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Ghost Bites (BHP | Grindrod Shipping | Kore Potash | MC Mining | NEPI Rockcastle)

The Finance Ghost
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Ghost Bites (BHP | Grindrod Shipping | Kore Potash | MC Mining | NEPI Rockcastle)

BHP is finalising documentation for the OZ Minerals deal

The exclusivity period has been extended until 27 December

Well, whoever is working on this deal clearly isn’t having much of a Christmas holiday this year. Welcome to the world of corporate finance, where holidays are mainly just a myth designed to keep you motivated.

Having entered into an exclusivity agreement with OZ Minerals Limited towards the end of November, BHP has moved quickly to conduct a due diligence and confirm the proposed cash price of $28.25 per share. The outstanding step is to finalise the scheme implementation deed, for which the parties have agreed to extend the exclusivity until 27 December.

Importantly, the boards of both companies still need to sign off on the deal. It’s entirely possible that it still falls over at this stage.

Grindrod Shipping seems to be sticking around

If you’re still holding shares, be careful of liquidity

The offer by Taylor Maritime Investments for all the shares in Grindrod Shipping has closed. The important news is that not all the shareholders accepted it, which is exactly why offerors like to use a scheme of arrangement as an “expropriation mechanism” that binds the shareholders to the outcome if the requisite voting threshold is met.

Instead, we have a scenario where Taylor has moved from a shareholding of 25.29% to 83.23%. This is an awkward level, as there is not quite enough of a free float to meet JSE Main Board requirements, yet there is enough to be irritating.

The announcement warns shareholders that a delisting may still be in the pipeline. Liquidity may become problematic in this counter, so just be careful if you are sitting on a significant holding. That bid-offer spread can become very painful.

Kore Potash seems to still have support in Republic of Congo

When African governments start with nonsense, investors need to be wary

Let’s not mess around here: we are all very aware that Africa is fraught with corruption. Right here in South Africa, corruption is practically a national sport.

I was worried when Kore Potash first started reporting on what I can only call “weirdness” from the Minister of Mines in the Republic of Congo. The Minister has expressed concern at slow progress on the project, which is a little odd as Kore Potash has made plenty of progress with the Summit Consortium in putting the money and development plan together.

The Minister also complained about the administration of the local subsidiaries of Kore Potash, which led to the company hiring lawyers for two independent reviews of the corporate affairs of these subsidiaries. The reviews will be completed in January.

In the meantime, the management team got on a plane and met the Minister in the Republic of Congo, which seems to have gone well. In the world’s most carefully worded SENS announcement, Kore Potash highlighted that the Minister expressed his “thanks for how the company responded to his most recent letter” and reiterated that the company has the support of the government to develop the project.

Well, let’s hope that will be still be the case in 2023.

MC Mining extends its marketing agreement

This is a great outcome for Uitkomst

MC Mining’s Uitkomst mine produces coal of sufficient quality to be exported, but not enough of the stuff to fill a ship on a monthly basis. This previously created a frustrating situation in which the company couldn’t access the international coal market, thereby losing out on the far higher export price vs. domestic prices.

A marketing agreement with a company called Overlooked helped address this issue. The agreement was due to expire at the end of December and has now been extended to June, with the key terms staying as-is.

The way the deal works is that Overlooked handles the transportation, stockpiling and export of coal at the port. The fee for this service is 5% of the sales price, which seems pretty reasonable to me.

Notably, this is a related party transaction as the CEO of Overlooked is also a director and substantial shareholder of MC Mining.

One wonders if there is a deal coming down the line for the company to acquire Overlooked. We will have to wait and see.

NEPI Rockcastle invests further in Poland

This is one of the biggest European shopping centre deals of 2022

NEPI Rockcastle has acquired all the shares in Forum Gdansk, a large shopping centre in Poland’s sixth largest city. With a large catchment area and an occupancy rate of 93%, the property is obviously appealing.

The purchase price is €250 million, of which €50 million is vendor financing payable by NEPI Rockcastle within three years at a fixed rate of 6.5%. The rest of the purchase price was funded from NEPI Rockcastle’s cash resources and credit facilities.

The estimated net operating income of the property is €16.5 million, so that’s a yield of 6.6% on the purchase price.

In further news related to Poland, the acquisition of the Copernicus Shopping Centre became effective as of 19 December, so this means that two high quality retail assets have been added to the portfolio.

Little Bites:

  • Director dealings:
    • An associate of a director of Ethos Capital has acquired shares worth R1.5 million
    • Although several directors of Zeda received shares in the company as part of the unbundling from Barloworld, the interesting news is that a prescribed officer bought another R449k worth of shares.
    • An associate of a director of CA Sales Holdings has acquired shares worth R199k
    • A director of Brimstone has acquired shares worth R41.4k
  • As another reminder of what a large balance sheet actually looks like, Naspers repurchased shares worth R1.3 billion and Prosus repurchased shares worth $267 million. These amounts covered just a few days of repurchases! These repurchases are being funded from a sell-down of the stake in Tencent.
  • To give some context to these numbers, Investec has repurchased shares worth R757 million since 3 October.

Ghost Bites (Bell Equipment | Equites Property Fund | Jubilee Metals | KAP | Woolworths)

The Finance Ghost
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Ghost Bites (Bell Equipment | Equites Property Fund | Jubilee Metals | KAP | Woolworths)

Ringing the Bell

A rally of over 6% in the share price tells you what the market thought of this update

After a great deal of distraction around whether the controlling family will or won’t take the company private at a suitable price, things eventually settled down at Bell Equipment.

Focusing on the operations would’ve paid off for investors, as the share price has climbed nearly 26% this year.

In a trading statement for the year ended December, the company goes a long way towards justifying that share price performance. HEPS is expected to be at least 43% higher at 420 cents, a tasty number on a closing share price of R15.40.

The performance has come from stronger market conditions, which is exactly what shareholders want to see.

To learn more about Bell, take this opportunity to catch up on the Unlock the Stock event with the Bell CEO that we hosted back in March. In this case, it really paid to pay attention:

Equites’ deal with Lidl goes back to the drawing board

The local council has not approved the proposed development

Back in October, Equites Property Fund announced the sale of land in Basingstoke, England to iconic retail group Lidl. The deal was conditional on approval being obtained from the local council for the proposed warehouse developments on the site.

After an initial refusal, Equites’ UK business (Equites Newlands Group) was also unsuccessful in its appeal process. The local council ruled that although demand justifies the development, the visual and landscape impact wasn’t going to work.

