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Ghost Bites (Grindrod Shipping | Sanlam)

The Finance Ghost
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Ghost Bites (Grindrod Shipping | Sanlam)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:

Grindrod Shipping shareholders are celebrating (JSE: GSH)

Their ship really has come in, with a potential delisting on the table

With Taylor Maritime Investments holding 83.23% of the shares of Grindrod Shipping in issue, the day was always going to come where Taylor looked to finish the job of delisting the company. In a clever proposed deal structure, this will effectively be achieved with the internal resources of Grindrod Shipping via what is known as a selective capital reduction.

Essentially, the company would buy back the shares not held by Taylor, leaving no other shareholders in place and therefore no reason for the company to remain listed on either the NASDAQ or the JSE.

The price on the table is $14.25 per share and the total deal value is just under $50 million. The price is a 54.8% premium to the 30-day volume-weighted average price (VWAP) on the JSE. As juicy as that sounds, shareholders will of course still need to approve the transaction and an independent financial expert has been appointed to issue a fairness opinion. This will be included in the circular to shareholders.

The share price closed 25% higher at R249.90. This is lower than the offer price because of the risk of deal failure and the time that will be required to implement the deal.

Sanlam invests further in India (JSE: SLM)

This is a lucrative opportunity for the group

At a time when the growth story around China has been under pressure, India has been getting increasing amounts of attention as an interesting emerging market. For a South African financial services group, India seems like a logical expansion opportunity.

Sanlam has already been in India for a while now, holding significant investments in Shriram as part of a partnership going back to 2005. The group has now decided to increase its stake in both Shriram General Insurance and Shriram Life Insurance. This is being partly funded (around 60%) by a disposal of a portion of the direct holding in Shriram Finance.

The effect of these transactions is that Sanlam will increase its stake in Shriram General Insurance from 40.25% to 50.99%, as well as the stake in Shriram Life Insurance from 42.38% to 54.40%. The shareholding in Shriram Finance will dip from 10.19% to 9.54%.

This is a clever approach that requires limited additional capital (only 40% of the purchase price is new capital flowing into India) to take the stakes in two business units to controlling stakes.

The near-term impact on the net result from financial services is expected to be marginally positive for earnings and marginally negative for dividends. This is a long-term play, with India seen as an attractive market that can achieve returns for Sanlam well in excess of the “internal hurdle rate” – the return they need when deploying capital.

Little Bites:

  • Director dealings:
    • A non-executive director of Remgro (JSE: REM) purchased shares worth R485k.
  • Also at Remgro (JSE: REM), It’s rather interesting to note that Carel Vosloo, who held a lot of senior positions at RMB including co-head of corporate finance and investing banking, has been appointed as an alternate director to Jannie Durand. Vosloo joined Remgro in March 2022. Recent performance at Remgro hasn’t been acceptable, so perhaps this is a step towards trying to address that.
  • DRA Global (JSE: DRA) announced that the group CFO has resigned. He has been with the company since December 2021 and in the role of CFO since May 2022, so that’s not a long stint. The company has promoted an internal resource to Acting CFO.

Ghost Bites (Aspen | Harmony | Kore Potash | Mantengu Mining | MC Mining)

The Finance Ghost
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Ghost Bites (Aspen | Harmony | Kore Potash | Mantengu Mining | MC Mining)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:

Aspen’s deals with Sandoz have achieved Chinese regulatory approval (JSE: APN)

The deals are on track to close in this financial year

Back in December last year, Aspen announced that it would acquire all the shares in Sandoz (China) Pharmaceutical Co, along with commercialisation rights and intellectual property for the established products of the company and the pipeline for the short to medium term.

As part of the same overall deal, Aspen would sell four anaesthetic products to Sandoz that are currently sold by Aspen in the European Economic Area.

As you can imagine, there are a number of regulatory approvals that need to be obtained along the way. One was for the Chinese State Administration for Market Regulation to approve the transactions. This approval has now been granted, which puts on the deals on track to be completed in this financial year.

Unions singing in Harmony (JSE: HAR)

For the first time, there’s a five-year wage agreement with all five labour unions

Harmony Gold announced a landmark five-year wage agreement that covers all five labour unions in the group. This is the first time in the company’s 73-year history that such a deal has been reached.

