Flash Briefing: Insurers pay up for Steinhoff directors; Old Mutual dividend; Northam Platinum; China risks

  • Steinhoff said on Tuesday it has reached an agreement with certain insurance companies underwriting the group’s directors and officers insurance policy to contribute up to €78.1m ($93m) to help settle claims against it. The announcement sent Steinhoff’s Johannesburg-listed shares up 4.19%, while its primary Frankfurt-listed shares jumped by 7.85% by 1022 GMT. The move takes the scandal-hit retailer a step closer to a proposed $1bn global lawsuit settlement plan announced in July to settle about 90 separate legal claims in the Netherlands, Germany and South Africa. The combined claims of those who have quantified their alleged damages are in excess of R136 billion ($9 billion) after an accounting fraud in December 2017 resulted in a dramatic share price plunge of Steinhoff. As part of the agreement, also with Steinhoff’s certain former directors and officers (D&Os) such as founder Bruno Steinhoff and former chair Christo Wiese, the insurers will offer an amount of up to €55.5m to market-purchase claimants “in exchange for certain waivers and releases”. The furniture and clothing retailer said €15m would be paid to certain contractual claimants. The agreement with directors and officers excludes former CEO Markus Jooste, former CFO Ben la Grange, former secretary Stehan Grobler and the group’s ex-Steinhoff Europe director Siegmar Schmidt, it said. Steinhoff said it maintains the right to institute or continue claims against the four for their alleged involvement in the fraud and against certain legal entities and other individuals said to have received payments by the group’s companies. The agreement will be in addition to that of its former auditor Deloitte, which agreed in February to support the plan and pay up to €77.94m to settle some claims.
  • South Africa’s Old Mutual returned to paying dividends on Tuesday after reporting an annual loss but said a plan to invest in products and digital services would see it become the most valuable in the industry. The coronavirus crisis has marked the latest in a series of challenges for the country’s second-largest insurer, which has been trying to win back investor confidence dented by lacklustre performance and the shock dismissal of a former CEO. It suspended its dividend in the first-half as the pandemic struck, and its annual payout was still 53% lower than a year earlier as it swung to a basic loss per share of 116.3 cents. “2020 has been one of the most challenging years our organisation has ever faced,” Chief Executive Iain Williamson said. It has launched an updated long-term strategy it says will allow it to build “the most valuable businesses in the industry”. This will include product innovation, investment in both physical and digital distribution and tying rewards to customers’ financial behaviour, Williamson said. Its shares were down around 3% by 0756 GMT. The pandemic dealt a R6.1bn blow to Old Mutual, driven by higher provisions for excess claims. Like rivals, its sales also fell and credit losses rose. But Old Mutual also had to hike its business interruption and rescue reserves to 791 million rand in the second half – a rise that was more than double what it guided in the first half. That once again knocked faith in an insurer that has long struggled to deliver on a promise to grow value for shareholders after completing a costly break-up of its previous structure in 2018. A prolonged legal battle with ex-CEO Peter Moyo over his abrupt dismissal, which Old Mutual had only just put behind it when the pandemic struck, has been a major blow to that effort.
  • South Africa’s Northam Platinum said on Tuesday that it would buy back all preference shares from its black economic empowerment vehicle, Zambezi Platinum, four years ahead of its 10-year maturation date. The nearly R2bn ($135.58m) transaction will offer a 16% premium for the Zambezi preference share and will also include an overall 25% share buyback by Northam, the company said. Northam had been buying back Zambezi’s preference shares from institutional shareholders to reduce its own preference share dividend expense and liability and potential financial exposure under the guarantee it gave to shareholders. The platinum miner, which opted to buy back the preference shares instead of declaring dividends to return value to shareholders, owns 87.5% of Zambezi with the maturity of the preference shares issued by Zambezi originally due in 2025. The South African government mandates companies to allow Black employees and investors to hold equity in the company to help to reverse decades of Black people’s exclusion under apartheid. Zambezi Platinum was set up in 2015. It issued new preference shares that Northam bought and then, with the proceeds it bought ordinary shares in Northam. Preference shares create a financial responsibility for a company to regularly pay dividends at a fixed rate over common shareholders and buy back all the shares on maturity at the then existing price. Preference shareholders do not have voting rights. Through the transaction, which includes the issue of ordinary shares in the company to Zambezi’s shareholders, Northam has to implement an extended empowerment transaction for a period of 15 years, the company said.
  • China faces the threat of foreign outflows from the second half of the year as rising borrowing costs in the US drives investors out of emerging markets, according to a former adviser to China’s central bank. The potential for a reversal in capital inflows and a possible wave of bond defaults are two of the biggest risks facing the economy this year, Li Daokui, a former member of the People’s Bank of China’s monetary policy committee, said in an interview. The instability is being fuelled by the US’s $1.9trn pandemic relief, which will benefit China by boosting exports, but also add to risks, he said. “It’s just like drinking alcohol: you feel comfortable, but people worry about the after-effect,” he said. “When the stimulus is gone and the US is back to normal, the aftermath will be very damaging to emerging market economies.” The US stimulus is boosting the outlook for growth and inflation, driving up bond yields and prompting investors to sell riskier, emerging market assets. That’s a worry for global policy makers as they brace for more volatility in their currencies and financial markets. With a rise in nominal interest rates in the US, “it’s likely for the second half of this year to see a capital outflow” from China, Li said. “A lot of the investors are moving out of emerging market economies. China has emerging market characteristics, even though for the time being it is perceived as a stable market because of its relatively better performance in fighting Covid-19,” he said.

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