Equities Newlands is not going to continue with this transaction, recognising that it needs to go back to the drawing board and come up with a new plan for the site. As the site is carried at cost and doesn’t currently generate any income, there is no change to the distribution per share guidance.

If you want to learn more about Equites, a very recent appearance on our Unlock the Stock platform may be of interest:

Jubilee is going from strength to strength

The CEO calls it a “truly remarkable year” for Jubilee

At operational level, there’s good news from exciting metals group Jubilee. At the Roan copper operations, a water infrastructure upgrade has taken the project back to “nameplate capacity” – the level it was built to operate at. There is also technical progress being made at the Sable Refinery, with solutions being found to improve recovery of copper and cobalt from historical waste and to reduce operating costs.

The new approach at Sable is referred to by the CEO as a “game changer” and allows multiple ores to be produced at once, which is similar to what the company achieved at the Inyoni PGM plant in South Africa.

Having made huge progress in the Southern Copper Strategy in Zambia this year, the focus next year is on what the company calls the Northern Refining Strategy in that country.

I must also note that there are outstanding warrants on the company’s shares. This has nothing to do with traffic fines and everything to do with instruments that give holders the right to subscribe for new shares at a price way below the current traded price. This is dilutive for shareholders.

KAP operational update

The five months to November weren’t easy

KAP operates in tricky conditions, with a difficult South African macroeconomic environment and volatility in input costs. With diverse operations, the group generally wins some and loses some, with a net outcome that hasn’t been enough to get the share price out of a stubborn recent trend.

Here’s an overview of how the businesses are doing:

  • PG Bison is enjoying “robust demand” and all plants operated at capacity
  • Restonic suffered far-less-appealing “subdued demand” and struggled with operating profit margin pressure as well, which is typical when revenue isn’t doing as well as hoped
  • Feltex saw an improved revenue performance as new vehicle assembly volumes picked up, which in turn improved the operating margin
  • Safripol’s profitability declined vs. the prior period due to lower raw material margins and production volumes
  • Unitrans lost a major food contract but still put in a “stable performance” and posted margins that remain below the long-term guided range of 8% – 10%
  • Newly-acquired DriveRisk is running below expectations because of the dollar strength, with related pricing adjustments to customers still to take place

The group is putting in a big effort to mitigate the impact of load shedding and to reduce reliance on Eskom, with construction of a 10 MW PV plant at Safripol Sasolburg completed in November and a 4 MW PV plant approved during this period for PG Bison Boksburg.

Woolworths closes a painful chapter

The sale of David Jones has been announced after much speculation

After exceptional destruction of shareholder value under previous CEO Ian Moir, current CEO Roy Bagattini and his team have been doing their utmost to steady the ship at Woolworths.

Having joined the group in February 2020 – displaying an uncanny ability to start under the worst possible circumstances – Bagattini has taken Woolworths back to basics and back to a share price level not seen since 2018:

The latest step in fixing the group is to offload David Jones, the horrendous investment that tarnished Moir’s career. The buyer is Anchorage Capital Partners, an Australian private equity fund. The fact that this is a voluntary announcement tells you how tiny it has become in the Woolworths context. It wasn’t always this way, so a huge amount of value has been lost forever.

The deal excludes the flagship property in Bourke Street, which Woolworths will retain and lease to David Jones on a long-term basis.

The important thing is that around R17 billion worth of liabilities relating to David Jones will be removed, which will allow the balance sheet to be tilted towards the right activities. Of course, this also gets rid of a distraction for the management team.

The Country Road business in Australia remains core to the group, so this isn’t a complete retreat from the land of kangaroos and broken shareholder dreams.

Little Bites:

  • Director dealings:
    • The family trust of David Hurwitz, CEO of Transaction Capital, has disposed of shares worth R36.4 million to reduce debt to an institutional lender – he could’ve sold them a LOT higher earlier this year
    • Dr Christo Wiese isn’t one to do things in half-measures, buying single stock futures on Shoprite shares with a strike price of R242.14 and a value of R726 million
    • The investment entity of the management team of Ninety One has bought shares worth £92.5k
    • A director of Argent Industrial has sold shares worth R675k
    • The company secretary of Afrocentric has disposed of shares worth R126k
    • Des de Beer bought more shares in Lighthouse, this time worth R125k
    • The interim CEO of Hulamin has acquired shares worth R15.4k
    • An associate of Piet Viljoen has acquired shares in Astoria worth R12.3k
  • Those of you who are particularly interested in climate change and associated Net-Zero targets will find it interesting to learn that Mondi is among the first packaging and paper companies with validated Net-Zero targets. The Science Based Targets Initiative (SBTi) has assessed and approved the targets.
  • In another sad reminder that mining remains a dangerous industry, Harmony reported a loss of life following a seismic incident at the Kusasalethu mine in Carletonville.

Inadequate infrastructure expenditure in the developed world

The Finance Ghost
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Inadequate infrastructure expenditure in the developed world

No rest for the wicked here, as Chris Gilmour unpacks the relative levels of infrastructure development in the emerging world vs. the developed world.

One of the areas that differentiates the developed world from the emerging world is the commitment to infrastructure development. The old developed world is largely stuck with aged, creaking infrastructure that hasn’t moved in line with increased population size, whereas the developing world, as proxied by countries such as China and Malaysia, tends to have far greater commitments to infrastructure development across the spectrum.

And the world’s largest economy, the USA, has one of the world’s worst infrastructural deficits.

Rectifying this situation with a much greater commitment to decent infrastructure spend is “good” investment and reaps all sorts of benefits over time. But neglecting it, even for a few years, can have catastrophic results.

The last really big federal project that the US government embarked upon (apart from NASA’s space program of the 1960s and 1970s) was the interstate freeway system that was constructed in the US from the late 1950s through the early 1970s. Since then, there has been very little of any consequence, and this is obvious to any non-US traveller arriving at the tawdry JFK airport in Queens in New York City. And the road leading into the city from the airport is buckled and mangled, a reflection of the poor maintenance it receives. The bridges across the East River are ancient and only the (relatively) recently constructed Verrazzano Bridge connecting Staten Island and Brooklyn is less than 50 years old.

US utility companies often struggle to keep the lights on and so-called “brownouts” occur, whereby voltage reductions are deliberately put in place to conserve electricity.

According to a fairly recent study by the highly respected American Society of Civil Engineers (ASCE), deteriorating Infrastructure and a growing investment gap will reduce US GDP by $10 trillion in 20 years. In a hard-hitting report released last year, the ASCE said that “Infrastructure inadequacies will stifle US economic growth, cost each American household $3,300 a year, cause the loss of $10 trillion in GDP and lead to a decline of more than $23 trillion in business productivity cumulatively over the next two decades if the U.S. does not close a growing gap in the investments needed for bridges, roads, airports, power grid, water supplies and more.”