For planning purposes, having certainty around labour costs for five years is incredibly helpful for Harmony.

There are various elements to the deal, ranging from annual wage increases (for most workers, equal to 6.2% or CPI, whichever is greater) through to increased housing and living-out allowances.

The announcement unfortunately doesn’t indicate the overall effective percentage increase over five years.

Kore Potash appoints a CEO (JSE: KP2)

This is a big step, given the remaining uncertainty

If you’ve ever taken a risk with a business venture before, you’ll know that hiring ahead of the curve is only one of the many big decisions you need to make. Simply, you need the right bums in seats before there’s certainty over the way forward. It’s a proper chicken and egg problem.

Kore Potash has been putting tons of work into getting the Kola project to the point where there’s an agreed EPC contract and funding proposal. The slog continues, but there must be a general feeling of optimism around it as the company has appointed André Baya as CEO. He has loads of experience in Africa.

Oddly, the CEO role at Kora Potash is a non-board role.

Mantengu Mining is now breakeven (JSE: MTU)

Yet the share price has halved in the past year

Mantengu Mining is tiny. The market cap is less than R100 million, which puts it in a difficult space on the local market. Recent activity has seen the company putting together capital raises from GEM Yield funds, with a circular having been issued to shareholders in December 2023.

The major project in the group is Langpan, which has a chrome plant that was commissioned in May 2023.

The group has issued a trading statement for the year ended February 2024 that notes HEPS of between 0 and 1 cent – the tiniest of positive HEPS. That’s still a significant improvement from the headline loss per share of -12 cents in the comparable period though!

Detailed results are due for release on 29 May.

Goldway extends the time period for the MC Mining offer (JSE: MCZ)

At the 11th hour, there’s a two-week extension

The games continue around the offer by Goldway to shareholders in MC Mining, with Goldway dishing out the surprise move of extending the offer by two weeks. It was due to close at the end of this week (5 April) and previous communication was that it wouldn’t be extended.

Obviously, this is because the minimum required acceptances haven’t been achieved. The independent board notes that Goldway has notified acceptances from holders of 12.1% of shares, which equates to 34% of the shares to which the offer relates.

Of course, the real question now is whether the extension will potentially come with an increased offer that takes the price closer to the range suggested by the independent expert. The game of chess (mixed with poker) continues.

Little Bites:

  • Exxaro (JSE: EXX) announced that its special dividend of 572 cents has received SARB approval. The payment date is Monday, 13th May.
  • If you are a shareholder in AYO Technology (JSE: AYO), then be sure to refer to the latest financial statements which include a “change statement” – this means that adjustments have been made between the announcement of results and the release of the financial statements. In other AYO news, Sekunjalo Investment Holdings now has 42.8% in the company.
  • Eastern Platinum (JSE: EPS) is late in filing its audited financial statements for the year ended December 2023. Although the general public can continue trading in shares, the directors and prescribed officers of the company cannot. The company plans to file and get back on track as soon as possible, with no specific date given.
  • Conduit Capital (JSE: CND) announced that the hearing for the applications by the liquidators of Constantia Insurance Company to provisionally wind-up Conduit Capital and its subsidiary Conduit Ventures has been postponed to 2 August 2024 as the applications are opposed.
  • Tongaat Hulett (JSE: TON) has released its latest business rescue update. If you’ve been following that process, you can find it here.

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

Old Mutual Africa (Old Mutual) is to sell Old Mutual Nigeria Life Assurance Company and Old Mutual General Insurance Company Nigeria to Emple Group, an investment company managed by Nigerian investors. Financial details were undisclosed. The decision follows a strategic review of the businesses with the key consideration to optimise capital management. The Group confirmed it would remain in Nigeria, maintaining a presence through its investment arm, Africa Infrastructure Investment Managers.

Invicta subsidiary, Invicta Global Holdings plc, has acquired a UK-based supplier of consumable parts to British and European earth moving and agricultural machinery aftermarkets. The purchase of Nationwide Bearing Company (NWB) for £12,3 million (R293,6 million) provides a platform for Invicta to grow its global Replacement Parts Earthmoving business. Aside from the synergies and cost-effective savings, NWB has product ranges which can be cross sold into Invicta’s existing operations.

