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Ghost Bites (Equites | Renergen | Sibanye-Stillwater)

The Finance Ghost
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Ghost Bites (Equites | Renergen | Sibanye-Stillwater)

Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:

Equites suffers a drop in the interim dividend (JSE: EQU)

The property fund is still on track for the annual distribution guidance

Back in May, Equites Property Fund guided that the distribution per share for the year ending February 2024 would be between 130 and 140 cents per share. The company has confirmed that it remains on track for that guidance.

For the interim period, being the six months to August, the dividend is 65.36 cents per share. This is a 19.9% decrease vs. the comparable period, which shows you what is happening to property funds in this climate. The company also notes the exclusion of income from cross-currency interest rate swaps as a factor.

Interim results will be published next week on 10th October.

Don’t do it this way, Renergen (JSE: REN)

The company is handling a social media storm in the wrong way, in my opinion

There are some very big personalities on local Twitter / X. Sometimes, they spout absolute rubbish. At other times, they ask pertinent questions. Distinguishing between the two isn’t always straightforward.

Renergen has been at the centre of a heated debate on the platform, led by outspoken local investor Albie Cilliers. Leaving aside any personal feelings I may have towards any of the parties involved, the reality is that a market can only work if both positive and negative views are given appropriate airtime. After all, for every buyer there must be a seller (and vice versa).

Now, where there are defamatory or untrue accusations, that’s a different matter. We have laws for that. But where someone is raising genuine investment concerns, they need to be dealt with appropriately. In my view, this excerpt from Renergen’s announcement on SENS isn’t appropriate (or correct):

It’s really very simple. With the share price having lost a quarter of its value in the past month, then the directors have the option to buy more shares (when not in a closed period) if they believe that the price is below fundamental value. That would send the strongest message to the market and would be far better than releasing a SENS announcement complaining about negativity.

Of course, the very best way to deal with the criticism is to deliver on the helium project. That will quickly put the naysayers to bed, at least in terms of the project getting off the ground.

Here’s how significant the drop has been in the past month, with a positive blip on Friday after the announcement was released:

Sibanye-Stillwater approves phase two at Keliber lithium (JSE: SSW)

The capex budget has been revised higher to meet water quality conditions

Sibanye-Stillwater has had a terrible year from a share price perspective, down roughly 42%. Mining is volatile, especially with limited commodity diversification. This is why the company is pushing forward with its strategy for future metals, like lithium.

The environmental permit for phase two of the Keliber lithium project was received in December 2022. Sibanye is querying 6 of the 144 permitting conditions, but this process won’t hold up the development of the project.

With a capital expenditure budget that has increased by €10 million to €230 million, the company has approved the commencement of the second phase of the project, which includes the construction of the concentrator and the development of the open pit mine. The increase is due to the revision of the effluent water treatment facility, as stricter conditions need to be met.

The total project capital for Keliber has been estimated at €656 million, which is well up from €588 million in 2022. Equity funding has been secured, with negotiations for debt funding in process.

Little bites:

  • Director dealings:
    • A director of Motus (JSE: MTH) has bought shares worth R438k.
    • A prescribed officer of ADvTECH (JSE: ADH) has sold shares worth R222k.
    • Des de Beer has bought more shares in Lighthouse Properties (JSE: LTE), this time worth R140k.
  • It seems like Delta Property Fund (JSE: DLT) can’t catch a break at the moment. The fund is selling a property in Potchefstroom and the price was originally agreed at R21 million. After due diligence, it’s dropped by R500k to R20.5 million. Transfer is expected in January 2024. The really important thing is that the buyer still needs to obtain funding, so anything is possible here.
  • At African Rainbow Minerals (JSE: ARI), financial director Michael Arnold is stepping down after 8 years. Hamilton Mkatshana, the CEO of ARM Platinum, is also stepping down from the board. Notably, Brian Kennedy (who used to run Nedbank Capital) is joining the Investment and Technical Committee.
  • Trematon Capital Investments (JSE: TMT) has been trading under a cautionary announcement since July. As a solid reminder that these deals don’t always come to fruition, the cautionary has been withdrawn.
  • Hilariously, the liquidation date for Steinhoff (JSE: SNH) is Friday the 13th of October. Can this really be a coincidence, or do the lawyers just have a sense of humour?
  • The business rescue practitioners at Tongaat Hulett (JSE: TON) hope to publish the amended business rescue plan within the next two to three weeks. The meeting related to the plan will be on 7 November, as approving the plan is urgent.
  • Harmony Gold (JSE: HAR) announced a loss-of-life incident at the Tshepong North mine, in another reminder that mining remains dangerous for employees.
  • After announced the resignations of a few directors all at once, DRA Global (JSE: DRA) has announced an executive appointment to the board. This is an internal promotion.

Ghost Bites (De Beers – Anglo American | Datatec | Fortress | Kibo Energy | Life Healthcare | Newpark)

The Finance Ghost
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Ghost Bites (De Beers – Anglo American | Datatec | Fortress | Kibo Energy | Life Healthcare | Newpark)

Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:

I stand by my view on natural vs. lab-grown diamonds (JSE: AGL)

De Beers is investing an additional $20 million in natural diamond marketing

As many of you will know, I write a weekly column for the excellent Financial Mail publication. A couple of months ago, I wrote about my views on the diamond industry facing a similar type of disruption to the quartz crisis that hit the Swiss watchmaking industry a few decades ago. This was based on the research I did on Swatch for Magic Markets Premium. The similarities are clear for me. If you’re a Financial Mail subscriber, you can read it here.