As a percentage of GDP, Gross Fixed Capital Formation (GFCF) in the US is a relatively low 21%, which places the US not much higher than Russia in the league table of infrastructure spend:

Source: World Bank / Gilmour Research

The UK (at 17%) is even worse and South Africa is a very low 13%.

Between now and 2039, the ASCE report estimates that nearly $13 trillion is needed across 11 infrastructure areas: highways, bridges, rail, transit, drinking water, stormwater, wastewater, electricity, airports, seaports and inland waterways. With planned investments in infrastructure currently totaling $7.3 trillion, that leaves a $5.6 trillion investment gap by 2039.

This gap has to be filled, and soon!

We are probably entering a new era in state spending globally, one that is going to be funded by substantially higher taxes. The party has been going on too long, with low taxes and little or no decent infrastructure spend. The end result is inevitable – decay and destruction of existing infrastructure.

Not long before he left office, Donald Trump signalled that his administration was intent on spending large amounts of money on new infrastructure. But it’s debatable that he fully grasped just what this would have entailed in terms of higher taxes.

Americans have become used to paying very little tax over the years and it will take a brave president to reverse that situation. But that is precisely what needs to happen.

Britain is in a similar position and if anything, its infrastructure deficit is even worse. A classic example is the rail network. Largely privatised from the late 1970s onwards, much of the rolling stock still appears to date from that era and even earlier. One of the biggest problems facing infrastructure development in the UK is a) the authorities’ obsession with mega-projects and b) concentrating almost all infrastructure development in London and the south-east of England. Some of these are vanity projects such as Crossrail in London, although the most recent large bit of infrastructure development relates to the new nuclear power plant at Hinkley Point in Somerset.  

One of the things that struck me about the state of unreadiness of the developed world when the Sars-CoV-2 virus struck was the lamentable state of hospital and associated infrastructure. This was in stark contrast to how developing countries such as China attacked the situation, building pre-fabricated 1,000-bed hospitals from scratch in a matter of days. But if we use Britain as a proxy for the developed world, its infrastructure was found to be wanting, with the National Health Service (NHS) hospitals at or near breaking point most of the time. To be fair, the authorities did convert other buildings into so-called “Nightingale” hospitals but these were never used. But if we go back in time to 1968-72 with the Hong Kong flu pandemic or 1957 with the Asian flu pandemic, both of these events were easily coped with using existing hospital infrastructure.

The harsh fact of the matter is that health bureaucrats the world over believe that most healthcare problems can be solved via the application of technology, such as virtual doctor appointments etc.

The reality is that they can’t.

So, infrastructure development is likely to be a big factor in future high-level spending priorities if for no other reason than that existing infrastructure really is at the end of its tether. It will be interesting to see how this is paid for ultimately, over and above by higher taxes.

This article reflects the independent views and opinions of Chris Gilmour, which are not necessarily the same as The Finance Ghost’s opinions on these stocks. For equity research on South African retail and other stocks, go to www.gilmour-research.co.za.

Ghost Wrap #6 (MTN + Telcos | Steinhoff | Alviva | Mpact | PBT Group | Shoprite – Massmart | Grand Parade)

The Finance Ghost
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Ghost Wrap #6 (MTN + Telcos | Steinhoff | Alviva | Mpact | PBT Group | Shoprite – Massmart | Grand Parade)

Welcome to Ghost Wrap. It’s fast. It’s fun. It’s informative.

In this week’s episode of Ghost Wrap, we cover:

  • Why the telecoms companies sold off so sharply last week (with a focus on MTN)
  • Steinhoff’s horrible news for shareholders and another crash in the price
  • A firm intention announcement for Alviva to be taken private at R28 per share
  • Mpact’s planned investment of R1.2 billion in Mpumalanga to support fruit exports
  • PBT Group offloading its B-BBEE preference shares to Sanlam Investment Management
  • Shoprite getting the green light to buy (most of) the cash & carry stores from Massmart
  • The board of Grand Parade Investments advising shareholders to accept the offer from GMB

The Ghost Wrap podcast is proudly brought to you by Mazars, a leading international audit, tax and advisory firm with a national footprint within South Africa. Visit the Mazars website for more information.

Listen to the podcast below:

Ghost Bites (Accelerate | DRA Global | Grand Parade | Harmony | Implats – Northam – RBPlats | Mondi | MTN | Steinhoff)

The Finance Ghost
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Ghost Bites (Accelerate | DRA Global | Grand Parade | Harmony | Implats – Northam – RBPlats | Mondi | MTN | Steinhoff)

Accelerate isn’t really accelerating

Interim results for the six months to September reflect a mixed bag

Accelerate Property Fund’s share price is down 9.9% this year and the company is still trading at a huge discount to Net Asset Value (NAV) per share. The NAV is R5.00 and the share price is R1.00, so I wasn’t joking by describing it as huge.

With significant exposure to the office sector, Accelerate is suffering with substantial group vacancies. The vacancy rate has actually worsened from 17.3% to 19.9% based on gross lettable area. The bulk of the vacancies are in B- and C-grade office space and low income industrial space.

In such a difficult market, watch out for the weighted average lease expiry, which has moved from 5.9 years to 3.9 years. You want to see short-dated expiries in a booming market, not an ugly one where the last thing a landlord wants to do is renegotiate with a tenant.

In terms of debt, the loan-to-value (LTV) has improved from 48.5% to 42.1% but the interest cover ratio has gotten slightly worse (1.9x vs. 2.0x). Keep a close eye on this, as Accelerate has agreed with lenders to temporarily reduce the interest cover ratio covenant to 1.7x.

Due to the dividend reinvestment alternative offered to shareholders in July, the NAV per share has fallen from R6.20 to R5.00.

Overall, the fund remains under pressure and issues like load shedding certainly don’t help. It’s not easy to fill new space in this environment, so the vacancy rate at the newly redeveloped Fourways Mall is slowly coming down.

To try and improve the balance sheet, there are still non-core properties worth R566 million that are earmarked for sale. Disposals of R255 million (not included in the previous number) have been signed, which would drop the LTV by 170 basis points and reduce fund vacancy levels by 3.7%.

As was the case last year, there is no interim distribution by the company. The fund annoyingly doesn’t disclose distributable income per share, but a quick calc based on 1.224 billion shares in issue and distributable income of R110.6 million suggests distributable income per share of around R0.09 for the interim period.

