Many market watchers might have believed it could not possibly get any weirder at Namibian investment company Trustco.
But it just did.
Last week Trustco detailed changes to its proposed $25m purchase of 51% of the Meya diamond mining venture in Sierra Leone — offering the seller, Germinate, a mix of scrip and cash rather than the cash payment envisaged when the deal was announced in August 2016.
Of course, a change in the settlement structure hardly ranks as an extraordinary twist.
But this is no straightforward placement of Trustco paper with vendors. What happened was that Quinton van Rooyen — the founder, majority shareholder and CEO of Trustco — offered 30.2-million of his own shares to settle $20m of the $25m purchase price.
The placement — struck at 960c a share — is deemed part of the R1bn loan deal that Van Rooyen, who appears to be the lender of last resort, arranged with Trustco.
This loan arrangement has, until the new Meya settlement terms were announced, mainly involved Van Rooyen-aligned entities placing shares with investors at wide-ranging prices over the past six weeks to raise capital for the loan.
While the FM initially expressed doubt that Van Rooyen could sell enough shares in the open market to raise R1bn, the Meya share issue meant the exercise actually raised R267m more than originally targeted.
Overall, Van Rooyen’s share sales represent about 13% of Trustco’s issued shares, and would — on paper — be an important shift in improving liquidity in the tightly held shares.
To date, no parties have been identified as significant buyers of Van Rooyen’s shares. If any large parcels of shares changed hands with existing shareholders — specifically the numerous entities on the shareholder register aligned to US-based investor Sean Riskowitz — a notifiable ownership threshold might be crossed.
The latest Trustco shareholder register shows well over 90% of the company is held between Van Rooyen/Trustco-related companies and Riskowitz-aligned investment entities (like Pershing LLC, Snowball Wealth, Midbrook Lane and Conduit Capital’s Constantia Insurance).
The shareholder register has, in terms of numbers, shrunk markedly over the past year with some of the main share buyers being Pershing LLC, Van Rooyen’s Le Hugo Investments and Next Investments, Trustco Life and Trustco Insurance.
In the absence pointed questions from shareholders.
Some market watchers have already argued that the concentration of ownership precludes true price discovery in Trustco — a contention supported by the incredible volatility in the Trustco share price over the past six months when prices have ranged between 600c and R16.
The really weird bit is that Germinate — which is an unknown entity at this point — is willing to forgo the original cash terms to accept scrip as the main part of the Meya settlement when the Trustco share price has been prone to such wild swings.
What’s more, the 960c a share settlement price contrasts with some of Van Rooyen’s recent placements. A record of his share sales to fund his R1bn loan to Trustco shows that the average placement price was R11.47 a share.
A breakdown of the share placements shows huge discrepancies, with 50.9-million shares placed on March 5 at 550c a share and then 25-million shares placed on March 29 at R16. That is a startling difference over just a few weeks — with one investor stumping up about three times more than another (presuming there were different buyers).
Of course, it was Van Rooyen’s right to sell his shares at any price he chose in raising loan funding for Trustco. But if this were applied to any other company on the JSE, shareholders might be fretting about exactly how a top insider viewed the company’s value and prospects.
Naturally, much of the market’s fascination with recent developments at Trustco centres on which investor(s) managed to snaffle Trustco scrip at 550c a share.
Why Van Rooyen was willing to part with such a large parcel of shares at well below "market" price is baffling. Still, if an investment company banked a large parcel of shares at 550c a share in early March, the transaction would have markedly boosted the quarterly performance in a small focused fund, as Trustco shares finished the month at R10.47.
That said, the identity of the party or parties willing to take shares at the peak price of R16 would be equally fascinating to know.
In fact, the presence of new (and significant) investment entities on the Trustco shareholder register in the weeks ahead will be key to dispelling nagging suspicions that the company is a closed shop, where the share price is essentially set by a small group of shareholders.
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