The latest update from De Beers (part of Anglo American) has done nothing to change my mind. Diamond sales have been dropping for the past couple of sales cycles. My opinion is that lab-grown diamonds offer an excellent alternative for consumers who are facing numerous pressures. When you only have a certain budget for the ring, wedding and honeymoon, it’s perfectly reasonable to assume that a significant percentage of couples will choose to focus on the latter two. After all, only an absolute expert can tell the difference between lab-grown and naturally mined diamonds. And whether you agree with the logic or not, the lab-grown diamonds are seen as ESG-friendly. This matters to the younger generation, which also happens to be the generation getting married at the moment.

Rough diamond sales are down to $200 million in Cycle 8 of 2023. That’s way off $370 million in Cycle 7 of 2023 and barely 40% of what was achieved in Cycle 8 of 2022 ($508 million). There’s a long story about how they reduced availability in this cycle to help establish equilibrium in supply and demand. Looking through the narrative, the reality is clear to me: demand has dropped.

If you need further convincing, De Beers is investing $20 million in natural diamond marketing during the holiday season.

I’m not suggesting that natural diamonds are dead. Not at all. I’m merely pointing out that this is a luxury good that has been masquerading as an affluent good for far too long. It makes perfect sense to me that lab-grown alternatives should be doing well in this economic climate.

The question to ask isn’t whether lab-grown is going to steal market share, but rather whether De Beers can adapt its business accordingly.

Datatec expects strong growth in HEPS (JSE: DTC)

And before you point out the rand weakness, HEPS is measured in US dollars

Datatec is sounding upbeat, noting strong demand for its solutions and services across the various global markets in which it operates. Interestingly, the group also references ongoing supply chain challenges, something that we aren’t seeing too often anymore.

All divisions have grown in the six months to August 2023, although Logicalis Latin America is still struggling with currency weakness and hyperinflation in Argentina.

The company reports earnings in dollars. This makes it even more impressive that HEPS for the period is up by between 29.8% and 38.3%.

The share price is trading roughly in line with where it was just before the pandemic.

Fortress has a solution for the dual-class structure (JSE: FFA | JSE: FFB)

The trick is to use a portion of the investment in NEPI Rockcastle

If you’ve been following the Fortress story, you’ll know that the company used to be a REIT. It lost that status thanks to a dual-class structure in its shares, which meant it failed the rules around distributions. Previous attempts to solve the issue were unsuccessful, with shareholders voting against them.

There’s now a new proposal on the table, with the intention being to repurchase and cancel all FFB shares in exchange for shares in NEPI Rockcastle. Fortress currently has a 23.9% shareholding in NEPI Rockcastle and the fund is popular with investors at the moment, so this isn’t a bad choice of carrot to try and get the deal across the line.

With that said and done, the FFA shares would then be converted to have the same terms as the FFB shares.

Although the eventual premium to VWAP would vary based on the relative share prices of Fortress and NEPI Rockcastle, the offer to FFB shareholders is roughly a 25% premium to the 90-day VWAP. It’s a 9.9% premium to the 30-day VWAP.

Non-binding letters of support have been received from holders of 40.7% of the FFA shares and 51.9% of the FFB shares.

Kibo Energy accepts more shares in Mast Energy Developments (JSE: KBO)

The nervousness remains around the proposed joint venture at MED

Kibo Energy has accepted MED shares as partial settlement of the total amount owed by MED to Kibo’s wholly-owned subsidiary, Kibo Mining in Cyprus.

This represents £469,000 worth of the loan. The remaining outstanding amount is £762,535. Following this partial settlement, Kibo Energy will hold 56.02% in MED.

The concern is that MED may need more funds to complete the previously announced joint venture, a deal that has suffered delays. There’s a lot to be nervous about here, which is just one of the reasons why Kibo trades at two cents per share.

Life Healthcare finally announces a deal for Alliance Medical Group (JSE: LHC)

These negotiations have been going on for months

After several months of trading under cautionary announcements, Life Healthcare has confirmed that it will sell 100% of Alliance Medical Group to entities advised by iCON Infrastructure LLP. The enterprise value is roughly R21.3 billion and the cash proceeds are around R13.9 billion.

The net assets of the business were almost R14 billion as at the end of March 2023. Profits for the six months to March were R25 million. That profit number seems incredibly low so I’ll wait until the circular comes out to fully understand how the purchase price was calculated.

Life Healthcare needs to settle offshore debt and transaction costs and will keep some of the cash for growth. An amount of R8.4 billion has been earmarked for a special distribution to shareholders. For reference, Life’s market cap is R29 billion.

This has been a reasonable story for Life Healthcare, having acquired 95% of the asset in 2016 based on an enterprise value of £760 million (R16 billion) to £800 million (R16.8 billion). Alliance Medical Group’s revenue has grown by 63% in the past six years, measured in GBP. In the year ended September 2022, it contributed 27.2% of the group’s revenue.

This is a category 1 transaction and a circular will be sent to shareholders.

