Capitec’s lucrative bet

2012-06-30 12:22

While many black economic empowerment (BEE) deals are deep under water, Capitec Bank’s black investors are smiling all the way to the bank, thanks to a profitable investment they have made in the retail lender.

Five years ago, a consortium led by Regiments Capital bought a 12.2 % stake in the fast-growing lender for R300 million, which was financed by the state-owned industrial funder, the Industrial Development Corporation (IDC).

Litha Nyhonyha, the executive chairman of Regiments, revealed this week that the consortium, which includes Capitec staff, has since paid off the loan to the IDC after selling about half of its shareholding in Capitec to the Public Investment Corporation (PIC).

“The shares were deep in the money ... we remain a meaningful investor in Capitec even though we have sold down our stake,” said Nhyonhya, whose consortium still holds roughly 5% of Capitec.

In just 10 years, Capitec has moved from being a microlender to South Africa’s fifth largest retail lender with 3.3 million customers and 500 branches across the country.

Capitec’s share price was trading at R30 a share when the consortium bought 10 million shares from the lender in 2007. Today, the share is trading at around R212.46.

The consortium paid R300 million for the stake, which was equivalent to about 12.2% of the Stellenbosch-based lender.

Subsequent to the deal, Capitec concluded two transactions aimed at raising capital for the fast-growing lender, which led to the BEE consortium’s shareholding being diluted or reduced to 10%.

However, the rapid growth of the share price has ensured that the value of the consortium’s investment is not reduced.

Although, the consortium is now left with 5% of Capitec after selling to the state-owned asset manager, the PIC, its current stake is worth R1.1 billion, up from R300 million when it originally invested in Capitec.

Nhyonhya said the 5% stake it sold to the PIC was being warehoused by the asset manager and would be offloaded to a new BEE consortium in future.

At this stage, it is not clear whether the PIC is going to sell the shares (also worth R1.1 billion) at a discount to future Capitec black investors.

Nhyonhya said the IDC made a decent return on the Capitec funding of his consortium.

“The IDC is happy with the return it has made on the (Capitec) investment,” he said.

For the first time, the consortium received a full dividend payout in March after the bank declared its dividends, which amounted to about R298 million.

Before the loan was settled, the dividends were used to repay it and never made it to the coffers of black investors.

In March, Capitec reported a 68% jump in annual headline earnings to R1.1 billion.

This growth was achieved on the back of a 35% increase in the value of loan book from R14.3 billion to R19.4 billion in the previous financial year.

The rapid growth in South Africa’s unsecured lending has led to concerns that the market could end up creating a credit bubble, which could in turn create a credit crisis for the country.

But these concerns have been dismissed by the Reserve Bank.

Nyhonyha also believes that there is no credit bubble developing in South Africa because of the growth in the unsecured lending market, where African Bank Limited and Capitec are the dominant players.

“We have met with the management and its view is that there is no credit bubble for Capitec.

“The management is not worried about its loan book because it is lending responsibly.

“We still believe in the future prospects of Capitec because it occupies a unique space in the market,” Nyhonyha said.

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