The rating downgrade is in anticipation of the planned unbundling of PSG Financial Services Limited (“PSGFS”) stake in Capitec Bank Holdings Limited. At the prior rating review in December 2019, Capitec was valued at R48bn and accounted for over 70% of the PSGFS’ investment portfolio value. This stake underpinned a total investment portfolio value of c.R68bn and provided a significant source of dividend income. While PSGFS will retain a small stake in Capitec, the downgrade reflects the smaller portfolio value of around R18.6bn post the unbundling.
The stable outlook reflects GCR’s view that PSGFS maintains a portfolio of high-quality investments, and that the financial profile will remain robust over the medium term, with sufficient financial resources to meet all investment requirements. PSGFS’ key ratings strength remains its conservative gearing profile. Using the special dividend received from Zeder, PSGFS repaid its c.R1bn in redeemable preference shares, with the only financial obligations remaining being the bi-annual dividend in respect of the perpetual preferences shares, with a market value of R1.5bn at FY20.