Newpark: cash up, property valuations down (JSE: NRL)

There’s no liquidity, but we can still learn things from this company

Newpark operates a highly focused REIT. It has only four properties, including the JSE building and 24 Central in Sandton. I have many clear memories of that precinct and a few that are blurry at best, mainly thanks to the banker-friendly bar in 24 Central.

The other properties are somewhat less glamorous, including one in Linbro Business Park and another in Crown Mines.

Glamour doesn’t matter, but profits do. Cash profits (measured as funds from operations per share) increased by 28.9%, driving an increase in the dividend for the six months to August 2023 of 40%. That’s a very healthy outcome.

Headline earnings tells a different story, as this is impacted by a negative fair value movement of R70 million related to the JSE building. HEPS fell by 24.7%. Importantly, the loan-to-value is down slightly to 33.3%, a perfectly acceptable level.

The guidance for full year funds from operations per share is growth of between 13.62% and 25.58%. These are weirdly precise numbers at either end of a range! The full-year dividend is expected to be between 5% and 15% higher, so the big jump in the interim dividend won’t repeat in the full year dividend. This is because of planned capital expenditure.

There is far more liquidity at 24 Central than in Newpark stock, so it’s very unlikely that you can get your hands on this company

Little Bites:

  • Director dealings:
    • There were extensive sales by directors of Truworths (JSE: TRU) on Thursday. The announcement is a little vague, as most (but not all) of the sales are to cover the tax or debts related to vested shares. There were sales to “rebalance the investment portfolios” of the directors but we aren’t sure by how much.
  • Delta Property Fund (JSE: DLT) has announced that Sibongile (Bongi) Masinga has been appointed as CEO of the company for a period of three years. She has had a couple of stints as interim CEO of the company since 2020. The focus is firmly on selling down properties and keeping funders at bay. It’s definitely not an easy task.
  • DRA Global (JSE: DRA) announced several changes to the board all at once. It’s not good seeing three directors resign with immediate effect.

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

Life Healthcare (LHC) has entered into binding agreements with entities advised by iCON Infrastructure for the sale of Alliance Medical Group for a cash consideration of £593 million (R13,88 billion). The deal excludes LHC’s interests in Life Molecular Imaging Limited, Life Molecular Imaging GmbH and Life Molecular Imaging (LMI). The company intends to return the majority of the net proceeds to shareholders by way of a special dividend. Post completion, LHC will be positioned as a diversified and integrated healthcare services provider with strong growth potential in southern Africa through its integrated care model and international growth potential through LMI’s radiopharmaceutical portfolio.

In a bid to simplify the company’s dual share capital structure into a single class of ordinary shares Fortress Real Estate Investments has made an offer to acquire the remaining issued Fortress B shares in exchange for NEPI Rockcastle shares. In terms of the scheme, Fortress will repurchase all FFB shares in issue (with the exception of the FFB shares held as treasury shares, which will be cancelled). FFB shareholders will receive the 0.060207 NEPI Rockcastle shares per FFB share, resulting in 56,683,619 NEPI Rockcastle shares currently held by Fortress being used as consideration. FFA shares in issue will be converted into FFB shares. The Company has received non-binding letters of support for the Scheme from the shareholders holding 40.7% of the FFA shares and 51.9% of the FFB shares. The Scheme will have the effect of removing the current impediment which prohibited the Board from declaring dividends. 

Renewable energy-focused development company Kibo Energy has, as part of its declared strategy to divest from all hydrocarbon and coal-based assets, entered into an agreement to dispose of its coal interest in Botswana. While Kibo will indeed dispose of its remaining 35% stake in Kibo Energy to Shumba Energy for US$375,000, the consideration is payable by means of ordinary shares in BSE-listed Shumba which is itself a coal and energy development company. Loss making Kibo Energy Botswana consists of the Mabasekwa Coal to Power Project.

Telemedia, a subsidiary of Rex Trueform, has entered into an agreement with two parties, The Three Basset Holdings and Saalbach, to acquire a 35% stake in Interactive Television Africa. ITV Africa is an automated sports coverage company providing broadcasts and streaming services of school sports in South Africa. Telemedia will pay R18 million in cash for the stake.

Sirius Real Estate has disposed of a business park in Kassel, Germany for €7,3 million, representing a net initial yield of 6.0%.

Delta Property Fund has announced two disposals of properties in Bloemfontein in keeping with the decision to exit certain regions. The property known as Sediba & Fountain which is situated at the corner of Markgraff and Zastroon streets, is to be sold to Coffee Shop At Tyres for R19,1 million. For a cash consideration of R7 million Delta is to dispose of the property known as the VLU building to Dimatone. The two properties are located adjacent to each other.

Conduit Capital has agreed to sell back its 30% stake in OracleMed Investments to OracleMed Holdings for R9 million. The stake was acquired in June 2021 by subsidiary Constantia Risk and Insurance for R42 million.

The date for the fulfilment of conditions precedent for Finbond’s acquisition of a 49% stake in Trustco Finance Namibia has been extended once again, this time to 1 November 2023.

Surgical Innovations, a wholly owned subsidiary of Ascendis Health which commenced voluntary business rescue proceedings in May 2023, has advised shareholders that it has successfully exited the business rescue process.