Emira Property Fund, a 59.3%-owned subsidiary of Castleview Property Fund, is to dispose of a portfolio of 13 properties in Cape Town to Spear REIT. The portfolio comprises six office properties, five industrial facilities and two specialist/retail properties with the majority of the portfolio value being in office properties. The portfolio is to be acquired at no premium to its market value and is accretive to Spear shareholders from a distributable profit perspective. The R1,1 billion transaction forms part of Emira’s strategy to recycle capital. The net proceeds will be used to reduce debt and subsequently to fund new acquisitions.

In a separate announcement, Emira Property Fund disposed of Makro Crown Mines to New Order Investments 90 in a R334,5 million deal and Market Square, Beacon Way in Plettenberg Bay to Lynx Real Estate Developments for R354 million.

The saga of the off-market takeover offer by Goldway Capital Investment of MC Mining shares continues. Goldway has extended the close of its offer period from 5 April to 19 April 2024. Results of the offer will be announced on 29 April 2024. Goldway has a substantial shareholding of 76.4% but this is short of the minimum 82.19% level necessary to satisfy the ‘Minimum Acceptance’ condition for the Offer to proceed.

RMB Holdings has disposed of its 7.15% stake in Divercity Urban Property Group for R50 million. The shares, repurchased by Divercity, were at a consideration below its carrying value of R87,1 million (as per RMH’s interim results).

Unlisted Companies

Baobab Network, an early-stage investor in African startups, has acquired Reflector Marketing, a South African, strategy and branding agency. Reflector Marketing has a diverse clientele, across a diverse range of industries and spanning five continents. The agency has played a pivotal role in refining their positioning and scale by providing strategic marketing, branding and digital services tailored to individual needs.

RNR (Right Now Response), a local breakdown management startup, has raised R12 million in a follow-on investment round led by HAVAÍC. The venture capital firm contributed R10 million following an initial R9,2 million invested in February 2023. RNR provides truck fleet managers with on-demand breakdown support via its nationwide network of vetted mechanics, electricians and repair centres.

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

African Rainbow Minerals has, on a private placement basis, acquired a 15% stake in Surge Copper Corp. The 39,608,708 shares in the TSX Venture Exchange-listed company will be acquired at an 18% premium to the 20-day VWAP for a purchase consideration of C$3,76 million representing C$0.095 per share. Surge owns the Ootsa Property and Berg Project in British Columbia which have significant deposits of metals used as input in electrification and the low-carbon economy.

The required SARB approval has been granted for Exxaro Resources to pay shareholders a special dividend of R5.72 cents per share. The number of ordinary shares in issue as at the declaration date was 349,305,092. Payment date is scheduled for 13 May 2024.

A number of companies announced the repurchase of shares.

British American Tobacco has commenced its programme to buyback ordinary shares using the £1,57 billion net proceeds from its sale of ITC shares. The company will buy back £1,60 billion of its ordinary shares – £700 million in 2024 and the remaining £900 million in 2025. This week the company repurchased a further 880,000 shares at an average price of £24.02 per share for an aggregate £2,11 million.

In terms of its US$5 million general share repurchase programme announced in March 2024, Tharisa plc has repurchased 427 ordinary shares at an average price of R13.77 per share for an aggregate repurchase value of R5,881.00.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 25 to 28 March 2024, a further 3,042,342 Prosus shares were repurchased for an aggregate €86,98 million and a further 235 734 Naspers shares for a total consideration of R763,6 million.

Telemasters issued a cautionary notice this week. The Company will be disposing of 30% of the shares of its major subsidiary, Catalytic Connections, to the Sebenza Education and Empowerment Trust.

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

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

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

DealMakers AFRICA

Xtract Resources has entered into an option and joint venture agreement with Oval Mining, who are acting in cooperation with Cooperlemon Consultancy, to earn up to a 70% interest in the Silverking copper mine and accompanying exploration licence 26673-HQ-LEL in the Mumbwa District of the Central Province of Zambia.

