Alexander Forbes mulls bond sale as private equity owners prepare to exit
Alexander Forbes is considering a bond sale to help refinance as much as R5.4 billion of debt as its private equity owners prepare to exit.
This is what the local retirement fund manager, bought out in 2007, said this week.
Alexander Forbes is paying an interest rate of 16.8 percent on a R1.49bn loan due in 2015, its annual report shows. Yields on euro-denominated bonds due in March 2018 for Edcon, which was involved in a private equity deal at the same time, stood at 11.46 percent yesterday. The JPMorgan Chase corporate emerging markets bond index offers a blended yield of 7.94 percent on high-yield debt.
Alexander Forbes, which does wealth management and sells health and life insurance, hired Deutsche Bank and Rand Merchant Bank (RMB) to advise on its debt restructuring and a possible initial public offering (IPO), an option being considered by owners including Actis Capital as they seek to exit the investment.
“Over the next few months we want to get to a conclusion on a sustainable structure and start the process,” Alexander Forbes chief financial officer Deon Viljoen said on Monday. “We could place a bond or convert to equity or change the terms of the instruments.”
The firm’s liabilities include senior preference shares valued at R1.46bn and R1.9bn of subordinated debt. The preference shares were issued to RMB, Investec and Nedbank.
“There might be an instrument placed within the three layers of debt,” Viljoen said. “It’s unlikely we’d take the high yield to European or South African debt markets. We’d rather keep investments in shareholders’ hands.”
The company reduced long-term borrowing by 0.7 percent in the 2012/13 financial year, selling units in Nigeria and the UK to help repay interest on the high-yield term loan. It had a net loss of R183 million compared with a loss of R129m a year earlier because of higher finance and disposal costs, the company said on June 19.
“The exit needs to be an orderly process,” Ethos Private Equity chief executive Andre Roux said on Tuesday. “If Alexander Forbes goes the IPO route, I would imagine we’ll see some of the existing shareholders remaining on as owners.”
The private equity investors, whose R8.2bn purchase led to Alexander Forbes delisting in 2007, include Actis, Ethos, Canadian fund manager Caisse de DÃ©pÃ´t et Placement du QuÃ©bec, the Ontario Teachers Pension Plan, and Boston-based HarbourVest Partners.
“I’m sure there would be interest” if Alexander Forbes were to sell a bond, Cadiz Asset Management fixed-income portfolio manager Gus Louw said this week.
“We’ve always bemoaned the lack of variety in the market. If it was priced right, we could use it to build up diversification in our portfolio.”
Alexander Forbes, along with other local insurers, has been boosting cash reserves before a new regulatory regime called Solvency Assessment and Management, or SAM, takes effect.
In April, South Africa delayed SAM until 2016, giving Alexander Forbes the chance to use more cash to pay down debt. When it is finally introduced, SAM will require insurers to hold more capital.
“We will be able to meet our debt-service obligations,” Alexander Forbes chief executive Edward Kieswetter said last week.
The company’s preference shares have risen 22 percent this year and reached a record R15 on June 28. Yields on benchmark government rand bonds due December 2026 fell seven basis points to 7.83 percent at 5.10pm in Johannesburg on Tuesday. The rand fell 19.27c to bid at R10.0979 to the a dollar at 5pm yesterday.
“We will price for the credit risk, so it would go into certain portfolios that have to take on risk,” Cadiz’s Louw said.
“You want a well-developed corporate market. The more the merrier.”
Alexander Forbes preference shares rose 2.67 percent to R15 yesterday.