Unlisted Companies

Africa-focused mining and investment company Marula Mining plc through its wholly owned subsidiary Marula Lithium Mining South Africa, has entered into an agreement with Opencast Resources (ORL) and Future Gems (FGL). In terms of the agreement, Marula Lithium Mining will secure a 70% interest in FGL from ORL, the holder of the Korridor 21 Prospecting Right in the Northern Cape. The region is known for its high-grade pegmatite deposits. The acquisition will be satisfied by way of an initial consideration of £125,000 in Marula shares along with a cash payment of up to US$50,000 with subsequent share-based payments subject to completion of key milestones.

Pretoria headquartered intellectual property service provider Hahn & Hahn, which operates across the continent, has sold a majority stake to private equity Gulf Capital’s portfolio company CWB Group.

Data solutions providers Edge DataWave (Edge Evolve Group) and Master Data Management have formed a strategic partnership in Edge Master Data. The joint venture aims to empower businesses across industries to make informed decisions, optimise efficiency and accelerate growth. Financial details were undisclosed.

Airports Company South Africa has reconsidered its decision to sell its 20% equity ownership in Aeroporto de Guarulhos Participações (GRUPAR) given the strong recovery of Sao Paulo’s Guarulhos International Airport from the negative impact of COVID-19. GRUPAR is the holder of 51% of Concessionária do Aeroporto Internacional de Guarulhos.

RWS, a UK-based provider of technology-enabled language, content and intellectual property services, has acquired STComms Language Specialists. The Cape Town-based language services provider covers a wide range of industries, working with a large network of skilled linguistic professionals across 26 African countries.

Property Solutions Africa (PSA), a multi-disciplined real estate advisory firm in South Africa, has been acquired by global flexible office specialist, The Instant Group. The acquisition will enable The Instant Group to expand its footprint across the continent.

South African fintech Stitch, which provides an end-to-end payments solution which enables businesses to build, optimise and scale financial products thereby improving the conversion for online payments, has raised US$25 million in a Series A extension round led by Ribbit Capital. Existing backers, PayPal Ventures, the Raba Partnership and CRE Ventures, also participated in the round.

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

Egyptian deep tech company, Intella has raised US$3,4 million in pre-Series A funding to drive their expansion plans in the Saudi market. The decision has been taken to re-locate the firm’s headquarters from Egypt to Saudi Arabia. The funding round was led by HALA Ventures and Wa’ad Ventures, with participation from Sanabil500, INSEAD’s alumni angel network and other investors.

Tom Preston-Werner, co-founder of GitHub, has invested in Egyptian fintech MoneyHash. The funding forms part of an undisclosed seed round. MoneyHash was founded in 2020 and allows companies to build a payment stack that suits their individual needs.

Renew Capital Angels has invested an undisclosed sum in micro insurance platform, Jamii.one, to drive the expansion of financial inclusion across Ethiopia. Jamii.one’s growth comes from its partnership with self-organised Ethiopian community groups called “Iddirs” that bring together about 50 people who make monthly contributions for informal cooperative-style insurance for funerals and other such events. With more than 30% of Ethiopians participating in Iddir groups, Jamii.one provides an app-based solution for data tracking, registration and management.

Hybrid solar solutions company, WATT Renewable Corporation has raised US$13 million in funding from Empower New Energy to enhance its renewable energy portfolio in Nigeria. This will be achieved through the addition of 8MW of installed generating capacity and 14.3MWh of storage capacity through end-to-end services and operation of towers. This is Empower New Energy’s largest investment to date.

PetroNor E&P ASA has reach agreement to acquire New Age (African Global Energy)’s 32% stake in the OML 113 Joint Operation Agreement in Nigeria. PetroNor will pay US$6 million in cash plus a deferred future gas production payment of up to a maximum of $20 million to acquire the OML stake – OML 113 contains the Aje Field.

Mali’s SAMA Money Group has acquired Première Agence de MicroFinance (PAMF) Mali for an undisclosed sum. The fintech announced the deal just weeks after it received approval as an Electronic Money Establishment from the Central Bank of West African States.

The Kenya government this week, rescinded the deal struck at the end of President Uhuru Kenyatta’s administration last year which saw the government acquire the remaining 60% stake in Telkom Kenya from PE investor Helios for Ksh6 billion. It has now been announced that the 60% stake will be acquired by the UAE’s Infrastructure Corporation of Africa. This means that Helios will have to refund the Kenyan Government and sell its stake directly to the UAE firm, thus avoiding the technicalities of the Government having to sell the Telkom stake as a parastatal.

Acasia Ventures has led an undisclosed Pre-Seed funding round in Senegal’s AI-driven FMCG intelligence platform Lengo-AI. Co-led by Ventures Platform, other investors included P1 Ventures, Launch Africa, Voltron Capital and a number of angel investors.

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

Following the results of the scrip dividend election, NEPI Rockcastle will issue 24,995,752 ordinary shares in the company in lieu of an interim dividend, resulting in a capitalisation of the distributable retained profits in the company of R2,6 billion.

Sebata has declared a special cash dividend of 25 cents per ordinary share, payable out of distributable reserves. The company has 114,915,089 ordinary shares in issue.

Several listed companies reported repurchasing shares this week. They were:

Gemfields has repurchased an additional 1,701,304 ordinary shares at a price for a total consideration of R5,33 million. The repurchased shares will be held as treasury shares.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 26 – 29 September 2023, a further 4,202,494 Prosus shares were repurchased for an aggregate €116,78 million and a further 273,616 Naspers shares for a total consideration of R831,7 million.