With a share price of R1.00, that’s a yield of 18%. Is that enough to justify the risk?

An unusual use of treasury shares

DRA Global has raised almost R93 million by placing treasury shares

This is quite technical, so try follow as best you can.

If a listed company repurchases shares, it can do so in one of two ways. They can either be repurchased by the listed company itself (in which case the shares are cancelled) or by a subsidiary, in which case the shares still exist but the group effectively holds shares in itself.

There are other ways for a subsidiary to end up holding shares in its parent company. In all such situations, those are called treasury shares.

Usually, you hear nothing more about them. In the case of DRA Global though, the company has placed the treasury shares with Apex Partners and raised nearly R93 million in the process. This makes Apex a 8.54% shareholder in the group through a single deal.

As treasury shares were used, there is no change to the number of shares in issue, as this wasn’t an issuance of fresh shares.

Offer for Grand Parade is fair and reasonable

The board has recommended that shareholders accept the mandatory offer

With GMB Liquidity Corporation having breached the 35% ownership threshold in Grand Parade, a mandatory offer is triggered. The price in this case is R3.33 per share and shareholders can choose whether to accept it or not. This is different to a scheme of arrangement where a shareholder vote binds all shareholders to the outcome.

KPMG was appointed as independent expert and the firm has concluded that the offer price is both fair and reasonable to shareholders, which is a little unusual in mandatory offers. This means that the offeror (GMB) isn’t necessarily getting a great deal. If it was a good outcome for GMB, the offer would be determined as unfair (too low relative to fair value) but reasonable (higher than or equal to the current traded price).

On this basis, the independent board has recommended to Grand Parade shareholders that they accept the offer.

Harmony concludes the Eva Copper deal

This is a major strategic milestone for Harmony

In a deal that was first announced in October 2022, Harmony will now count Eva Copper as a group subsidiary and will hand over R3 billion for the pleasure. This is being funded through available cash and revolving credit facilities, with the company noting that it is comfortably within debt covenants even after this acquisition.

As South Africa’s largest gold miner by volume, there are two sources of diversification for Harmony in this deal: metal (this is a copper asset) and geographical (it is in Australia).

The company is busy reviewing the existing feasibility study. They will now focus on finding the most effective way to execute the project and finance the capital requirements to bring the mine into production.

There’s just one hurdle left for Implats

Well, one regulatory hurdle at least

The Impala Platinum (Implats) vs. Northam Platinum saga continues, with the companies locked in an ugly battle for Royal Bafokeng Platinum. A few lawyers have significantly improved their bank balances thanks to this fight.

With the latest extension to the longstop date, the offer period would’ve been open for over 12 months. If you think that large M&A deals happen quickly, you are horribly mistaken.

The final outstanding condition for the Implats offer is the issuance of a Compliance Certificate by the Takeover Regulation Panel. It took a lifetime to get Competition Tribunal approval for the deal, so the company was no doubt hoping for a speedy resolution of this outstanding item.

Alas, Northam has accused Royal Bafokeng Platinum of non-compliance with the Takeover Code, which in turn has resulted in delays to the issuance of the all-important Compliance Certificate.

Just to add further spice to the story, Implats has previously complained to the TRP about elements of Northam’s firm intention announcement, so it seems likely that Northam won’t be allowed to issue its offer circular until this is sorted out.

The elephant in the room has nothing to do with the regulatory process. No, Implats has a bigger problem – it has been outgunned by the Northam offer, so it doesn’t seem likely that the Implats offer in current form would be good enough to get the desired outcome. Implats reserves the right to increase the offer, so let’s wait and see what happens.

Mondi sells more Russian assets

This is unrelated to the proposed disposal of the large Mondi Syktyvkar assets

Mondi has agreed to sell its three Russian packaging converting operations to the Gotek Group for around €24 million at current exchange rates, though the deal is denominated in rubles (RUB 1.6 billion).

The loss on the disposal is €70 – €80 million at current exchange rates, so that’s a significant loss as a direct result of the geopolitical conditions we find ourselves in.

Much like the disposal of the Mondi Syktyvkar business (which is far more important as the deal is approximately 10x larger than this one), approval will be needed by the Russian Federation’s Government Sub-Commission for the Control of Foreign Investments.

I’m very pleased that I don’t have to be the Western suit-and-tie who attends that meeting.

MTN pre-close update

A 7% drop in the share price tells you what to expect here

Ahead of financial year-end (December), MTN has updated the market on trading conditions. These have been ugly in the final quarter of the year, reflected in the share prices of telecommunications companies that have come under pressure.

The group’s most important markets are South Africa, Nigeria and Ghana. Recent inflation rates across those markets are 7.5%, 21.1% and 50.3% respectively. That’s not easy.

Another issue that isn’t easy to manage is lack of availability of foreign currency, a problem that is plaguing a number of South African companies with African investments. Where companies need to get cash out of places like Nigeria, they are being forced to do it at “parallel rates” that are far less favourable than the theoretical market rates.

MTN Group has upstreamed R17.3 million in the 11-month period to November, including R6.5 billion from Nigeria. Holding company leverage ratios are flat vs. the Q3 levels.

Energy costs are a major consideration. Although MTN’s energy bill represents 5% – 7% of group costs, load shedding also puts a capital expenditure burden on the group as it needs to upgrade its towers. We’ve seen this coming through in Vodacom’s numbers as well.

Despite group revenue growth of 14.8% in the 11-month period to November, group EBITDA margin deteriorated since the last update in September. This is because of the pressure in the South African business, where revenue growth has slowed to 3.2%.

In Nigeria, service revenue grew by 21.3% and EBITDA margin was broadly in line with the 53.6% reported in the third quarter results.

The announcement does give an update on Ghana but mainly in terms of subscriber numbers, which have been topical recently as MTN was forced by the regulator to remove unregistered subscribers in that country. Of the 5.7 million subscribers that were initially barred at the end of November, 20% have been restated.

There is some good news in the fintech side of the business, where revenue is up 13.6% vs. the 12.9% reported in Q3. The ongoing build out of the agent and merchant network is contributing to this acceleration. More good news is that the Ghanaian government is planning to decrease the e-levy on electronic transactions from 1.5% of value to 1.0%.

A managed separation of the fintech business is underway and is expected to be completed in the first quarter of 2023.

Despite the obvious pressure on free cash flow, the dividend guidance of at least 330 cents per share for FY22 remains in place. The group also believes that it is still making solid progress in driving return on equity towards 25%.