Following a thorough strategic review, Old Mutual Nigeria has sold its life and general insurance businesses to the Emple Group. Financial terms were not disclosed. The group confirmed that it would still maintain a presence in the West Africa country through its investment arm, African Infrastructure Investment Managers.

Thor Exploration, the TSX-V and AIM listed exploration company currently advancing the Douta gold project in Senegal to a preliminary feasibility stage, has acquired majority stakes in two licences in southeast Senegal near to the Douta project. Thor has acquired up to an 85% interest in the Douta-West Licence which lies contiguous to the Douta project and an 80% interest in the Sofita Licence which lies approximately 20km south of the gold project.

Ghana’s Zeepay, a remittance and mobile money service company, has raised US$3 million in equity funding from Verdant Capital Hybrid Fund. The capital increase will be used to strengthen its financial position. The company, with licences in Ghana, Zambia, Ivory Coast, Sierra Leone, Gambia and Barbados, is already present in 23 countries.

OAR Resources has signed a binding agreement with Bullrun Capital Inc, Cityscape Asset and Impala Consulting to acquire 100% of Exclusive Prospecting Licences (EPL) 9652 and 9725. The EPLs are located close to Walvis Bay in the Erongo Region of Namibia and are considered highly prospective for in-demand and in-value uranium. In consideration for the EPLs, OAR will pay CAD$125,000 in cash plus four tranches of shares totalling 400,000 fully paid shares at various stages thereafter.

UAE-based Invictus Investment Company plc has completed the acquisition of a 60% stake in Graderco and its subsidiaries from Zalar Holding. No financial terms were disclosed. Graderco is a grain and cereal trading firm in Morocco which imports, stores and trades 2.5 – 3.0 million metric tonnes of grain and grain derivatives for both human and animal nutrition annually.

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

Executive Brief: key takeaways from the 2023 Companies Amendment Bills

Daniel Hart, Janke Strydom and Nolukhanyo Mpisane
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Executive Brief: key takeaways from the 2023 Companies Amendment Bills

The Minister of Trade, Industry and Competition has proposed the Companies Amendment Bill, 2023 (First Bill) and the Companies Second Amendment Bill, 2023 (Second Bill).

While the Second Bill proposes to amend certain provisions of the Companies Act, 71 of 2008 (Companies Act) to extend the time periods for which a court may declare a director delinquent or under probation (section 162), and the prescription period for claims against directors for loss or damages (s77(7)), the majority of the proposed amendments to the Companies Act emanate from the First Bill. From a transaction perspective, legal advisers should note the amendments proposed in the First Bill to s38 (regarding the validation of the irregular creation, allotment or issuing of shares), to s45 (regarding intra-group financial assistance), to s48 (regarding the repurchase of shares) and to s118 (regarding the application of the takeover provisions in the context of private companies).

S38 states that the board may resolve to issue shares within the classes and to the extent that the shares have been authorised by the Company’s MOI, in accordance with s36. If shares are issued but not authorised in terms of s36, or in excess of the number of authorised shares of any particular class, the share issue must be retroactively authorised in terms of s36 – within 60 business days after the date of issue – failing which, the share issue will be a nullity and any entry into the securities register will be void. The proposed amendment in s38A of the First Bill provides that, on application by the company or any party holding an interest, a court may validate the creation, allotment or issue of shares if it is satisfied that it is just and equitable to do so. This proposed change is useful to companies and shareholders which find themselves in circumstances where retroactive authorisation has not occurred within the prescribed 60 business day period.

The First Bill amends s45, by inserting s45(2A), which provides that the financial assistance provisions of s45 do not apply to the giving of a company of financial assistance to or for the benefit of its subsidiaries. The proposed carve out to this category of inter-group financial assistance should be welcomed, given the somewhat onerous requirements prescribed by s45.

In instances where a company wishes to acquire its own shares, it will no longer have to comply with the provisions of s114 and s115. The proposed amendment to s48(8) requires a special resolution of shareholders (and nothing else) if a company intends to acquire shares from a director of the company (or any person/s related to such director), or if the acquisition is not as a result of:

• a pro rata offer made to all the shareholders of the company or holders of a particular class of shares; or

• a transaction effected on a recognised stock exchange on which the shares are traded.