Tsogo Sun has repurchased 583,857 shares held by the Gold Reef Share Scheme at a repurchase price of R12.80 for an aggregate R7,47 million. The scheme is being wound down with no further awards being issued. Since the shares are held by a wholly owned subsidiary the repurchase should be cash neutral for the Tsogo Sun Group.

Glencore intends to complete its programme to repurchase the company’s ordinary shares on the open market for an aggregate value of $1,2 billion by February 2024. This week the company repurchased a further 7,360,000 shares for a total consideration of £33,92 million.

South32 continued with its programme of repurchasing shares in the open market. This week a further 1,916,492 shares were acquired at an aggregate cost of A$6,54 million.

Shaftesbury Capital and The Foschini Group are the latest in a long list of companies to take a secondary listing on A2X. Shaftesbury listed on 3 October and Foschini will trade on the A2X platform from 10 October 2023.

Two companies issued profit warnings this week: Pick n Pay and Finbond.

One company withdrew a cautionary announcement: Life Healthcare.

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

The future of the mandatory audit firm rotation rule in South Africa

Leonard Bilchitz and Tevin Ramalu
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The future of the mandatory audit firm rotation rule in South Africa

The mandatory audit firm rotation (MAFR) rule was promulgated by the Independent Regulatory Board for Auditors (IRBA) on 5 June 2017, and was to come into effect on 1 April 2023.

The MAFR rule prescribed that an audit firm, including a network firm as defined in the IRBA Code of Professional Conduct for Registered Auditors, may not serve as the appointed auditor of a public interest entity for more than 10 consecutive financial years. After that, the audit firm would only be eligible for reappointment after the expiry of at least five financial years. A public interest entity is either a listed entity or one defined by law as a public interest entity, or any other entity which the law requires to be audited in compliance with the same independence requirements as listed entities.

On 31 May 2023, the Supreme Court of Appeal (SCA) handed down a judgment in East Rand Member District of Accountants v Independent Regulatory Board for Auditors, setting aside the MAFR rule. The SCA did not rule on the substance of the MAFR rule and made no comments on its appropriateness in a South African context, but rather decided the judgment on the basis that the IRBA was acting outside the scope of its powers, in terms of section 4 of the Auditing Profession Act (APA), when promulgating the MAFR rule. Therefore, the MAFR rule was ultra vires and was set aside.

The crisp question posed relates to what the legal status would be of the MAFR rule in the event that the SCA judgment is appealed to the Constitutional Court?

Common Law

It is useful to note the judgment of Municipal Manager OR Tambo District Municipality and Another v Ndabeni [2022] ZACC 3 (Ndabeni), wherein the Constitutional Court reaffirmed that a court order is binding until it is set aside by a competent court, and that this necessitates compliance, regardless of whether the party against whom the order is granted believes it to be a nullity or not.

In the unanimous Ndabeni judgment, penned by Pillay AJ, the Constitutional Court reaffirmed the binding nature of court orders granted by a competent court, irrespective of their validity. The court drew on previous judgments, such as Department of Transport v Tasima (Pty) Ltd [2016] ZACC 39; 2017 (2) SA and Secretary of the Judicial Commission of Inquiry into Allegations of State Capture Corruption and Fraud in the Public Sector including Organs of State v Zuma [2021] ZACC 18, to support its stance. The Constitutional Court emphasised that once a court with jurisdiction has issued an order, it remains in force and must be respected until it is set aside through review or appeal proceedings. The correctness of the decision on its merits does not impact the binding force of the order, which stands until a competent court with jurisdiction overturns it.

In light of the common law above, we note that the MAFR rule will no longer be mandatory unless (and if) the SCA ruling is set aside on appeal by the Constitutional Court.

Future Implications

It is imperative to give due consideration to the MAFR rule in conjunction with the provisions outlined in s92 of the Companies Act No. 71 of 2008, as amended (Companies Act). S92 stipulates that an individual is restricted from holding the position of auditor of a company for a duration exceeding five consecutive financial years. However, this provision only applies to companies that are required by s90 of the Companies Act to have their annual financial statements audited (such as public, state-owned companies, and private, personal liability and non-profit companies meeting specific public interest score thresholds as per the Companies Act), or those private, personal liability and non-profit companies that have voluntarily included the audit requirement in their memoranda of incorporation.

In light of this, the legislature may contemplate the prospect of amending s92 to establish comprehensive regulations encompassing both registered audit firms and individual auditors who operate within the framework of the Companies Act. However, as things stand, the MAFR rule is not mandatory.

Conclusion

The recent ruling by the SCA has raised uncertainties surrounding the legality and future of the MAFR rule in South Africa. As the MAFR rule is currently not mandatory unless the SCA ruling is overturned, stakeholders in the auditing profession and public interest entities should closely monitor further legal developments. In order to address concerns regarding audit quality and independence, potential amendments to the legislation, such as the Companies Act or the Auditing Professions Act, may be required. The legal landscape will continue to evolve, and stakeholders should remain attentive to potential changes that may affect the audit profession in South Africa.

Leonard Bilchitz is an Executive and Tevin Ramalu a Candidate Legal Practitioner | Corporate Commercial | ENSafrica.