Steinhoff: the end is nigh (for ordinary shareholders)

You can either lose all your money or almost all your money

Well, there we have it. The show is over at Steinhoff, with the creditors holding the keys to the business. The share price fell 64% on Thursday and I’m not sure why it didn’t fall further.

Again, I am thankful that I got out of this thing at the start of the year. For those who have been caught up in this pain, I truly feel sorry for you. It’s a hard lesson in understanding that no matter how interesting the underlying operations are (like Pepco in Europe), the holding company balance sheet is critical.

I won’t go into the technical details of the debt restructure. All you really need to know is that if shareholders vote in favour of the proposed restructure, the lenders will hold 100% of voting rights and 80% of the economic interest, leaving 20% behind for existing shareholders in the form of a new equity instrument that the group envisages will be unlisted.

If shareholders don’t vote in favour of the proposal, the lenders will own everything.

That’s it. Simple as that. Goodnight and goodbye, Steinhoff shareholders.

Little Bites:

  • Director dealings:
    • The interim CEO of Hulamin has bought shares worth R363k
    • A director of Mediclinic has sold shares worth R10.5 million, so he didn’t hang around for the payment by Remgro and friends under that offer
    • A non-executive director of British American Tobacco has acquired shares worth $81.5k
    • Des de Beer has bought another R551k worth of shares in Lighthouse Properties
    • JD Wiese has bought preference shares in Invicta worth R7.9 million
    • The investment entity of the management team of Ninety One has bought another £56k worth of shares
    • The company secretary of Impala Platinum has sold shares worth R971k
    • An associate of a director of Vukile has sold shares worth R1 million as part of a communicated plan to the market to reduce its debt with Investec
  • Mergers and acquisitions / major transactions in shares:
    • In another example of a failed B-BBEE structure (one that ends up “underwater” because the equity value ends up being lower than the outstanding debt), Redefine needs to restructure its empowerment trust because of a deficit of R1.9 billion. It’s a double-whammy of bad outcomes, as the executive incentive scheme (in which executives borrow money to buy shares) is also underwater. Borrowing money to buy shares is ALWAYS dangerous, even in property companies where there is supposedly a reliable yield.
    • Sable Exploration and Mining Limited noted that PBNJ, which is currently making a mandatory offer for the shares in the company, now holds a stake of 45.5% in the company.
    • Sebata Holdings has agree to sell its 55% stake in Freshmark Systems for R24.75 million. The profit after tax for the year ended March was R3.9 million, so that’s a decent P/E multiple for such a small company. Perhaps they will now have enough money to fix their website?
    • As part of a B-BBEE deal that was put in place way back in 2007 by Italtile, there have been tranches of repurchases of shares from Four Arrows Investments. The final tranche is now taking place, with a repurchase of shares at R11.51 per share. The deal value is over R77 million and the price is based on 83% of the 10-day volume-weighted average price (VWAP). The Italtile share price is under pressure at the moment based on prevailing consumer conditions.
    • The former CEO of Cashbuild has agreed to sell a large block of shares to the company in a specific repurchase transaction. With the share price having fallen 25% this year, it’s probably not a bad time for the company to effectively be investing in its own shares. This is a substantial deal worth over R194 million, representing around 4% of all shares in issue by the company. A circular will be issued to shareholders and they will need to approve the proposed transaction.
    • The scheme of arrangement for the delisting of OneLogix has been approved by shareholders and will go ahead once other outstanding conditions have been met.
    • After receiving shares in Mast Energy Development as partial settlement for an outstanding debt, Kibo sold shares worth nearly £240k to realise some of the stake in cash. Kibo now holds a 57.86% stake in Mast.
    • As part of its ongoing strategy to reduce the stake in Tencent and repurchase its own shares, Prosus has sold further shares in Tencent and now owns 26.99% in the Chinese tech giant.
  • Earnings:
    • South Ocean Holdings, a business that has nothing to do with fishing and everything to do with manufacturing electrical cables, has released a trading statement for the year ended December 2022. HEPS is expected to be 46% lower, coming in at 19.76 cents. The company blames the usual issues facing our industrial firms, like rising input costs, load shedding and Transnet.
  • Notable board changes:
    • Freshly unbundled group Zeda has announced that Lwazi Bam has been appointed as Chairman of the Board. As the ex-CEO of Deloitte Africa, he brings huge experience to the board.
    • Spar has announced the appointment of Mike Bosman as the Chairman of the Board, which means that Andrew Waller will resume his role as Lead Independent Director. With extensive experience on other listed boards, shareholders will hope that Bosman’s appointment will go some way towards improving the governance smell currently found at Spar.
    • The Chairman of the Board of Hyprop has stepped down to become the CEO of investment firm Arise. The new Chairman is Spiros Noussis, who was formerly the joint-CEO of NEPI Rockcastle.
    • Texton is on the hunt for a new CCFO after Pinny Hack resigned from the company.
    • Orion Minerals has appointed Peet van Coller as its new CFO. This comes off the back of successful capital raising activities with Triple Flag Precious Metals and the IDC, which are now in final implementation stages.
  • Housekeeping:
    • Nampak’s proposed rights offer is so huge that a share consolidation is being proposed as part of the deal, just to allow the rights offer price to be fixed at a practical level. This is literally a step to avoid Nampak becoming a penny stock with an extremely low share price that would make it difficult to trade.
    • If you are a shareholder in Industrials REIT, you should refer to the announcement released on Friday regarding the choice between a cash or scrip dividend.
    • Emira Property Fund, Transcend Residential Property Fund and Castleview Property Fund are all changing their year-end to March to simplify the group reporting structure. Castleview is the majority shareholder in Emira and Transcend is controlled by Emira.
    • Kaap Agri Limited is looking to change its name to KAL Group Limited, with an expected implementation date towards the end of February.
  • Progress reports by suspended companies:
    • In a quarterly progress report (a requirement when a listing has been suspended), Afristrat set out the numerous issues that the company has been dealing with. These range from the lack of an auditor through to legal action in Botswana against the management team who allegedly stole from the business. To add to this horrific situation, there is also a liquidation application underway that the company is trying to defend in court. In case you’re feeling bad about your festive season and you want something to make you feel better, go read the detailed announcements to see what this company is dealing with.
    • Similarly, Conduit Capital released a quarterly progress report. With the major business in the group placed under liquidation, nobody is quite sure what (if anything) is left. The company is prioritising the conclusion of the audits of the remaining insurance companies in the group, so that should bring some clarity once released. I doubt it will be an answer that delivers much good news for shareholders.

