Bloomberg News

FirstRand Unit Sale Means Special Dividend, Investors Say

July 19, 2011

(Updates with closing share price in last paragraph.)

July 19 (Bloomberg) -- FirstRand Ltd., South Africa’s second-biggest financial-services group, will pay a special dividend following the 4 billion-rand ($570 million) sale of one of its insurance units, according to investors and analysts.

FirstRand will distribute all of the proceeds from the sale of Outsurance Holdings Ltd., said Mervin Naidoo, a financial- services analyst at JPMorgan Chase & Co’s Johannesburg unit with an “overweight” rating on the stock. He expects a special dividend of 68 cents a share. The company probably will also need to consider a three-year capital plan because it has excess cash beyond the Outsurance money, he said.

The median estimate for FirstRand’s special dividend is 62 cents a share, according to a Bloomberg survey of five analysts and fund managers.

South African banks “are well capitalized and this has resulted in market speculation on what the banks may do with any excess capital,” Sam Moss, FirstRand’s investor-relations director, said in response to an e-mailed query. “We can’t comment on this speculation but expect to clarify our position to shareholders when we announce our year-end results in September.”

FirstRand, based in Johannesburg, said on June 21 the sale of its 45 percent interest in Outsurance to Rand Merchant Insurance Holdings Ltd. had been completed. The stake was worth 3.64 billion rand, and FirstRand said it sold its Outsurance preference shares for a further 401 million rand. In the six months to December, the lender paid a dividend of 35 cents, up from 28 cents a year earlier, and reported a core Tier 1 capital adequacy ratio, a key measure of financial strength, of 13.6 percent.

‘Too Much Capital’

“We believe FirstRand’s payout ratio should be higher than 45 percent because it’s holding too much capital,” said Faizal Moolla, a banking analyst at Avior Research Ltd. in Cape Town with a “buy” rating on the company. “A special dividend would go a long way toward having a leaner capital structure and boosting the return on equity. FirstRand is overcapitalized.”

FirstRand rose 13 cents, or 0.7 percent, to 19.60 rand in Johannesburg trading, making it the second-biggest gainer on the six-member FTSE/JSE Africa Banks Index. The company is scheduled to report full-year results on Sept. 13.

--Editors: Stephen Taylor, Steve Bailey

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net Edward Evans at eevans3@bloomberg.net


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