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

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

Exchange controls in Africa – be aware of the limitations

Cor Kraamwinkel, Marissa Wessels and Shirleen Ritchie
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Exchange controls in Africa – be aware of the limitations

A country’s rules on exchange control and the accessibility of foreign exchange should be important considerations for those contemplating doing business in a new jurisdiction.

One of the first questions for businesses entering a new jurisdiction is how to structure a transaction to gain access to that market. But an equally important, but often forgotten, second question is how to extract cash from that jurisdiction.

Whether attempting to extract dividends, interest, or payments for goods or services rendered, it is vital that cash can flow efficiently and effectively. The danger of not asking the second question is that the cash flows are impeded. This may place shareholders, creditors or contracting parties in a position where an amount that has accrued is subject to tax without being able to extract the cash.

This is reasonably simple in European or American markets, where funds can typically be remitted cross-border with relative ease, but it is not the same for all jurisdictions. Many African jurisdictions have country-specific exchange controls, or experience foreign exchange shortages, which could significantly complicate or delay cross-border cash flows.

Exchange control rules, generally administered by a jurisdiction’s central bank, are aimed at regulating inward and outward capital flows. Sometimes exchange control rules may prohibit certain categories of cross-border cash flows unless prior approval has been obtained.

In South Africa, which has one of the most developed exchange control rules in Africa, obtaining exchange control approvals can be a time-consuming and administratively burdensome process. In many instances, cross-border cash flows can practically be implemented, completely or partially, without prior approval. But without prior approval, it may be impossible to declare dividends, settle foreign loans or interest payments, pay royalties and service fees, et cetera. Specific terms may apply to payments such as trade debtors, which need to be paid in cash within 90 days of the invoice date.

Regularisation of exchange control contraventions after the fact is exponentially more difficult and time-consuming than obtaining prior approval. Contraventions could also result in the imposition of fines, penalties, and other sanctions.

Certain African central banks also ration, or do not have reliable or sufficient access to, dollars and other hard currencies to facilitate or allow for significant cash flows out of their jurisdictions. In such cases, even if funds are freely transferable, delays in securing foreign currency or the inability to obtain it could render cross-border payments impossible.

Overlaying the tax aspects gives rise to a further potential challenge stemming from the failure to obtain prior approval; or a currency shortage. This could mean that income that accrues to a recipient in law is subject to tax even though the cash may be restricted from flowing. In this case, it would have to be determined whether the recipient may be entitled to a tax deduction or other concession under the provisions of their local tax laws to defer taxation of the “blocked” foreign funds until the cash can flow.

There may be further consequential tax considerations relating to foreign currency gains and losses. Both exchange control rules and foreign exchange unavailability may pose significant stumbling blocks to trade and investment, and should be carefully considered before doing business in any jurisdiction, especially in Africa.

Cor Kraamwinkel is a Partner, Marissa Wessels a Senior Associate and Shirleen Ritchie a Partner | Webber Wentzel.

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

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

Ghost Bites (Ascendis | Finbond | FirstRand | Kibo Energy | Mondi | Murray & Roberts | Stefanutti Stocks)

The Finance Ghost
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Ghost Bites (Ascendis | Finbond | FirstRand | Kibo Energy | Mondi | Murray & Roberts | Stefanutti Stocks)

Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:

At Ascendis, Surgical Innovations is out of business rescue (JSE: ASC)

It’s good to see this process achieve the intended outcome

The concept of business rescue is becoming increasingly entrenched in South Africa. Sometimes it ends in a fire sale, like we are seeing at Rebosis. Other times it buys enough time to find a strategic shareholder, like we’ve seen at Tongaat Hulett.

At Ascendis, the process has worked well for the Surgical Innovations subsidiary. The announcement is light on financial details, but it notes that outstanding disputes have been resolved and that relationships with suppliers, customers and other stakeholders have been “strengthened” – although one wonders how happy the suppliers are after this process.

Most importantly, Surgical Innovations is a solvent and commercially viable operation. That’s what the process set out to achieve.

Finbond narrows its losses (JSE: FGL)

A smaller loss is still a loss

For the six months to August 2023, Finbond has flagged that the headline loss per share will significantly improve from -8.2 cents per share to between -1.4 and -3.1 cents per share.

Although this is obviously still a loss, it’s heading in the right direction. Detailed results are expected to be released on 27 October.

FirstRand announces major leadership changes (JSE: FSR)

Mary Vilakazi is taking the top job in the group

I’ll start with the chairman role at FirstRand, as Roger Jardine is stepping down to “explore options to best serve South Africa” – the gift of being able to spend your time doing what you are passionate about rather than what you need to get paid for. Johan Burger (ex-CEO of the group) will come in as chairman. He retired as CEO back in 2018, so he is now independent.

We now get to the really big news, which is that Alan Pullinger is stepping down as group CEO after a period of six years, which was the intended tenure when he joined the group. Mary Vilakazi moves from COO to CEO, having joined the group in 2018 from MMI Holdings. This is a great example of internal succession planning.

It’s also important to note that Jacques Celliers is moving from CEO of FNB (the bank) to take up a new role as executive head of group fintech. This tells you a lot about where the bank is focusing.

