4m — but claimed an eye-popping net profit of R927m. Closer examination, however, shows that Van Rooyen’s R1bn loan waiver was reflected in the mining segment.
If that loan repayment is set aside, the true operational performance of the mining segment would be underwhelming, at least in relation to the value accorded to that division’s net assets of close to R1bn.
The bottom line for Trustco is that if the loan waiver is stripped out, the group would have recorded a R262m loss for the half year.
The proposed IPOs of the financial services and mining hubs are presumably needed to drag in much-needed new capital to keep cash-starved operations oiled.
Trustco paid out R142m in interest in the interim period — which is equivalent to roughly 40% of the reported revenues.
One of the big kickers that Trustco has been punting is the development of its property interests. Little information is available, but commentary accompanying the results suggests property sales continued at a steady pace.
More specifically, Trustco indicated that construction projects continued apace during the period and were focused on enhancing the existing Elisenheim Lifestyle Development and the Lafrenz Industrial Park.
Trustco added that the construction of the Urban Village @ Elisenheim shopping mall has also progressed according to plan and is expected to open on schedule early this year.
However, there is scant evidence of meaningful cash flow from these property efforts.
With the Namibian economy still in the doldrums, the cash flows may take a while to open properly.
Still, in September Global Credit Ratings (GCR) upgraded Trustco’s national long-term rating to B+ and its short-term rating to B with a positive outlook.
One of the reasons for the upgrade was that GCR took cognisance of an anticipated "significant improvement" in Trustco’s cash flow to close to 20% of net debt in the next two years and a strong earnings profile based on earnings before interest, depreciation, tax and amortisation margins of over 50%.
In the meantime, efforts at securing further equity capital appear to hinge on a recent warrant transaction with international investor Evo Fund.
Evo has acquired four tranches of warrants (three 20-million share tranches and 137.4-million share tranche) at strike prices of 900c a share, R13 a share, R22 a share and R30 a share.
So far Evo Fund has only exercised 10,000 shares of the first tranche — which is really just to benchmark the process.
Trustco has indicated that if things pan out with Evo the envisaged warrant transaction could raise up to R2bn in fresh capital.
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