With South Africa’s recession expected to hit profits, specialist investment banking group Investec said on 28 July it would place up to 22 million new shares in the market to strengthen its balance sheet and buy back debt at a discount. The offering would raise some R1.15 billion (US$148 million).
According to media reports, the share price had climbed by 130% since March, when they were at five year lows. Initially the share price fell yesterday, but it recovered, leaving the price at ZAR52,40 on the JSE (Johannesburg Stock Exchange).. Investec has operations in SA, UK and Australia and is also listed on the London Stock Exchange.
Investec CEO Stephen Koseff is reported as saying: “This offering gives Investec the flexibility to prudently repurchase debt as a discount to par and subsequently the opportunity to deliver long-term shareholder value, while preserving a strong tier 1 capital position.” Tier 1 capital – the regulatory amount of cash a bank has to hold in relation to the size of its lending book – is important to the capital adequacy of banking in terms of international banking management standards.
The company says that Merrill Lynch is running the book to accept purchase bids on the share issue and would agree the price with Investec at the end of the book-building process.
According to analysts, Investec is prudent to strengthen its balance sheet ahead of likely falls in profit as the South African recession accelerates.