Sanlam exposure to Steinhoff International Holdings NV (“Steinhoff”)
(Incorporated in the Republic of South Africa)
Registration number 1959/001562/06
JSE share code: SLM
NSX share code: SLA
(“Sanlam” or “the Group”)
Sanlam exposure to Steinhoff International Holdings NV
The Sanlam Group has exposure to Steinhoff equity and debt instruments (“Steinhoff
instruments”) in on-balance sheet policyholder and shareholder portfolios, as well as
investment portfolios managed on behalf of third party clients. Given recent
developments around Steinhoff and the consequential decline in the traded values of
Steinhoff instruments, the potential impact on the Group’s key financial results from
exposure to Steinhoff instruments is provided in this announcement. All information is
indicative based on current mark-to-market (“MTM”) values and does not present
actual or potential realised losses.
The information is based on the closing prices of Steinhoff instruments on Wednesday,
20 December 2017 relative to closing prices on Friday, 1 December 2017. We are
actively managing the Group’s exposure and the potential impact outlined below may
therefore not realise.
Summary of exposures
The Group’s exposure to Steinhoff instruments originated from normal course of
business transactions, with many of the positions in place for a number of years. The
Group’s exposure to debt and equity instruments issued by the Steinhoff Group is
largely reflective of Steinhoff’s weighting in the local investment markets and Sanlam’s
size as an institutional investor.
The Group has exposure to Steinhoff instruments in the following Sanlam products and
- Steinhoff equities are included in the JSE/FTSE Swix benchmark used for the equity
component of the South African capital portfolios;
- Steinhoff equities serve as partial security for some of the loans granted by the
collateralised lending business;
- The non-participating policyholder portfolios have exposure to local and international
debt instruments; and
- Linked and market-related policyholder funds and third party investment portfolios
hold Steinhoff equities as part of any equity component included in the portfolios’
mandates that are benchmarked to the JSE/FTSE Swix or All Share indices.
The equity exposures were in general in line with or slightly above Steinhoff’s
benchmark index weighting on 1 December 2017. The direct debt exposures were also
in line with the Group’s risk management framework.
Potential financial impact on shareholder’s fund
The best estimate potential impact on the Group’s 2017 and future earnings is not
- The decline in the value of Steinhoff shares held in the capital portfolios is to a large
extent protected by the equity hedges in place. The maximum exposure amounts to
some R175 million after tax on the Group’s net investment return.
- Allowing for the estimated value of security held in respect of collateralised loans,
the best estimate potential exposure amounts to some R230 million after tax on the
Group’s net result from financial services. The maximum exposure, attaching no
value to any security held, amounts to R580 million after tax.
- The non-participating policyholder portfolios have exposure to foreign debt
instruments of R358 million, which currently reflects an unrealised MTM decline of
R160 million. The non-participating policyholder portfolios also have exposure to
South African debt instruments of R771 million. These instruments are illiquid and
currently do not reflect significant MTM changes based on last traded values. The
MTM decline from these exposures will be absorbed by more than R500 million of
discretionary margins held by the Group for such events. In the absence of actual
defaults, the MTM declines will reverse up to the maturity date of the instruments.
The utilisation of these margins will not affect Sanlam’s Group Equity Value, as no
value has been placed thereon in the Embedded Value of Covered Business.
- The exposure to Steinhoff instruments in the other policyholder and third party
portfolios managed by Sanlam Investments amounted to only some 1.2% of assets
under management. The potential impact on Sanlam Investments’ recurring net
result from financial services is less than R25 million per annum.
Impact on clients’ investment return
The potential impact on Sanlam clients’ investment returns will vary depending on each
individual portfolio’s exposure to different asset classes. In a typical balanced portfolio,
the Steinhoff exposure would have accounted for approximately 1.1% of the portfolio
assets on 1 December 2017 and its share price movement up to Wednesday, 20
December 2017 would have an approximate 1% negative effect on the annual return of
the portfolio. The negative impact on the return of a South African Swix Equity index
fund would be approximately 2.1%.
Solvency and dividends
The above potential financial effects on net asset value and earnings will only have a
marginal effect on the Group’s solvency ratio without impacting our dividend payment
The information in this announcement has not been reviewed and reported on by
Sanlam's external auditors. Shareholders are advised that this is not a profit forecast as
per paragraphs 8.35 to 8.44 of the JSE Limited Listings Requirements.
21 December 2017
Deutsche Securities (SA) Proprietary Limited
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