Sanlam General Insurance Pledges Shares to South African Company

Sanlam General Insurance has pledged its shares as collateral for a Sh1 billion loan it obtained from a Sanlam Limited subsidiary.

In an agreement that could see the South African multinational take a major stake in the Kenyan insurer if it defaults.

To increase the insurer’s capital adequacy ratios and bring it into compliance at 100% as opposed to the prior negative 81%, the loan was disbursed in May of last year.

The general insurer’s parent company, Sanlam Kenya, has disclosed the terms of the debt in its most recent annual report. The financing was given by Sanlam Emerging Markets (Pty) Limited.

“The loan agreement … provides that if the borrower fails to repay any principal or any interest outstanding when due under the agreement, the lender may elect to issue a notice to the borrower of the lender’s intention to procure the settlement or all or part of the outstanding principal and interest amounts of the loan by the issuance of ordinary shares of the borrower to the lender on such terms as are set out in the notice from the lender,” the company says in the report.

As of December 2022, Sanlam Kenya valued its investment in the general insurance at Sh94.6 million.

Sanlam Kenya presently owns 71.86 percent of the company.

In 2021, the company, which is listed on the Nairobi Securities Exchange, wrote off Sh606.3 million of its stake in the subsidiary.

Sanlam Life Insurance Limited and Sanlam Securities Limited are its two most valued subsidiaries, with respective market values of Sh873.3 million and Sh483.8 million. It owns both of its subsidiaries in full.

The loan advanced to Sanlam General matures in 18 months (in October, 2023). It has an interest rate of three percent per annum.

As the insurer looks for a way to become profitable, the loan facility assisted it in meeting regulatory capital requirements.

“As at December 2022, Sanlam Life Insurance Limited and Sanlam General Insurance had complied with the external capital requirements … of 212 percent and 100 percent respectively,” Sanlam Kenya says in the report.

“This was because of Sanlam General Insurance receiving Sh1.08 billion from Sanlam Emerging Markets on May 5 2022.”

In the fiscal year that ended in December 2022, the general insurer reduced its net loss from Sh500.9 million to Sh151.6 million.

If the firm is unable to pay back the loan, Sanlam Emerging Markets, the ultimate parent company of Sanlam Kenya, will receive a sizable share in its shares. Sanlam Limited owns Sanlam Emerging Markets.

The NSE-listed company is owned by the South African multinational to the tune of 57.14 percent. One of the largest credit facilities still outstanding in the Kenyan company is the loan taken out by Sanlam General.

Separately, Sanlam Kenya announced that in order to settle a Sh4 billion loan from Stanbic Bank that the insurer has been unable to repay from current operations due to losses, its shareholders will be asked to contribute new capital.