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Helios Fairfax Partners Corporation: Financial Results for the Year Ended December 31, 2020

Fairfax Africa Holdings Corporation
·11-min read

TORONTO, March 05, 2021 (GLOBE NEWSWIRE) --

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

(Note: All dollar amounts in this news release are expressed in U.S. dollars except as otherwise noted. The financial results are prepared using the recognition and measurement requirements of International Financial Reporting Standards, except as otherwise noted, and are unaudited.)

Helios Fairfax Partners Corporation (TSX: HFPC.U) (formerly Fairfax Africa Holdings Corporation ("Fairfax Africa")) announces fiscal year 2020 net loss of $206.6 million ($3.31 net loss per diluted share), compared to fiscal year 2019 net loss of $61.2 million ($1.01 net loss per diluted share), reflecting increased net realized losses on investments, transaction expenses and net foreign exchange losses in 2020.

Completion of Strategic Transaction with Helios Holdings Limited:

  • On December 8, 2020, Fairfax Africa and Helios Holdings Limited ("HHL") announced the completion of the strategic transaction signed on July 10, 2020 (the "Transaction"). Fairfax Africa has been renamed Helios Fairfax Partners Corporation (“HFP”) and will continue to be listed on the Toronto Stock Exchange under the symbol 'HFPC.U'.

  • The Transaction creates a leading pan-Africa focused listed investment holding company that has the benefit of the asset management activities of Helios Investment Partners LLP ("Helios"). This diversified investment platform combines best-in-class third party investment management capabilities with the strength of a permanent capital vehicle. HFP and Helios collectively are among the largest Africa-focused providers of debt and equity financing of African businesses, through their private equity fund and balance sheet investments.

  • In connection with the Transaction, HFP acquired limited partnership interests in HFA Topco, L.P. ("TopCo LP") for $275.3 million, in exchange for issuing 24,632,413 subordinate voting shares and 25,452,865 multiple voting shares of HFP to HHL, representing 45.9% of the equity and voting interest in HFP. HFP's limited partnership interests in TopCo LP provide HFP with rights to certain carried interest proceeds and net management fees generated by the Helios.

  • As a result of the transaction, Helios has been appointed sole investment adviser to HFP; and Tope Lawani and Babatunde Soyoye, the co-founders and Managing Partners of Helios, have been appointed as co-chief executive officers and directors of HFP.

Highlights for 2020 (with comparisons to 2019 except as otherwise noted) included the following:

  • Net loss of $206.6 million included net realized losses on investments of $208.5 million, principally from the sale of Atlas Mara common shares as part of the Transaction ($141.3 million) and write-downs of the company's investments in CIG common shares ($46.0 million), the PGR2 Loan ($22.4 million), Atlas Mara Warrants ($2.3 million) and Nova Pioneer Warrants ($1.3 million); partially offset by a net change in unrealized gains on investment of $30.6 million. Net change in unrealized gains on investments principally reflected reversal of prior period losses on the company's realized positions ($125.4 million), partially offset by decreases in the market price of the company's investments in AGH (indirect) common shares ($43.8 million), Atlas Mara convertible bonds ($17.9 million), GroCapital Holdings common shares ($13.8 million), Atlas Mara Facility ($12.1 million) and Philafrica common shares ($9.1 million).

  • The company incurred $16.5 million of expenses related to the Transaction, primarily related to legal, financial advisory and other professional fees.

  • The company incurred $9.5 million of general and administration expenses in 2020 compared to $3.7 million in 2019, primarily reflecting share based compensation of $5.8 million on the issuance of share option awards to various employees and members of Helios and its affiliates upon closing of the Transaction.

  • On December 7, 2020, in connection with the Transaction, HFP sold its 42.3% equity interest in Atlas Mara to Fairfax Financial Holdings Limited ("Fairfax") for an aggregate purchase price of $40.0 million, comprised of $20.0 million in cash and $20.0 million by way of an interest-free loan due from Fairfax no later than three years from closing.

  • In December 2020 HFP increased its indirect equity interest in AGH through the purchase of Class A shares of AGH for purchase consideration of $10,132.

  • At December 31, 2020 common shareholders' equity was $599.7 million, or book value per share of $5.50 with 109,118,253 shares outstanding, compared to $518.8 million, or book value per share of $8.72 with 59,496,481 share outstanding, at December 31, 2019, a decrease of 36.9% primarily related to the net loss in the year ended of 2020.

Subsequent to December 31, 2020:

  • On January 21, 2021 HFP agreed to enter into a portfolio insurance arrangement with Fairfax. Under the terms of the transaction, Fairfax will subscribe for $100.0 million of 3.0% unsecured debentures of HFP (the "Debentures"). The Debentures will mature within three years of the date of issuance (the "Closing Date") or, at the option of Fairfax, on either of the first two anniversary dates of the Closing Date. The redemption price for the Debentures will be $100.0 million, plus any accrued and unpaid interest, less the amount, if any, by which the fair value of HFP’s investments in AGH, Philafrica common shares, Philafrica Facility, and the PGR2 Loan (collectively, the "Reference Investments") is lower than $102.6 million (representing the fair value of the Reference Investments as of June 30, 2020). In addition, Fairfax will subscribe for 3 million warrants of HFP, allowing Fairfax to purchase HFP subordinate voting shares ("SVS") at an exercise price of $4.90. The warrants are exercisable at any time prior to the fifth anniversary of the Closing Date. The company expects the portfolio insurance arrangement to close in Q1 2021.