The result? A company will not have to obtain an expert report in respect of transactions where the company acquires more than 5% of the issued shares of a particular class of its shares. This is another welcome change, as obtaining an expert report can be an expensive and time consuming exercise, with limited benefit to sole shareholders or shareholders in a private company.

The proposed amendment to s118(1)(c) further limits the application of the takeover provisions in respect of private companies, in that the provisions will now only apply to private companies if a company has 10 or more shareholders with direct or indirect shareholding in the company and meets or exceeds the financial threshold of annual turnover or asset value as determined by the Minister.

Other noteworthy amendments and additions in the First Bill include:

• s16(9)(b), to amend the date on which amendments to a MOI take effect, namely within 10 business days of receipt by the commission of the notice of amendment, unless endorsed or rejected by the commission prior to the expiry of the 10 business days;

• s72, to describe instances where a company does not require a social and ethics committee and, among other matters, the composition and manner in which the social and ethics committee must be appointed; and

• s30A and B, which compels all public and state-owned companies to prepare and present a remuneration policy and a remuneration report in respect of the previous financial year, for approval by the shareholders either at an AGM or, in the instance where a remuneration policy was not approved at the AGM, at a shareholders meeting called for this purpose.

The First and Second Bill are currently under consideration by the National Council of Provinces.

Daniel Hart and Janke Strydom are Partners and Nolukhanyo Mpisane a Candidate Attorney | Fasken.

This article first appeared in DealMakers, SA’s quarterly M&A publication.

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

Energy and materials sectors to spur Africa M&A market’s resurgence

Seddik El Fihri
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Energy and materials sectors to spur Africa M&A market’s resurgence

Africa’s M&A market has experienced significant turbulence amid post-pandemic economic and geopolitical uncertainty. The renewable energy and material sectors have been bright spots, however, and seem poised to lead the market’s recovery.

The market’s downturn can be traced to the second half of 2022, when the region’s total deal value fell to US$6 billion — a sharp 62% decline compared to the first half of the year. For context, the market surged to an all-time high in 2021 – with deal values exceeding $44 billion – signalling that dealmakers were playing catchup after the initial shock of the COVID-19 pandemic had passed. The merger of the Angolan oil and gas businesses of BP and Eni contributed to this dealmaking peak.

The post-pandemic surge was followed by a reversion to more normal levels of M&A activity. Deal value in the first half of 2023 was $4 billion — a 73% drop from the first half of 2022, versus a 45% decline globally. However, the steep year-on-year decline masks the emergence of an active M&A market over the past decade, which should promote continued strength.

Several sectors in Africa have bucked the recent downward trend:

• Renewable Energy. Seeking greener and more secure energy sources, investors turned their attention to Africa’s renewable energy sector. An example is the pending acquisition of BTE Renewables for more than $1 billion by a consortium formed by Meridiam and Engie. In 2022, the renewable energy sector attracted a record-breaking $118 billion in foreign direct investment (FDI), representing more than 60% of total FDI inflows to Africa. The leading investors in the sector are the UAE and India, followed by the UK and France.

• Materials. Rising concerns over access to raw materials have spurred M&A in Africa’s materials sector over the past two years. So far, the largest deals in 2023 have occurred in the materials sector. China Natural Resources has agreed to acquire Williams Minerals, a Zimbabwe-based lithium mine operator, for almost $600 million. Lilium Mining acquired a 90% stake in the non-core gold mines of Endeavour Mining in Burkina Faso for $300 million.

• Health Care. The pandemic underscored the need for African countries to develop the skills and capacity to independently address the health challenges of their growing populations. This realisation has attracted investors to the health care sector. A standout example is Manta Bidco’s acquisition of Mediclinic International for $2.5 billion.

• Technology. The emergence of a technology ecosystem in Africa is a catalyst for transactions and fundraising in many countries. Among others, Kenya – where tech deal value spiked in 2022 – is very active in technology-driven transactions.

In 2022 and the first half of 2023, the most active countries in the region, in terms of M&A volume and value, were South Africa and Egypt, followed by Nigeria and Kenya.

