Sanlam General Insurance has pledged its shares to secure a Sh1 billion loan it took from a subsidiary of Sanlam Limited in an agreement that could see the South African multinational take a major stake in the Kenyan insurer if it defaults.
The loan was disbursed in May last year to boost the insurer’s capital adequacy ratios, bringing it to compliance at 100 percent compared to the previous negative 81 percent.
The terms of the debt, which was provided by Sanlam Emerging Markets (Pty) Limited, have been disclosed by the general insurer’s parent firm Sanlam Kenya in its latest annual report.
“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.
Sanlam Kenya currently owns 71.86 percent of the general insurer, valuing the stake at Sh94.6 million as at December 2022.
The Nairobi Securities Exchange-listed firm had written off Sh606.3 million of its investment in the subsidiary in 2021.
Its most valuable subsidiaries are Sanlam Life Insurance Limited and Sanlam Securities Limited which it carries at Sh873.3 million and Sh483.8 million respectively. It fully owns the two subsidiaries.
The loan advanced to Sanlam General matures in 18 months (in October, 2023). It has an interest rate of three percent per annum.
The credit facility helped the insurer meet regulatory capital requirements as it seeks a path to profitability.
“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.”
The general insurer narrowed its net loss to Sh151.6 million in the year ended December 2022 compared to Sh500.9 million a year earlier.
If the company fails to repay the loan, it will issue a substantial stake to Sanlam Emerging Markets which is in turn owned by Sanlam Limited –the ultimate parent firm of Sanlam Kenya.
The South African multinational owns a 57.14 percent stake in the NSE-listed firm. The loan taken by Sanlam General is among the major credit facilities outstanding within the Kenyan operations.
Sanlam Kenya separately said its shareholders will be required to provide new capital to settle a Sh4 billion loan from Stanbic Bank which the insurer has been unable to repay from ongoing operations amid losses.