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Capital Management

The Group started the year with discretionary capital of R2 billion, after allowing for the ACA acquisition. A number of capital management actions during 2018 affected the balance of available discretionary capital, including the $1 billion (R13 billion) Saham Finances transaction.

Discretionary capital at the end of 2018 was negative due to the approved BBBEE share issuance not being concluded before year-end as we are still awaiting regulatory approvals. Sanlam shareholders’ approved a BBBEE equity raising at the extraordinary general meeting held on 12 December 2018, with the cash raised from this issuance earmarked to repay the internal (R1,7 billion) and external (R2 billion) debt incurred as partial funding for the Saham Finances acquisition and to restore the discretionary capital portfolio to an appropriate level. All regulatory approvals have been received, apart from Mauritius. Once these approvals are granted, we will proceed with the issuance, subject to the Sanlam share price being within the R74 – R86 range approved by shareholders.

Discretionary capital amounted to a negative R3,7 billion at 31 December 2018, equal to the combined internal and external debt. At the lower end of the share issuance range (R74) cash proceeds of R4,6 billion will be raised, which will restore the discretionary capital portfolio to some R1 billion.

Movements in discretionary capital during 2018 included the following:

  • The excess cash operating earnings cover in respect of the dividend paid in 2018.
  • Capital of R1,8 billion released from the covered business operations in Sanlam Life. As communicated in the Group’s 2017 annual results announcement, capital allocated to the covered business operations on the Sanlam Life balance sheet was reduced by R1,5 billion in the first half of 2018. Investment return earned on the Sanlam Life capital base in 2018 (R313 million) was also available for release.
  • Capital of R5,5 billion was raised through an accelerated book build at the end of March 2018 as partial funding for the acquisition of the remaining stake in Saham Finances.
  • Corporate activity during 2018 included:
    • The acquisition of the remaining 53% stake in Saham Finances for R12,9 billion at the hedged rate of R13,24 (after allowing for Santam’s contribution to increase its effective stake in Saham Finances from 7% to 10%). The actual exchange rate on payment date was R14,77, with the forex hedges providing protection of some R1,5 billion on close-out.
    • SIG acquired a 69% stake in Catalyst Fund Management the South African listed property fund management business and 100% in the Irish based platform CIG Fund Management for a total consideration of R418 million. The acquisition significantly enhances SIG’s property management offering in line with the strategic investment in alternative asset management capabilities. In line with this strategy, SIG also invested R102 million for a 60% stake in a specialised infrastructure investment business called Sanlam Infraworks which holds a 50% stake in Climate Fund Managers.
    • Sanlam Private Wealth acquired a wealth management book for R96 million.
    • SEM sold a stake in the Kenyan-based Sanlam Investments East Africa asset management business to its local partner, realising R101 million. This disposal compliments SEM’s Pan-Africa partnership model.
  • Investment return, taxation on the forex hedges and other small movements utilised R104 million.
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