Suddenly, a surprise twist
Forward-dated specific share buyback arrangement delivers a sizeable profit for Namibian company
Namibian investment company Trustco completed an astounding specific share buyback exercise last week.
Early in 2017 Trustco announced a forward-dated specific share buyback arrangement with one of its large American shareholders, Buckley Partners and Buckley Capital.
It was agreed that before the end of January this year Trustco would repurchase Buckley’s shareholding at a price of 480c/share “irrespective of the trading price on the JSE or Namibian Stock Exchange”.
At the time of announcing the buyback, Trustco’s share price of around 338c was well below the buyback price. The total purchase price was set at around R201m.
Last week there were uncharacteristically large trading volumes in Trustco (more than 40m shares changed hands in a day), followed by a confirmation by the company that the Buckley shares had been repurchased via subsidiary Legal Shield Holdings.
Trustco indicated that these shares would be held as treasury shares by Legal Shield.
As things stand, the Trustco shares — now trading between 900c and 950c on the JSE — held by Legal Shield are worth almost double the repurchase price. In effect Trustco has paid R201m for shares that are now worth between R375m and R400m.
If Trustco opts to cancel the shares there will, technically speaking, be an uplift in earnings and net asset value as fewer shares will be in issue. Should Legal
Shield, though, be able to place these shares at anything close to the current share price with new or existing investors it would give rise to a substantial profit.
What might be of some concern is that the run in the price of Trustco’s shares — which are now tightly held between founder and CEO Quinton van Rooyen and investment entities associated with US investor Sean Riskowitz — has largely been driven by small-volume trade.
Windhoek-based investment manager Rowland Brown noted on Twitter that over the past two months only around 0.4% of Trustco’s shares had traded.
While this represented a total value of less than R30m, Trustco’s market capitalisation increased by more than R3bn when company profits actually fell almost 70%.