  • Effective March 4, 2021, Ken Costa has been appointed to the HFP board as a director and Chairman. Mr. Costa is a Partner and Co-Chairman at Alvarium Investments. Prior to joining Alvarium, Mr. Costa served as Chairman of Lazard International from 2007 until 2011 and previously served as Chairman of UBS Investment Bank for Europe, the Middle East and Africa. He also served as Vice Chairman of Investment Banking at UBS. Mr. Costa studied Law and Philosophy at Witwatersrand University in South Africa and holds a Masters of Law Degree and a Certificate in Theology from Queens’ College, Cambridge. Prem Watsa, in support of Mr. Costa's appointment, has resigned as a director and Chairman in order to permit that appointment.

There were 72.1 million and 59.5 million weighted average shares outstanding during the fourth quarters of 2020 and 2019 respectively. At December 31, 2020 there were 53,665,388 subordinate voting shares and 55,452,865 multiple voting shares outstanding.

Consolidated balance sheets, earnings and comprehensive income information follow and form part of this news release. Fourth quarter earnings and comprehensive income information that follow is unaudited.

In presenting the company’s results in this news release, management has included book value per basic share. Book value per basic share is calculated by the company as common shareholders' equity divided by the number of common shares outstanding.

Helios Fairfax Partners Corporation is an investment holding company whose investment objective is to achieve long term capital appreciation, while preserving capital, by investing in public and private equity securities and debt instruments in Africa and African businesses or other businesses with customers, suppliers or business primarily conducted in, or dependent on, Africa.

For further information, contact:

Keir Hunt, General Counsel & Corporate Secretary

(416) 646-4180

This press release may contain forward-looking statements within the meaning of applicable securities legislation. Forward-looking statements may relate to the company's or an African Investment's future outlook and anticipated events or results and may include statements regarding the financial position, business strategy, growth strategy, budgets, operations, financial results, taxes, dividends, plans and objectives of the company. Particularly, statements regarding future results, performance, achievements, prospects or opportunities of the company, an African Investment, or the African market are forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate" or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might", "will" or "will be taken", "occur" or "be achieved".

Forward-looking statements are based on our opinions and estimates as of the date of this press release and they are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking statements, including but not limited to the following factors: taxation of the company, its shareholders and subsidiaries; the COVID-19 pandemic; substantial loss of capital; geographic concentration of investments; financial market fluctuations; control or significant influence position risk; minority investments; risks upon dispositions of investments; bridge financings; reliance on key personnel and risks associated with the Investment Advisory Agreement; effect of fees; operating and financial risks of investments; valuation methodologies involve subjective judgments; lawsuits; foreign currency fluctuation; unknown merits and risks of future investments; illiquidity of investments; competitive market for investment opportunities; use of leverage; significant ownership by certain shareholders may adversely affect the market price of the subordinate voting shares; trading price of subordinate voting shares relative to book value per share; emerging markets; volatility of African securities markets; political, economic, social and other factors; natural disaster risks; sovereign debt risk; economic risk; and weather risk. Additional risks and uncertainties are described in the company’s annual information form dated March 5, 2021 which is available on SEDAR at www.sedar.com and on the company’s website at www.heliosfairfax.com. These factors and assumptions are not intended to represent a complete list of the factors and assumptions that could affect the company. These factors and assumptions, however, should be considered carefully.

Although the company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The company does not undertake to update any forward-looking statements contained herein, except as required by applicable securities laws.


Information on
CONSOLIDATED BALANCE SHEETS
as at December 31, 2020 and December 31, 2019
(US$ thousands)

December 31, 2020

December 31, 2019

Assets

Cash and cash equivalents

66,052

44,334

Restricted cash deposits

7,525

7,500

Term deposits

12,392

Short term investments

104,008

Loans

76,175

41,984

Bonds

58,829

78,820

Common stocks

89,510

232,212

Derivatives and guarantees

13,252

1,541

Limited partnership investments

275,299

Total cash and investments

599,034

510,399

Interest receivable

8,961

5,835

Deferred income taxes

835

1,665

Income tax refundable

380

Other assets

1,946

2,388

Total assets

610,776

520,667

Liabilities

Accounts payable and accrued liabilities

6,982

297

Payable to related parties

3,660

1,555

Income taxes payable

399

Total liabilities

11,041

1,852

Equity

Common shareholders' equity

599,735

518,815

610,776

520,667

Book value per basic share

$

5.50

$

8.72

Information on
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS)
for the three and twelve months ended December 31, 2020 and 2019
(US$ thousands except per share amounts)

(Unaudited)

Fourth quarter

Year ended December 31,

2020

2019

2020

2019

Income

Interest

2,988

5,765

18,727

22,606

Dividends

2,381

15

2,381

Net realized losses on investments

(208,462

)

(208,462

)

(4,838

)

Net change in unrealized gains (losses) on investments

166,377

(16,920

)

30,643

(73,223

)

Net foreign exchange gains (losses)

24,756

20,105

(13,956

)

6,832

(14,341

)

11,331

(173,033

)

(46,242

)

Expenses

Investment and advisory fees

857

1,524

4,128

6,572

General and administration expenses

6,970

1,197

9,528

3,677

Helios Transaction expenses

2,150

16,507

Interest expense

174

26

773

977

10,151

2,747

30,936

11,226

Earnings (loss) before income taxes

(24,492

)

8,584

(203,969

)

(57,468

)

Provision for (recovery of) income taxes

(2,209

)

(182

)

2,677

3,731

Net earnings (loss) and comprehensive income (loss)

(22,283

)

8,766

(206,646

)

(61,199

)

Net earnings (loss) per share (basic and diluted)

$

(0.31

)

$

0.15

$

(3.31

)

$

(1.01

)

Shares outstanding (weighted average)

72,098,700

59,511,481

62,406,662

60,688,854