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Key Insurance mulls debt raise amid rights issue withdrawal

Published:Sunday | December 15, 2019 | 12:14 AMSteven Jackson - Senior Business Reporter
Key Insurance Company CEO Sandra Masterton.
Key Insurance Company CEO Sandra Masterton.

Key Insurance directors continue to mull options for raising capital, after placing plans for a rights issue on hold.

CEO Sandra Masterton confirmed to the Financial Gleaner that “the resolution to vote for the rights issue was withdrawn” and that the board would meet at a later date to determine financing options on the debt market.

Another director, Dennis Brown, said while the rights issue was ­withdrawn, it was still an option.

Key Insurance Company Limited wants funds to strengthen its capital base in order to fuel expansion in the competitive general insurance market. It comes within the wider context of the company filing a turnaround plan to regulators earlier this year, after breaching a key solvency test.

“In light of these developments the board considers that it is prudent to give due considerations to all assessed viable options. The board agreed that it would make a determination on the preferred option,” said Masterton.

The Key board met on December 2, and then an extraordinary general meeting was convened a day later for shareholders to consider the matter. Although the notice to shareholders laid out resolutions to issue shares from the unallotted portion of its authorised capital.

Key’s authorised capital stands at 496 million shares, of which 368.46 million units are outstanding and listed on the JSE.

The resolution as written suggested the rights issue would have allotted an additional share for every three held by existing shareholders.

The notice said shareholders would be asked “to approve an offer to issue participating voting shares to the existing shareholders of the company in proportion to their current shareholding being part of the authorised capital of the company currently unissued”. The unissued units amount to more than 127 million shares.

However, the EGM did not put the rights issue to a vote, choosing instead to focus on alternative capital raising solutions.

Three Key directors hold 240 million shares among them, amounting to 65 per cent of the company: Masterton with 92 million units; Chairman Natalia Gobin Gunter, 75 million units; and Kala Abrahams, 73 million units. A rights issue would dilute ownership if existing shareholders do not fully take up their right for additional shares.

JN Fund Managers was proposed as the arranger of the rights issue, and Hart Muirhead Fatta as legal advisers. But those resolutions were not put to a vote either at the EGM, with the change in focus to pursue debt capital instead.

Key Insurance currently has no borrowings. In the year since its troubles with excessive claim expenses began, the company’s equity base has halved from $1 billion at September 2018 to $584 million at September 2019.

Year to date September, its claim bill hit $1.02 billion, up from $783 million in the comparative nine months of 2018, and on pace to overtake the $1.12 billion paid out for the full 2018 fiscal year.

Brown, who holds no shares in the company, says the rights issue could still prevail.

“It is still an option that could be pursued if the other options do not emerge to be preferred over the rights issue. In such a case, we would repeat the process of issuing the appropriate notifications in accordance with regulatory requirements. A rights issue could therefore be made,” he said.

Earlier this year, Key designed an aggressive turnaround plan to achieve initial profitability by late 2020 and sustained profitability by 2021.

“The directors have been considering a number of options to infuse additional financing into company as part of the plan to ensure all regulatory targets are achieved, and also the goal of deepening the capital base for business expansion,” Masterton said.