Continental Reinsurance Holdings’ P2.1 billion initial public offering (IPO) has begun attracting firm commitments from institutional investors, according to its sponsoring broker, although the size of those commitments remains undisclosed with less than two weeks before the offer closes.
Motswedi Securities Chief Executive Officer Martin Makgatlhe told the Business Weekly & Review that the broker had received firm commitments from some institutional investors ahead of the September 16 closing date.
However, he did not disclose the value of the commitments, the proportion of the offer they represent or the number of institutions that have placed orders.
“We have had some firm commitments from some of the institutional investors,” Makgatlhe said during Continental Reinsurance’s media engagement last week.
Makgatlhe said Motswedi was encouraged by the response and remained confident about the listing, but acknowledged that investors needed time to assess the structure of the transaction and Continental Re’s underlying business.
He described the transaction as a “unique type of listing” because most of the shares on offer are being sold by existing shareholders rather than issued by the company to raise new capital.
Motswedi’s initial coverage report shows that about P1.7 billion of the offer represents a secondary sale by existing shareholders, while roughly P408 million in subscription proceeds will accrue to Continental Re to support its growth.
The structure means the bulk of the IPO proceeds will not strengthen Continental Re’s balance sheet, making investor assessment of the company’s underlying growth prospects and the valuation of the shares particularly important.
In material prepared for institutional investors, Continental Re said the secondary sale should primarily be considered in the context of the investment timelines and liquidity requirements of existing shareholders rather than as an indication of concerns about the company’s future prospects.
“Institutional investors should distinguish between an existing shareholder’s portfolio objectives and the underlying investment fundamentals of the company,” the reinsurer said.
It said investors should instead assess prospective earnings, underwriting quality, capital strength, competitive positioning, growth opportunities and valuation.
Continental Re Group Managing Director Lawrence Nazare provided a more direct explanation for the major shareholder exit.
ACA Cornerstone, which currently holds a 96.5 percent stake, has been invested in the reinsurer for about nine years, extending beyond the original seven-year life of its fund.
“That fund is now being wound up and they have to exit from all the assets in which they invested from that specific fund,” Nazare said.
He said the sale therefore reflected the end of the fund’s investment life rather than a change in the outlook for Continental Re.
Makgatlhe also revealed that some of the exiting shareholders had given undertakings to reinvest in the IPO, although he did not identify the shareholders or disclose the value of their intended investments.
Beyond the immediate offer, Makgatlhe said the Continental Re listing could establish a new route for private-equity funds to exit investments through Botswana’s public market.
“What is unique about this listing is that it’s the first exit that is a listing,” he said.
Private-equity funds typically invest for a defined period before realising their holdings through a sale to another investor, a strategic buyer or the public market.
Makgatlhe said he would like to see more private-equity-backed companies eventually brought to the Botswana Stock Exchange (BSE), allowing fund managers to realise their investments while giving public-market investors access to established businesses.
“There are quite a number of good assets that PE funds hold right now,” he said. “For me, I would like to see those PE funds exit the same way.”
He contrasted the approach with previous private-equity transactions in which listed companies were taken private, arguing that such deals reduce the supply of investable shares in a market already constrained by limited liquidity.
Motswedi, as the sponsoring broker, has also initiated research coverage on Continental Re and recommended that investors consider the shares for the medium to long term.
For now, the institutional commitments disclosed by Makgatlhe confirm that orders have begun entering the book, but their value remains unknown.
With the P2.13 billion offer closing on September 16, the final subscription figures will provide the clearest measure of institutional and broader investor appetite for Continental Re’s listing.
