ZHL eyes regional market, to list on Botswana bourse

DIVERSIFIED investment firm ZimRe Holdings Ltd (ZHL), which has strong interests in insurance and real estate, has been working on consolidating its operations, as well as increasing focus on the reinsurance business, as it looks to expand its footprint. Zimbabwe Independent business reporter Melody Chikono (MC) this week spoke to ZHL chief executive Stanley Kudenga (SK) to discuss the company’s latest plans, among other issues. Below are the excerpts of the interview:

MC: You have begun consolidating your operations, as well as increasing focus on reinsurance. In terms of your three-year plan, what do you seek to achieve at the end of this period and process?

SK: In the short-to-medium term, we seek to achieve the following:

Regain lost markets from sanctions era and grow top-line;
Sustainable growth in business and profitability of operations;
Property portfolio realignment;
Enhanced cash generation and management;
Dividend payment and growth; and
Improved credit ratings.
In the medium to long term we also seek to achieve:
Springboard to raise competitive capital and position the group for expansion; and
Leverage on core businesses of insurance and property to build diversified and profitable investment portfolio.

MC: What have been your achievements so far in your quest for consolidation?

SK: We have achieved the following:

Sustained profitability of businesses;
Growing market share in operations; l Rebranding of reinsurance operations and improving credit ratings; and
Growing cash wallet.

MC: What have been the contribution of your reinsurance units to your total revenues?

SK: Our reinsurance contribution for the half year of 2017 was 78%, while it was 76% for the full year of 2016.

MC: What are projections for your reinsurance units in 2018?

SK: The estimated growth projection in total income is 9%.

MC: Last year you shelved a plan to sell off shareholding in Nicoz Diamond Insurance and Fidelity Life Assurance, citing uncertainty in the country’s financial system. Do you foresee your decision changing soon given the anticipated economic changes riding on the so-called new dispensation?

SK: ZHL disposed of its 30,03% shareholding in NDI (Nicoz Diamond) to Nssa (National Social Security Authority) effective December 19, 2017 as part of the ongoing portfolio restructuring to focus on reinsurance and property.

ZHL also disposed of its entire stake in NDI mainly because of the availability of value-adding projects identified to which financial resources raised could be deployed by the group. The disposal of ZHL’s 20,57% stake in FLA (Fidelity Life) has now been shelved, mainly due to the availability of an opportunity to add and unlock value from the investment.

MC: There have been a number of mergers and acquisitions in the insurance industry in Zimbabwe. Do you think Zimbabwean insurance companies need such to survive, especially in relation to capital challenges?
SK: There are 20 active short-term insurance companies, eight reinsurance companies, 11 life assurers and four reassurers in Zimbabwe.

There are too many players in the industry for the size of the economy (US$10-15 billion). The proliferation of insurance companies in Zimbabwe was mainly attributed to the low entry barriers (currently US$2,5 million minimum capital requirements for short-term insurance companies) and need to indigenise the sector.

The current drive by the new government to open up the economy and re-engage the international community is expected to spur rapid economic growth in Zimbabwe and the accelerated growth of the insurance industry (life 4,8% in next five years and short term 5,1%-BMI Research). This will require additional insurance capacity and the existence of insurance institutions with strong balance sheets, and hence the case for mergers and acquisitions.
The opening up of the economy is also expected to bring in international insurance companies with big balance sheets and local insurance companies would require consolidating available capital in order to compete effectively with the international companies.

MC: What challenges you have faced in penetrating the regional markets?

SK: We have faced a number of challenges, which include the following:

Foreign currency shortages in Zimbabwe to enable the group to capitalise and enhance capacity in the foreign SBUs for business growth in those markets;
Skills shortages in some markets; and
Onerous regulatory requirements in some jurisdictions.

MC: What do you think needs to be done to address challenges in the re-insurance field in Zimbabwe?

SK: A number of things need to be done to address the challenges, including:

Prioritisation on foreign currency allocation by RBZ to allow reinsurers to meet foreign obligations (claims and retrocession payments).
Strong regulations against externalisation of risks by international companies;
Development of advanced insurance skills for innovative product development;
Creation of a national reinsurer (owned by all stakeholders in the industry); and
Uganda re-model to control the outflow of foreign currency resources and spearhead national development.

MC: Give us an update on the US$13 million Victoria Falls mall that you are constructing. How is the project expected to contribute to your revenues?

SK: The project was officially launched on February 2, 2018 at a colourful ceremony officiated by Tourism minister Priscah Mupfumira. The works started with substantial excavation to remove overburden and replacing that with imported competent material.

Currently the contractor (Masimba Construction) has undertaken excavation for the laying of sewer pipes. In addition, the contractor is also putting up a retaining wall as a result of the terrain and the loose soils. At the same time, the contractor is constructing bases and columns for the entire shopping mall.

On completion, the project will avail approximately 5 000 square metres of retail space comprising 23 shops, anchored by Pick n’ Pay.

Other facilities include banks, concept stores, food courts, a restaurant, coffee shops, jewellery and curio shops, a gym and a fuel service station. The shopping mall is expected to contribute about US$684 000 net rent per annum.

This is in comparison with the US$621 800 net rentals from ZimRe Centre Harare, the CDB office building that was sold at the end of last year and whose proceeds are being channelled towards the construction of the shopping mall.

The mall will also contribute US$20 million to investment properties when complete compared to US$10 million from ZimRe Centre. There will be an immediate correction of the portfolio mix by adding 5 000 square metres of retail and reduction of CBD office space by 9 265 square metres. There will also be improved occupancy and rental yields.

MC: You have embarked on the Real Estate Investment Trust (REIT) initiative. How do you see ZimRe Properties in the next two years under this venture?

SK: REIT model has been adopted and is widely used in other markets. Under the model, investors are asked to participate in funding the development of a real estate asset for purposes of capital appreciation and rental income. Unlike dividends, where distribution is for after-tax profits declared as dividends, under the REIT model, rental income is (apportioned) directly to investors in proportion to the investment made. Taxation is therefore at the investor level and not at the level of the entity distributing the rentals.

The REIT model is appropriate in projects that involve significant amounts of capital, where a number of investors can be pooled together to provide funding. ZPI wants to adopt this model for the funding of its student accommodation initially in Bulawayo but with a view to rolling out the same model to other centres in the country.

Currently, there is no appropriate legislation to effect this model. As a result, ZPI is spearheading discussions on the subject with tax consultants and other stakeholders to develop legislation aimed at achieving this.

MC: As Zimre Holdings, what new initiative are you looking at in order to strategically position your standing in the market?

SK: We are looking at capital raising and listing in Botswana. We are also looking at providing SBUs with competitive capital to position them for growth and expansion; property portfolio realignment, and be an innovation hub.