Finally, CFO and financial director of FirstRand, Harry Kellan, will become CEO of FNB. The CFO of FNB (Markos Davias) moves up to the group CFO role. Finally, Gideon Joubert (CFO of the African portfolio) comes in as CFO of FNB.

Long story short, the multi-year succession programme has worked out. And of course, there is great excitement around a black female CEO of a large South African financial banking institution!

Kibo Energy exits the Botswana coal-based business (JSE: KBO)

Before you get too excited, the price is payable in shares rather than cash

Kibo Energy is focused on renewable energy. The company wants to exit all its coal assets, which is why it has agreed to sell 35% in Kibo Energy Botswana (a coal-based power project) to Shumba Energy for a price of $375,000. The project was previously impaired to zero.

Unfortunately, the price isn’t settled in cash. Kibo will receive shares in Shumba, listed on the Botswana Stock Exchange.

All good and well, but there is no “exit from coal” unless the shares in Shumba are sold.

Mondi is out of Russia (JSE: MNP)

In happy news, the deal closure was faster than anticipated

A deal isn’t a deal until the money in the bank. When we are talking about something as sensitive as trying to sell a Russian business, the risk of something going wrong is even higher. I’m sure Mondi executives and investor are breathing a collective sigh of relief that the Syktyvkar deal has closed and more than 70% of the purchase price has been received.

Sezar Invest LLC bought the businesses from Mondi for RUB 80 billion, a perfect example of how sanctions effectively transfer wealth from international players to in-country players at bargain prices. Mondi has received RUB 57 billion and has a letter of credit to receive the remaining RUB 27 billion in two equal instalments in each of November and December 2023.

The group plans to distribute the proceeds to shareholders.

Murray & Roberts seems to be rebuilding Australia (JSE: MUR)

Multiple times bitten, still not shy?

If you’ve been following the Murray & Roberts story, you’ll know that the group has taken a great deal of pain and that much of that pain has been in Australia.

In the fallout, the company hoped to regain control of RUC Cementation Mining Contactors. This unfortunately was not possible in the legal wrangling.

The company clearly wants to be in the region despite all the anguish, announcing that Cementation APAC (a subsidiary in Australia) is being “capacitated” (i.e. resourced with people etc.) to provide engineering and contracting services to mining clients in the Asia-Pacific region.

Stefanutti Stocks gets a step closer to the arbitration award (JSE: SSK)

The fight relates to the border gate road in Zambia

Construction really is a tough game. Contractual disputes tend to be drawn out and expensive, like the one related to Stefanutti Stocks’ construction of the Kalabo-Sikongo-Angola border gate road in the Western Province of Zambia.

The client applied to have the Arbitral Tribunal award set aside. The judge ruled against the client (with cost), which paves the way for Stefanutti Stocks and its joint venture partner to apply to the Zambian courts to have the award made an order of court.

We can be certain that the lawyers will make money. Everything else is uncertain, like the timing and quantum of receipts under the award. For now, the award hasn’t been recognised in the financial statements.

Little Bites:

  • Director dealings:
    • A prescribed officer of ADvTECH (JSE: ADH) sold shares worth R3.2 million.
    • Every director dealings announcement deserves a read. A director of Growthpoint (JSE: GRT) is above the minimum shareholding requirement under company policy (100% of fixed remuneration) but still kept a portion of the latest shares that vested, selling only enough to cover the tax. He could’ve just as easily sold all the shares, hence why I’m mentioning the decision to keep a portion.
    • Des de Beer has bought shares in Lighthouse Properties (JSE: LTE) worth R185k.
    • A director of Libstar (JSE: LBR) has bought shares worth R48k.
  • Novus Holdings (JSE: NVS) still doesn’t have a CEO. Andre van der Veen was appointed as executive chairman on 1 April for six months and this has been extended for another six months while the company searches for a CEO.
  • Grindrod Shipping’s (JSE: GSH) acquisitions of the two ship management companies from Taylor Maritime have both become legally effective. They were first announced at the end of September, so this deal was pretty seamless.
  • Workforce Holdings (JSE: WKF) announced that Vunani Capital Partners sold a stake worth R42.9 million (at a price of R1.65 per share) to Force Holdings, an entity associated with the director who effectively controls the group. Force Holdings now owns 58.5% of Workforce. The current share price is R1.24, so this transaction was at a much higher price. Could more corporate activity be coming from the controlling shareholder?

Ghost Bites (Anglo American | Ellies | Newpark REIT | PSG Financial Services | Sirius | Tharisa | Transcend – Emira | Trustco)

The Finance Ghost
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Ghost Bites (Anglo American | Ellies | Newpark REIT | PSG Financial Services | Sirius | Tharisa | Transcend – Emira | Trustco)

Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:

Anglo American shines the spotlight on the crop nutrients business (JSE: AGL)

The company wants investors to pay attention to this opportunity

Anglo American is currently hosting analysts and investors on a visit to the crop nutrients business in the UK. This is a low-risk jurisdiction in which the business will produce natural mineral fertiliser. Anglo is excited about “major structural advantages” based on the size and quality of the orebody and the proximity to logistics infrastructure.

It’s notable that the CEO of this business is the same executive who led the delivery of the Quellaveco copper mine in Peru. I’ll bet that he misses the weather.

If you want to read a very detailed presentation on the project, you’ll find it at this link.

