Trustco: The bleeding continues

Jo-Maré Duddy – Shareholders in the beleaguered Trustco Group Holdings on Friday were told they had to brace themselves for an expected “basic loss” of between N$821 million and N$874 million in the company’s audited results for the 11-month period ended 31 August 2021.

That is a plunge of between N$555 million and N$608 million from the basic loss of N$266 million Trustco suffered in its audited results for the 18-month financial period ended 31 September 2020, the group said in a trading statement on the Namibian Stock Exchange (NSX).

Among others, Trustco explained the expected hit as follows: “The majority of the losses recorded relate to non-cash (unrealised) impairments of certain investments and unrealised foreign exchange losses.

“The impairment of certain investments was the result of assumptions applied in the valuation methodology to address the uncertainties around the longer term impact of the [Covid-19] pandemic on the operating markets. The unrealised foreign exchange losses resulted from exchange rate fluctuations.”

MORE BAD NEWS

The Namibian-based group further expects a tumble in revenue by between 36% and 56% - from N$618 million in September 2020 to between N$393 million and N$270 million at the end of August 2021.

Trusto’s bad news continued: A headline loss of between N$716 million and N$767 million was forecast compared to the headline loss – between N$462 million and N$513 million more compared to August 2021. The headline loss per share (HEPS) is anticipated to be between 45.32c and 49.14c compared to the August 2021’s loss of 19.06c.

The group’s basic loss per share is estimated between 51.98c and 55.97c compared to the loss of 19.95c in 2021.

CALM DOWN

In the same trading statement, Trustco tried to soothe investors by reminding them of the group’s cautionary announcement late in December on the stock exchange.

In it, Trustco said its subsidiary Meya Mining was capitalised sufficiently to produce at least 10 000 carats per month, being about 120 000 carats per annum from the first quarter of 2022. Thereafter production is set to increase up to 30 000 carats per month, being 360 000 carats per annum, according to Trustco.

Trustco owns 65% of Meya Mining, while its Sierra Leonean partner, Germinate SL Limited, holds the rest. Meya Mining is registered in Mauritius and holds and operates a diamond mine within the eastern province of Sierra Leone.

In the December cautionary announcement, Trustco also said Meya Mining received a written offer “from a first tier global diamond producer” for US$150 million as a debt facility to scale production at the mine. “The offer includes a proposed equity transaction to acquire a 55% stake in Meya Mining at a nominal price subject to conditions to be negotiated,” Trustco said.

According to Trustco, this debt facility will be utilised for additional exploration, as well as enable Meya Mining to scale production up to one million carats per annum over the next three-year period.

Trustco on Friday said it “is optimistic that this transaction and other corporate actions will realise the anticipated shareholder value of its investments”.

STILL SEEKING

Trustco last month said it intends to delist from three stock exchanges and will seek a “business-friendly international exchange” after receiving the go-ahead from a non-binding vote of its minority shareholders.

Trustco intends to delist from the Johannesburg Stock Exchange (JSE), the NSX and the OTCQX in the US. The latter is the top tier of the three marketplaces for the over-the-counter (OTC) trading of stocks in the US.

The move followed after the Financial Services Tribunal (FST) in South Africa in November dismissed an application by Trustco to reconsider a directive by the JSE to correct and restate its financial statements for the year ending 31 March 2019, as well as its interim results for the six months ending 30 September 2019.

The issues revolves around the waiver of two loans by Trustco’s majority shareholder, Quinton van Rooyen – one of N$545.6 million and the other N$1 billion – as well as certain of Trustco’s Elisenheim properties. The JSE found that the group’s 2019 annual financial statements and its first half-year results in September 2019 did not, in material respects, comply with the International Financial Reporting Standards (IFRS).

According to the JSE the waiver of the loans resulted in gains in Trustco’s financial statements.

JUNK

Global Credit Rating (GCR) recently placed Trustco’s long and short-term national scale ratings of CCC- and C respectively on a rating watch evolving – the equivalent of a junk rating at international credit rating agencies like Fitch and Moody’s.

The CCC- national scale long-term issuer rating means Trustco has “vulnerable financial security characteristics, with an elevated possibility of non-payment of policyholder obligations when due”.

The definition for a C national scale short-term issuer rating states that “without a currently unforeseen circumstance, policyholders are expected not to be paid”.

A CCC and C rating at international credit rating agencies like Fitch and Moody’s means it is below investment grade or “junk”.

“On a current state basis, we consider the financial profile of the [Trustco] group to be weak,” GCR said in its latest announcement.

Trustco’s closing price for the period 1 April 2019 to 30 September 2020 was N$3.15 per share, compared to N$10.47 for the 12 months ended 31 March 2019 and N$8.75 in 2017/18.

The group ended at N$1.15 Friday on the Overall Index of the NSX.