A number of capital management actions during 2017 affected the balance of available discretionary capital, which amounted to R2 billion at 31 December 2017.
The discretionary capital portfolio was augmented by the following inflows:
A net total of R2,8 billion was redeployed in 2017 in respect of new transactions, which included the following major acquisitions:
Subsequent to the 2017 year-end, we concluded agreements to acquire the remaining 53,4% stake in Saham Finances. This transaction significantly enhances the strategic positioning of Sanlam as the leading insurance provider in Africa, and will accelerate the extraction of synergies from the combined footprint. The transaction price of US$1 050 million will be funded through a combination of available discretionary capital, debt and a Sanlam Limited share issuance within the limits of current approvals and the Group’s risk appetite.
The rand experienced significant volatility during 2017, weakening in the latter half of the year as uncertainty around the outcome of the African National Congress’ national elective conference heightened. General market consensus was that the rand could weaken further depending on which candidate was elected as the new party president. As the acquisition of the remaining stake in Saham Finances was only viable below a certain rand/US$ exchange rate, we decided to partially hedge the transaction through a combination of foreign currency acquisitions and forward exchange contracts. US$602 million of the total US$1 050 million consideration was hedged at an average exchange rate of R14,12. The unrealised fair value loss on the hedging instruments amounted to some R562 million after tax at 31 December 2017. The loss was recognised directly in the Statement of Changes in Equity in terms of the hedge accounting applied under IFRS. The eventual profit or loss realised at payment date will be recognised as an adjustment to the acquisition price. The investment will meet Sanlam’s hurdle rate at the hedged exchange rate, taking cognisance of the expected depreciation of the rand against the US$ over the long term.