Where, oh where is the Ellies circular? (JSE: ELI)

Investors must be getting very nervous about the Bundu Power deal by now

In dealmaking, the passage of time is the enemy. The best time to close a deal was yesterday. The second best time is today. There’s nothing that makes everyone more nervous than ongoing delays.

The acquisition of Bundu Power by Ellies is likely key to the survival of this listed group. The transaction was announced back on 1 February 2023 and we still don’t even have a circular yet.

There’s another extension to the posting date, all the way out to 30 November.

Newpark REIT releases a very encouraging update (JSE: NRL)

The dividend has grown strongly and guidance has improved

It’s a real pity that there is basically zero liquidity in Newpark. At just R4.50 per share, an interim dividend of 35 cents per share is very juicy. That dividend is 40% higher than in the comparable period.

The other good news is that guidance for the year ending February 2024 in terms of funds from operations per share has been moved significantly higher, coming in at expected year-on-year growth of between 13.62% and 25.58%. This is thanks to improved operational metrics and lower than anticipated refurbishment costs. The dividend for FY24 is expected to be between 5% and 15% higher than the comparable period.

PSG Financial Services shows encouraging growth (JSE: KST)

Regardless of which earnings metric you use, growth looks strong

PSG Financial Services (previously PSG Konsult) released a trading statement for the six months to August. There are a variety of metrics.

Recurring HEPS is up between 20% and 23%. If you exclude amortisation, it’s up between 18% and 22%. HEPS is up by between 20% and 23%. Finally, in case none of these suit you, attributable earnings per share will be between 19% and 23% higher.

As you can see, these are strong numbers regardless of which earnings metric you elect to focus on.

Sirius recycles capital (JSE: SRE)

Capital has been shifted from Germany to the UK

Sirius Real Estate has sold a business park in Germany for €7.3 million, on a net initial yield of 6%. The disposal was at a 5% premium to book value. This is a mixed-use asset which is 92% let.

Separately, the company announced the completion of the acquisition of two mixed use industrial assets in the UK for €9.5 million, executed through the BizSpace subsidiary. That deal was announced in July 2023. The purchase price is a net initial yield of 9.6%.

Basically, what they’ve done here is sell a mature asset at a good price and acquire assets where they believe active asset management can improve the value. That’s a good strategy for recycling capital, though investors will need to think about whether they prefer Germany or the UK in terms of underlying exposure.

Tharisa gives an update on the Karo project (JSE: THA)

Thanks to Karo having raised debt publicly, these announcements will be coming regularly

I’ll forgive you for having never heard of the Victoria Falls Stock Exchange (VFEX). If you’ve been following Tharisa, you’ll know that Karo raised a debt instrument on that exchange. This means that Karo needs to release updates to the market. Remember, this is only one part of Tharisa’s group.

Karo poured first concrete in June 2023 and has 540 people on site, of which 99 are Karo employees. That’s obviously very helpful for the economy in the region.

The company also announced some important appointments to the board.

Transcend shareholders say yes to the Emira dress (JSE: TPF | JSE: EMI)

The scheme received a strong approval rate

Shareholders of Transcend Residential Property Fund have voted on the scheme of arrangement related to the offer by Emira to acquire all of the ordinary shares in the fund. The deal received approval from holders of 91.85% of shares that were voted.

The parties will now focus on the remaining conditions precedent and the clean-out distribution, all of which were previously dealt with in the circular.

Trustco continues to entertain us with daft commentary (JSE: TTO)

They just don’t know when to stop

The ink is barely dry on the JSE’s censure of Trustco, yet the company is out here with ill-considered SENS announcements yet again. They just have no idea when to give up.

Having lost out at the Financial Services Tribunal, the approach taken is now to try and discredit the JSE’s decision.

Firstly, if my share price looked like this, I would try to be less arrogant:

Secondly, I certainly wouldn’t boast about “exceptional performance this year, nearly doubling in value, representing an impressive gain of 95.1%.” You can barely even see that gain on the five-year chart.

Here’s an excerpt from the latest announcement. You decide for yourself whether this is the right way to respond to a highly contested censure:

Little Bites:

  • Director dealings:
  • NEPI Rockcastle (JSE: NRP) has enjoyed strong support from investors in the scrip issue alternative for the dividend. In simple terms, this means that 74.3% of shareholders elected to receive shares instead of a cash dividend, which helps the company retain capital.

Ghost Wrap #48 (Rex Trueform | Barloworld | Spar | Capitec | Vukile + Attacq)

The Finance Ghost
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Ghost Wrap #48 (Rex Trueform | Barloworld | Spar | Capitec | Vukile + Attacq)

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.

In this episode of Ghost Wrap, I looked at some of the more interesting stories in a busy few days of news.

  • Rex Trueform has been rather dreary, but the latest acquisition is objectively exciting.
  • Barloworld remains a great way to compare industrial business fundamentals to consumer-facing fundamentals, with a particularly shocking outcome when comparing profit trajectory in Russia vs. the local consumer business.
  • Spar’s latest results were boosted by the weak rand, with the group now deciding to exit Poland and focus on the core business.
  • Capitec is under pressure on the HEPS line, with the efficiency ratio needing to be interpreted very carefully.
  • After negative recent outlooks from major property companies, it’s encouraging to see expectations of growth from Vukile and Attacq.
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