Dis­cov­ery launches its bank this week

Sunday Times - - Business Times - By LONDIWE BUTHELEZI

● Dis­cov­ery will fi­nally launch its bank on Wed­nes­day, hav­ing cleared half of the hurdle that de­layed the health in­surer’s en­try into the bank­ing space in the last quar­ter.

On Fri­day, Dis­cov­ery an­nounced that it had man­aged to raise the R1.85bn it needed to buy out FirstRand in an ac­cel­er­ated book­build that was fully sub­scribed in less than 24 hours.

The com­pany will is­sue more than 11-mil­lion new or­di­nary shares to qual­i­fy­ing in­vestors when it launches the bank for R162 per share, a price that rep­re­sents a 2% pre­mium to Dis­cov­ery’s aver­age share price in the past month.

“It’s a fairly good price given that their share has been volatile this year, in line with the mar­ket. But fun­da­men­tally Dis­cov­ery’s fi­nan­cial results were bet­ter than most of their peers,” said War­wick Bam, head of re­search at Av­ior Cap­i­tal Mar­kets.

Bam said Dis­cov­ery had the ad­van­tage of be­ing a cred­i­ble com­peti­tor be­cause while it is new in the trans­ac­tional bank­ing space, it has had a credit card of­fer­ing for some time through the joint venture with FirstRand.

“They are not start­ing from scratch but we’ll have to wait and see how quickly they can gain scale. My ex­pec­ta­tion is that they will choose cap­i­tal-light prod­ucts to launch first. I will be very sur­prised if they launch a fully fledged re­tail bank from day one,” he said.

Dis­cov­ery has given lit­tle in­for­ma­tion about the prod­uct suite that the com­pany plans to of­fer in its bank. It only in­di­cated that it will be a “fully fledged re­tail bank”. The in­surer was granted its bank­ing li­cence in Oc­to­ber last year and had planned to launch the bank in the third quar­ter of 2018. How­ever, the launch was de­layed as the Re­serve Bank wanted the com­pany to re­duce FirstRand’s 25.01% stake in Dis­cov­ery Bank and gave Dis­cov­ery five years to un­wind the share­hold­ing.

But Dis­cov­ery CEO Adrian Gore thought it made more sense to just buy out FirstRand, and now that the com­pany has man­aged to raise the re­quired cap­i­tal it will be able to forge ahead with his vision.

Some of Dis­cov­ery’s s directors, in­clud­ing Gore, sub­scribed to about 1.5-mil­lion shares, val­ued at R240m, to par­tially fund the FirstRand acquisition.

FirstRand had a card joint venture with Dis­cov­ery in which the bank is­sued Dis­cov­ery-branded credit cards. Through this venture, FirstRand owned a 25% stake in the new bank. On Fri­day, Dis­cov­ery said it will pro­vide an up­date on when it ex­pects the acquisition of this stake to be fi­nalised dur­ing the bank’s launch.

As Dis­cov­ery launches its bank, it will only have a few months be­fore it faces stiff com­pe­ti­tion from new ri­vals. Michael Jor­daan’s Bank Zero is al­ready in its al­pha test­ing phase and is ex­pected to be launched early in 2019.

TymeBank, which was re­cently taken over by Pa­trice Mot­sepe’s African Rain­bow Cap­i­tal, is also ex­pected to be launched soon. Post­bank also re­cently ob­tained a bank­ing li­cence.

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