Looking ahead, we see a mix of challenges and opportunities. Persistent global instability may dampen investors’ enthusiasm, leading to heightened risk aversion, especially toward investment opportunities in a continent with an extremely complex business landscape. An emerging movement toward increased protectionism among African countries could impede international investment flows to certain markets; conversely, however, it might spur transactions among African entities. The growing number of African-led acquisitions and the rise of Africa-focused sovereign funds, private equity investors and family offices underscore the potential for more locally generated M&A activity. At the same time, global players from China, India and the Middle East are steadily expanding their presence in Africa.

Several other trends and considerations are noteworthy:

• Energy Transition and Infrastructure. Prominent investors may begin consolidating market shares and leveraging their regional platforms to expand their reach into the developing continent. Governments and investors recognise the need to close notable gaps in the infrastructure and energy sectors. As a result, we expect to see substantial investments in electrical grids, natural gas, renewables and green hydrogen, among other areas.

• ESG. As in other regions, environmental, social and governance (ESG) factors have become key considerations in African M&A transactions in recent years. We expect this trend to persist in the long run, despite recent scepticism from some global investors about the impact of ESG constraints on companies.

• Sourcing. Supply chain considerations will promote M&A investments as companies’ sourcing strategies emphasise proximity and security. Thanks to its abundant natural resources and young population, Africa is well positioned to serve as a sourcing hub for neighbouring markets. Notably, the presence of good infrastructure, attractive locations and favourable legal frameworks in Morocco, South Africa and Egypt give those nations an edge over other African countries. Consolidation among logistics players to better serve African hinterlands, known as “corridor integration”, will also lead to new deals.

• Capital Availability. Around the world, private equity firms and family offices are flush with cash available for deployment. As the right opportunities emerge, the accumulated dry powder of financial sponsors, including African investors, will boost M&A activity. Although investors’ risk aversion has depressed valuations, we may see a tipping point at which low valuations entice a flood of capital. If that occurs, however, the capital influx may predominantly benefit regional players over multinational companies operating in Africa, as some of the latter are reducing their regional investment and exposure.

Against this backdrop, the energy and materials sectors, along with the broader industrial sector, will likely maintain their momentum and spur the M&A market’s resurgence. Some companies in these sectors have robust balance sheets and available cash, and they also stand to benefit from higher commodity prices. Their strong positions might lead them to recalibrate their diversification strategies in search of growth opportunities. Major industry players are likely to explore consolidating their market positions by leveraging regional platforms to expand their African presence.

Seddik El Fihri is Managing Director and Partner | Boston Consulting Group, Casablanca

This article first appeared in DealMakers AFRICA, the continent’s quarterly M&A publication.

DealMakers AFRICA is a quarterly M&A publication
www.dealmakersafrica.com

Ghost Stories Ep34: Diving into Digital Assets and Fintech (with Wiehann Olivier and Mia Pieterse of Mazars in South Africa)

The Finance Ghost
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Ghost Stories Ep34: Diving into Digital Assets and Fintech (with Wiehann Olivier and Mia Pieterse of Mazars in South Africa)

There’s a lot more to blockchain technology than just the latest Bitcoin or Ether price. After the boom of NFTs and all kinds of other things during the pandemic, things clearly cooled off in this space – and for the better. In the meantime, corporates and entrepreneurs are busy in the background on tokenisation of assets to create digital assets.

In a digital economy, digital assets are important.

The Fintech space is more widely understood. But again, it goes beyond just a payments solution on your wrist or your phone. As the world becomes increasingly cashless, there’s a lot of innovation in the financial space.

To unpack these areas in more detail and to understand how use cases are developing, I was joined by Wiehann Olivier (Partner and Head of Fintech & Digital Assets at Mazars) and Mia Pieterse (Partner and Fintech Specialist at Mazars).

You can connect with Wiehann on LinkedIn at this link and Mia on LinkedIn at this link.

Listen to the show here:

About Mazars

Mazars is an internationally integrated partnership, specialising in audit, accountancy, advisory and tax services. Operating in over 100 countries and territories around the world, they draw on the expertise of more than 50,000 professionals – 33,000 in Mazars’ integrated partnership and 17,000 via the Mazars North America Alliance – to assist clients of all sizes at every stage in their development.