Ghost Mail (Adcorp | Alviva | Brimstone | Ellies | Mpact)

The Finance Ghost
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Ghost Mail (Adcorp | Alviva | Brimstone | Ellies | Mpact)

Adcorp to shut down allaboutXpert Australia

No buyers could be found, so voluntary administration comes next

As noted in recent results, Adcorp has been dealing with significant issues around profitability in the allaboutXpert Australia business. This is a non-core operation, so Adcorp wasn’t about to distract management and take risks with the balance sheet to fix it.

Efforts to find a buyer for the business have been unsuccessful, so Adcorp has elected to place the group into voluntary administration.

This business contributed under 1.7% of Adcorp’s revenue in the interim period and is clearly not financially lucrative, so shareholders are probably better off from this decision.

It’s “firm intention” time for Alviva

A jump in the share price of 10.3% was an early Christmas pressie for shareholders

After a cautionary announcement released back in June, a consortium of investors and some members of the Alviva management team will be making an offer to buy all remaining shares in the company.

This will be proposed as a scheme of arrangement, which is an expropriation mechanism that is used to apply the outcome to all shareholders provided the 75% approval is obtained.

The price of R28 per share is a premium of 45% to the volume weighted average price before the expression of interest was submitted in June.

This is effectively a take-private by the existing B-BBEE partners in Alviva who currently hold 18.7% in the company. If it goes ahead, this deal would position Alviva as a majority Black-Owned ICT company.

Brimstone voluntary NAV disclosure

The intrinsic NAV per share is down 11.7% over nine months

As an investment holding company, intrinsic net asset value (INAV) per share is the measure that most investors would use in assessing Brimstone. As is typical in these companies, the share would then trade at a discount to INAV per share for various reasons ranging from head office costs through to performance (or lack thereof) of underlying investments.

In the past couple of years, Brimstone has traded at a discount of roughly 45% to 55% of INAV. When the market pushes the risk-off button, the discount inevitably widens.

A major driver of the discount is that the bulk of the group’s value is derived from other listed companies that investors can access directly. Of the gross value of R5.1 billion, a significant R3.6 billion is attributed to the investments in Oceana and Sea Harvest. There are other investment holding companies on the JSE that trade at much smaller discounts, not least of all because they hold private assets rather than stakes in other listed companies.

As a technical point, investment holding companies generally don’t provide for capital gains tax on large stakes in listed companies, as there are income tax relief provisions available when unbundling stakes like these. An unbundling would be the likeliest realisation of value. In contrast, capital gains tax provisions are raised on smaller investments with the goal of the INAV then reflecting an after-tax view on the company.

Brimstone’s INAV has decreased by 11.7% over nine months.

Ellies: a group in transition

From satellites to “smart infrastructure”

With a loss after tax in the six months to October of R34.9 million, the winds of change need to blow at Ellies. In fact, the hurricane of change is needed, because losses have accelerated sharply.

In the past year, the net asset value per share has dropped by 36.9% and the share price doesn’t look much better to be honest.

With the Manufacturing segment closed, only the Trading and Distribution segment remains. With various cost-saving initiatives being implemented in the core operations, Ellies is also in the process of trying to raise capital to execute strategies in alternative energy, water storage and harvesting, connectivity and smart home technology.

It’s easy to play buzzword bingo of course. The real test lies in implementation, something that Ellies will need to prove to the market beyond the progress already made in alternative energy products. Eskom does a great job of helping with demand in that product category.

The balance sheet is starting to look rather weak, so Ellies needs to move quickly with these strategic changes.

Mpact to invest R1.2 billion in Mpumalanga

This investment is being driven by growth in the export fruit sector

With everything going on in South Africa (and especially load shedding), it’s easy to become despondent and forget that we still have a very strong private sector. We also have pockets of excellence that can compete on the global stage, like our fruit exports.

The downstream impact of a successful industry is that companies invest in the supply chain, creating jobs and driving the economy forward. A great example is Mpact’s R1.2 billion investment project at the Mkhondo Paper Mill in Mpumalanga. This mill focuses on semi-chemical fluting, a virgin containerboard grade that is used in cold-chain applications due to high strength, moisture resistance and durability.

The project is expected to be completed in 2025 and should produce an internal rate of return in excess of 20%.

It will be funded by Mpact’s existing operations and some debt, which would lead to borrowings peaking in 2024.

Little Bites:

  • Director dealings:
    • A prescribed officer of ADvTECH has sold shares worth roughly R1.45 million
    • An associate of a director of Ethos Capital has acquired shares worth over R430k
    • In a useful reminder that many JSE directors have borrowed money to buy their shares in the listed companies, a director of Equites has pledged more shares to Investec under a loan agreement
    • A prescribed officer of Spear REIT has sold shares worth R365k
  • Marshall Monteagle announced interim results for the six months to September. Group revenue from continuing operations increased by 53% and profit before tax on trading and property operations increased by 77%. But due to losses on revaluation and sales of investments, the group slipped into a net loss position.
  • As part of the broader deal with Allianz in Africa, Sanlam Emerging Markets has redeemed shares held by Santam. This results in a payment of R126.5 million to Santam. Notably, Santam retains its economic participation rights in the general insurance investments in India and Malaysia.
  • Southern Sun announced that the sale of the Southern Sun Ikoyi Hotel in Nigeria has met all conditions precedent, which means that the deal has closed and that the sales proceeds were received.
  • In a related party transaction that is an important part of Sea Harvest’s supply chain, the supply agreement with the Vuna Companies has been extended for a further three years. Brimstone is a shareholder in both companies. Although this isn’t a related party transaction as defined under JSE rules, the company hired an independent expert anyway and the expert has confirmed that the terms are fair.
  • As Nampak’s share price continues to plummet, Allan Gray has sold more shares and now holds 14.6484% in the company. That’s about 14.6484% too much.
  • The CEO of AYO Technology has retired and a successor will be named in due course.

Who’s doing what this week in the South African M&A space?

Marylou Greig
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Who’s doing what this week in the South African M&A space?

Exchange-Listed Companies

Following the detailed cautionary in June, the Alviva Board has received a firm intention offer to acquire all the issued shares in the company not already owned by the Consortium (Tham Investments, P Ramasamy, Day One Asset Management and certain members of the management team). The proposed transaction is a cash offer of up to R2,56 billion for a purchase consideration of R28.00 per Alviva share, representing a 45% premium to the 30-day VWAP of R19.29. The transaction will result in Alviva becoming a majority black-owned privately held company. Shareholders can expect to receive a circular around December 23, 2022.