To find out more about Mazars in South Africa, visit:

Website: www.mazars.co.za

Facebook: MazarsSouthAfrica

X: @Mazars_SA

LinkedIn: Mazars in South Africa

SA Inc: Unlocking a Contrarian Investment Perspective

Sponsored Content
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SA Inc: Unlocking a Contrarian Investment Perspective

From SA Inc, to green and gold.

In the latest episode of Investec’s No Ordinary Wednesday podcast, discover the sectors that have piqued the interest of award-winning fund managers, Barry Shamley and Peter Vogel, and the factors driving their local and international investment decisions.

Also on Spotify and Apple Podcasts:

Ghost Bites (Schroder | Southern Palladium | Spear REIT | Transaction Capital – WeBuyCars | Woolworths)

The Finance Ghost
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Ghost Bites (Schroder | Southern Palladium | Spear REIT | Transaction Capital – WeBuyCars | Woolworths)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:

Schroder European Real Estate refinances a major loan (JSE: SCD)

This is a useful way to see how a cost of debt can move higher

Schroder has refinanced a €8.6 million loan with existing lender Saar LB, secured against the Rennes logistics investment. The reason I think you should pay attention is that it shows how property funds see their cost of funding increase in an environment of higher rates.

The new five year facility is a margin of 1.6% above the reference rate, which is more expensive than the 1.4% margin on the outgoing facility. The total interest cost has been fixed at 4.3% (the five year euro swap rate of 2.7% plus a 1.6% margin).

The loan to value ratio is 33% gross of cash or 24% net of cash. This is well below the limit of 35% net of cash. Total third-party debt is €82.5 million.

But here’s the kicker: this refinancing takes the blended all-in cost of debt from 2.8% to 3.0%. The company describes this as “marginal” but I don’t think 20 basis points is all that marginal in a developed market context. It just shows how the narrative has changed as those markets have started to adjust to a “new normal” of higher rates.

Southern Palladium has advanced the pre-feasibility study (JSE: SDL)

Over 30,000m of drilling has been completed

The exploration phase in mining is all about taking an asset from a mystical area of land to an operating mine. To get there, you have to do a lot of drilling and reach a level of comfort around the extent of resources in the area and the plan to mine them. This allows for further funding to be raised and the mine to eventually be built. There are many important milestones along the way and the process takes a long time.

Southern Palladium is on this journey, with much drilling work having been completed as the company moves towards completing a pre-feasibility study. The company has cash reserves of $8.34 million and thus has sufficient funding to complete this study.

Things to look out for here are a long life of mine and indicative cash costs towards the low end of the global cost curve (i.e. relative to other mines focusing on the same commodity). After all, there’s no point in building an inefficient mine!

Based on the initial capital spend estimate of $408 million, the indicative post-tax internal rate of return is 21%. I must be honest, there are many private companies in far less risky industries in South Africa that offer similar returns. It’s obviously also not possible for large institutions to invest in small private companies, so I’m not comparing apples with apples. I’m just putting that IRR in context.

The company plans to complete the pre-feasibility study by roughly December 2024.

After announcing a major acquisition, Spear REIT has given an update for the financial year (JSE: SEA)

There is modest growth in distributable income per share vs. 2023

In case you missed the news earlier in the week, Spear has agreed to acquire a substantial Western Cape portfolio from Emira for R1.146 billion. That’s a very large transaction for the group and a major step towards being a scale player in the property sector.

Hot on the heels of that news comes this update, which confirms that distributable income per share has increased by between 0.75% and 1.5% for the year ended February 2024 vs. the comparable year. That may not sound like much, but most SA-focused property funds went backwards in their latest financial year. Where we have seen significant growth, it’s been in funds with offshore exposure.

Rental reversions rates have improved significantly from -3.69% in FY23 to -0.37% in FY24, so the huge pressure on lease renewals that we saw in the post-COVID period seems to be abating. The average portfolio in-force escalation rate was 7.52% in FY24, up from 7.40% in FY23. This is how property funds offer inflation protection to investors. The industrial portfolio is a highlight here, with reversions of 6.12% and in-force escalations of 7.72%. The retail portfolio sweeps away those reversions though, with positive reversions of 11.03% and in-force escalations of 7.47%. In case you’re wondering, Pick n Pay is 1.32% of the contractual rental income of Spear.