African Equity Empowerment Investments (AEEI) has made a firm intention announcement to acquire the 6.14% equity stake (15,976,380 shares) in Premier Fishing and Brands (PFB) held by minority shareholders. The stake represents the outstanding shares in PFB not held by AEEI excluding the 37.63% stake held by Sekunjalo Investments (3,57%) and 3Laws Capital South Africa (34.06%). AEEI which currently has a 56.23% stake will acquire the scheme shares for R1.60 per share and will delist PFB from the JSE, citing illiquidity and low free float as reasons.

PBT Group has disposed of its entire investment in preference shares held in Yonex Investments (a B-BBEE company) to Sanlam Investment Management for R53,3 million. PBT intends to distribute R31,5 million of the disposal consideration by way of a special distribution to shareholders.

Northam Platinum has increased the maximum cash component consideration in relation to its offer to shareholders in Royal Bafokeng Platinum from R10 billion to R17 billion. The offer price remains at R172,70 per share (R180,50 less dividend paid), substantially higher than Impala Platinum’s offer made in December 2021 to RBPlat shareholders of R150 per share – R90 in cash and 0.300 ordinary Impala Platinum shares per RBPlat share (R60).

Hybrid Equity, a division of Old Mutual Alternative Investments (Old Mutual), has invested a further R420 million to increase its stake in Mulilo. Hybrid Equity made its first investment in 2015 when it invested R120 million in the South African renewable energy developer.

The results of the general offer by Heriot REIT to purchase Safari Investments RSA shares has closed with acceptances from shareholders holding 23,664,848 Safari shares representing 7.6% of the total shares in issue. Following the closing, Heriot and concert parties hold 40.7% of the total share in issue.

Delta Property Fund continued with its disposal programme, selling the property situated at 28 Central Road in Kimberley. Known as Beconsfield, the property was acquired by Dino & Lambro Investments for R22,1 million. The proceeds will be utilised in the reduction of debt.

Shoprite has informed shareholders that following the Competition Tribunal’s findings, the August 2021 acquisition by the company of Massmart stores has been approved with certain conditions to address competition and public interest concerns. The ruling sees the exclusion of 15 stores, the majority of which are to be separately divest of by Massmart to small or medium-sized businesses. The final transaction which will be effective on 9 January 2023 will include 42 Cambridge Food and Rhino Cash and Carry stores (including adjacent liquor stores), two Fruitspot facilities, the Massfresh Meat business and 12 Masscash Cash and Carry stores.

Despite best efforts on the part of Adcorp management to dispose of AllaboutXpert Australia for a fair and reasonable price, the Australian subsidiary has been placed in voluntary administration. The business, on a consolidated basis, contributed less than 1.7% of the group’s revenue for the six months ended 31 August 2022.

Unlisted Companies

Epiroc, a Swedish productivity and sustainability partner for the mining and infrastructure industries, is to acquire Pretoria headquartered Mernok Elektronik. Mernok designs and produces proximity detection technologies and collision avoidance systems for customers based primarily in Africa. The acquisition is expected to be completed in the first quarter of 2023.

Tabono Investments, an investment company in Africa with experience in mining, logistics and recycling, and ACE Green Recycling, a US-based recycling platform for battery materials, are to form a joint venture to build and operate two environmentally sustainable battery recycling facilities in South Africa.

BOS Brands has secured an undisclosed sum of additional growth equity from an investment consortium to fund the expansion of the BOS Ice Tea brand into the UK from its established base in Europe. The consortium includes Siya Kolisi, his wife Rachel Kolisi, the Banducci family and a follow-on investment by the Ferguson family in the UK.

DealMakers is SA’s M&A publication
www.dealmakerssouthafrica.com

Weekly corporate finance activity by SA exchange-listed companies

Marylou Greig
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Weekly corporate finance activity by SA exchange-listed companies

Mantengu Mining has completed a rights offer raising R15 million. Of the 15 million offer shares, shareholders subscribed for 22.31% with the remaining 77.69% of the rights offer shares allocated to the underwriters.

As part of its capital optimisation strategy, Investec Ltd acquired on the open market a further 2,437,853 Investec Plc shares at an average price of 483 pence per share (LSE and BATS Europe) and 1,584,603 Investec Plc shares at an average price of R101.62 per share (JSE). Since October 3rd the company has purchased 16,6 million shares.

Shareholders of Fortress REIT have approved the change of name of the company to Fortress Real Estate Investments. The counter will trade under its new name from 4th January 2023.

Recently unbundled to Barloworld shareholders on a 1 for 1 basis, Zeda which houses the car rental and vehicle leasing brands Avis and Budget, listed on the JSE this week. The share opened at R18 but closed its first day of trade at R16.70 giving the company a market capitalisation of R3,17 billion.

The termination of the listing of Nutritional Holdings has been formally advised by the JSE and the company will become an unlisted company from December 19, 2022.

A number of companies listed on one of South Africa’s Stock Exchanges have initiated share buyback programmes and each week update shareholders. They are:

Glencore this week repurchased 10,980,000 shares for a total consideration of £59,64 million. The share repurchases form part of the second phase of the company’s existing buy-back programme which is expected to be completed by February 2023.

South32 has this week repurchased a further 1,297,187 shares at an aggregate cost of A$5,38 million.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 5 to 9 December, 2022, a further 3,231,452 Prosus shares were repurchased for an aggregate €206,89 million and a further 591,745 Naspers shares for a total consideration of R1,62 billion.

British American Tobacco repurchased a further 1,838,550 shares this week for a total of £60,45 million.

Two companies issued profit warnings this week: Randgold & Exploration and Ellies.

Eight companies issued or withdrew cautionary notices. The companies were: AfroCentric Investment, Trustco, Premier Fishing and Brands, African Equity Empowerment, Luxe, Afristrat Investment, Nutritional Holdings and Alviva.

DealMakers is SA’s M&A publication
www.dealmakerssouthafrica.com

Who’s doing what in the African M&A space?

Marylou Greig
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Who’s doing what in the African M&A space?

DealMakers AFRICA

Savannah Energy PLC, the British energy company focused on projects in Africa, is to acquire Petronas International’s entire oil and gas business in South Sudan through the acquisition of Petronas Carigali Nile for a cash purchase consideration of up to US$1,25 billion.

PTS Investments, a US-based provider of x-tech solutions, has acquired a stake in EDAM Healthcare Services, a healthtech startup for an undisclosed sum. The investment will accelerate growth plans, supporting the development of EDAM digital platform with the company hoping to reach 2,5 million users by the end of 2023.

Two foodtech startups, Saudi-based Jumlaty and Egypt-based Appetito, have announced their intention to merge to create a new company NOMU. The aim is to become MENA’s leading foodtech supply chain platform. Financial details were not disclosed.

Legendary Foods Africa, a Ghanaian food-tech business producing a cost-effective, nutritious, resource-efficient and accessible form of protein, has received a growth equity investment from Baylis Emerging Markets. The growth capital is needed to accelerate expansion plans which include enhanced data-collection and production capacity and the extension of the product line and distribution channels.

Ascent Capital’s acquisition of a 75% stake in East African plastic manufacturer Acme Containers has been approved by the Competition Authority of Kenya.

Lagos-based furniture e-commerce startup Taeillo has raised US$2,5 million from Aruwa Capital a Nigerian early-stage growth equity and gender-lens fund. The funds will be used to scale its “Pay with Flexi” product, reduce delivery times by pre-manufacturing some of its product and increase market share.

Justyol, a Morocco-based e-commerce startup has raised US$350,000 in a pre-seed round from Earn Rocket Investment. A cross-border marketplace connecting the Turkish fashion market with MENA markets, Justyol will use the funding to invest in technical development, scale its marketing efforts and expand in the region.

Bitcoin mining company Gritless, which assists in bringing new energy generation to rural communities in East Africa, has secured a US$2 million seed investment in a round led by Stillmark and Block. Gritless designs, builds and operates bitcoin mining sites alongside small-scale renewable energy producers in rural Africa where excess energy is not utilised.

DealMakers AFRICA is the Continent’s M&A publication
www.dealmakersafrica.com

Appropriate regulation is needed to help address SA’s power crisis

Mzukisi Kota and Jason Van Der Poel
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Appropriate regulation is needed to help address SA’s power crisis

Action is urgently needed to create enabling policies and regulations to liberalise South Africa’s energy market and kickstart major investment.

Over the next eight to 12 years, it is estimated that South Africa will have to build between 50 and 60 gigawatts (GW) of new energy capacity to replace its retiring coal-fired fleet, to meet forecast growth and demand. This will require investment of an estimated R1,8 to R3trn, without factoring in the cost of expanding the transmission infrastructure.

As advisers to government on various Independent Power Producers Procurement Programmes, and to the private sector on many private generation power projects, Webber Wentzel is well-versed in some of the structural issues that will have to be resolved if there is to be any hope of solving the power crisis.

  1. COHERENT POLICY AND IMPLEMENTATION

Although South Africa has published two iterations of the Integrated Resource Plan (IRP), setting out expected demand and the ideal energy mix for the future, these plans have not been accompanied by a coherent overarching energy policy, nor have they been implemented at the required pace to avoid the current supply gap. South Africa’s main source of power remains Eskom, a vertically integrated monopoly with mainly coal assets. The IRP needs to be urgently updated to increase the proportion of other forms of energy, such as renewables, storage and gas in the mix.

On a pro bono basis, Webber Wentzel has advised Business Unity SA in its review of the Electricity Regulation Act Amendment Bill, which was expected to come into force by the end of this year – a deadline which is looking increasingly unlikely to be met. The Bill will restructure the electricity supply industry in some fundamental and necessary ways. It takes the transmission function out of Eskom and into a separate entity, the Transmission System Operator (SOC) Ltd, which will set up a central purchasing agency to buy and sell power to customers under contracts.

This will create a step change in electricity regulation in SA. It will decentralise and liberalise the market to bring more private power onto the grid, together with whatever Eskom has to offer.

  1. CONTINUE TO LIBERALISE THE ENERGY MARKET

Despite interventions in the last two to three years, steps taken to liberalise South Africa’s electricity supply have been too small and too reluctant. Caps on the size of exempted private generation plants were gradually lifted, but the focus was on retaining central government planning. Even with the latest touted measures to completely remove the caps in respect of private parties, municipalities still need ministerial determinations and feasibility studies in order to directly procure generation capacity.

It should be possible for a municipality that can secure project finance to procure its own power, without having to overcome further regulatory hurdles. If municipalities were enabled to get utility-scale power directly, it would help to tackle the power crisis.

For the private sector, renewable energy ticks all the boxes: it helps businesses to decarbonise, shows that they are good corporate citizens, and helps them to manage cost and security of supply.

As the private sector seizes the opportunity to generate its own power, Webber Wentzel is advising on some of the biggest projects currently under way, like Anglo American’s joint venture, Envusa Energy, with EDF Renewables. Envusa will procure about 600MW of solar and wind power for Anglo and De Beers sites in Southern Africa.

Webber Wentzel is also acting for Sasol in the procurement of about 900MW of renewable energy from independent power producers, as well as advising Exxaro Coal on its procurement of 80MW of solar power for its Grootegeluk Mine; Coca-Cola on its procurement of rooftop renewable energy at sites elsewhere in Africa; and MTN on its carbon neutrality strategy, including rooftop, ground mounted and wheeled renewable energy generation.

A lot of our work at present is advising on private power deals and assisting bidders involved in the REIPPP Programme.

On the just energy transition, we are advising on new regulations and assisting parties involved in the energy procurement plans of some of the larger municipalities.

  1. RESOLVE TRANSMISSION BOTTLENECKS

One of the criticisms of the REIPP Programme was that it did not limit or otherwise delineate where projects could be situated – this was a missed opportunity. We still need to address issues like re-using the infrastructure around obsolete coal-fired power stations, as South Africa moves to net zero and faces bottlenecks in transmitting power from grid constrained areas in the country, such as the Northern Cape (solar) and the Eastern Cape (wind).

Regulatory change is needed as a matter of urgency, to address municipal wheeling rules and tariffs. A number of projects in the pipeline may not happen in the near future because they need to be wheeled through municipal distribution infrastructure, and there are no clear and consistent rules on wheeling at this level. Nersa needs to develop a coherent, consistent set of rules that allow for transparency on tariffs, and in a way that is economic for end-users. Under the Constitution, national government has powers to “impinge” on some municipal competencies when required in the national interest. Under the ERA Amendment Bill, the transmission system operator (TSO) will be in charge of grid development and has proactive obligations to ensure that the grid works as well as possible.

Mzukisi Kota and Jason Van Der Poel are Partners |Webber Wentzel

This article first appeared in the DealMakers’ Renewable Energy 2022 Feature

DealMakers is SA’s M&A publication
www.dealmakerssouthafrica.com

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