Of course, the reversion pressure has to come from somewhere, with the office portfolio as the only remaining place where it can be. Indeed, reversions were -4.67% and occupancy levels were only 84.37%. The fund believes that this situation will improve due to demand for space in Cape Town. Time will tell.

Interestingly, 96% of the cost of diesel supplied to operate generators has been recovered from clients. Landlords have been working hard to push the cost of load shedding onto tenant income statements. The fund isn’t sitting on its hands though when it comes to solar, with various installations currently being planned and an expectation that installed capacity within the next 12 to 18 months will generate 25% of Spear’s total electricity demand.

The loan-to-value ratio was 31.60% as at the end of February 2024. Fixed debt was just under 50% of total debt, which is below the strategic target of 65% to 75% of debt to be fixed. The disposal of the Liberty building will take this down by around 600 basis points. Although the group doesn’t provide the maths at this stage, the acquisition of the Emira portfolio will surely take it higher again.

The tangible net asset value per share is R11.79 and the share price is R8.03.

The WeBuyCars listing date has been finalised (JSE: TCP)

And so has Transaction Capital’s stake in the company just before the unbundling

Transaction Capital has released a finalisation announcement for the WeBuyCars unbundling. As a shareholder in Transaction Capital, I’m certainly looking forward to seeing how both the Transaction Capital and WeBuyCars share prices will behave.

The big day is Tuesday 16th April, as I’ll then see WeBuyCars in my brokerage account as a separately listed company.

Importantly, Transaction Capital has also announced that the stake in WeBuyCars after the various capital raising initiatives is 61.44%. They were hoping to raise some more capital from placing shares but I felt that their pricing was unrealistic and the market seemed to take the same view. This ship has sailed now, as the 61.44% holding will be unbundled to Transaction Capital shareholders.

Exciting times ahead to see what happens here. We have a classic case of the market darling (WeBuyCars) and the ugly duckling left behind (Transaction Capital). This is where growth and value investors tend to sort themselves into two orderly queues on either side of the room.

Woolworths is ready for your furry friends (JSE: WHL)

The group is now the proud owner of Absolute Pets

People spend a lot of money on their pets. This we know to be true. Retailers want to tap into this of course, especially where consumers are buying from specialist pet stores rather than the pet food aisle at the local supermarket.

I don’t think it would make much sense for Woolworths to allocate a bigger portion of their already compact Woolworths Food stores to pet food. I think it makes a lot of sense to rather acquire a specialist, which is exactly what they’ve done with the acquisition of 93.45% of Absolute Pets.

In case you’re wondering, the remaining shares are held by management and can be acquired by Woolworths over an agreed period.

The deal was previously announced, so the latest news is that all suspensive conditions have been met (including Competition Tribunal approval) and the deal closed with effect from 1 April 2024.

Organic vegan dog biscuits, anyone?

Little Bites:

  • Director dealings:
    • A person associated with the CFO of Primary Health Properties (JSE: PHP) has bought shares worth just under £20k.
    • If I understand the announcement correctly, then Prosus (JSE: PRX) director Steve Pacak has sold shares worth around €14.5 million – half in his own name and half in a trust.
  • The MC Mining (JSE: MCZ) – Goldway battle rages on. The board of MC Mining has now responded to Goldway’s Fourth Supplementary Bidder’s Statement. For those who enjoy a robust debate (like I do), it’s quite a thing to have read all these announcements in detail. Goldway’s recent approach was to try and discredit the Independent Expert’s report and MC Mining has obviously hit back sternly against that strategy. There is also much fighting over the status of Vele Aluwani Colliery. The independent board remains steadfast in its view that shareholders should not accept the offer.
  • Salungano (JSE: SLG) has released an update on the business rescue application for Keaton Mining. The courts were having none of it, dismissing the application. Salungano plans to appeal the judgment. Keaton comprises the operations of Vanggatfontein Colliery (a most unfortunate name) and is unrelated to Salungano’s main revenue generated options at Moabsvelden Colliery.
  • Lighthouse Properties (JSE: LTE) announced that the acquisition of H2O Centro Comercial in Spain has been completed with an effective date of 3 April 2024.
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