Corporate finance corner (M&A / capital raises)

• Nampak has lost 40% over the past 6 months as the market got jittery about the turnaround story and the exposure to African economies in a risk-off environment. There’s some relief for investors, with the company announcing that funders have agreed to extend the deadline for a R1 billion net interest-bearing debt reduction to 1 April 2023. In simple terms, this gives the company more time to solve its balance sheet problems. The share price only closed 2.5% higher on this news, admittedly on a bright red day for the JSE.

• Blue Label Telecoms is in the process of recapitalising Cell C, a company that has never managed to sustainably compete against the leading mobile giants in this country. One of the steps is a compromise offer being made to holders of Cell C’s first priority senior secured notes. The notes have a face value of $184 million and carry a rate of 8.625%. After a quorum wasn’t achieved for the first meeting, an adjourned meeting was held on Tuesday and the resolutions were passed in favour of the offer. Blue Label hopes to close the recapitalisation transaction in late July. Please take note of the director dealings below as well.

• Irongate has managed to leap over another hurdle in the process of Charter Hall acquiring and delisting the fund. The Supreme Court of New South Wales has given the nod of approval to the scheme. All conditions have now been satisfied and the implementation date is 15th July. We will shortly bid farewell to this listed property business.

Earnings updates

• Tin miner Alphamin has announced record quarterly tin production and has given Q2’2022 EBITDA guidance of $66.5 million. This is the company that reminds us in every single announcement that it produces 4% of the world’s mined tin from its operations in the Democratic Republic of Congo. In the quarter ended June 2022, production volume was 4% higher than in the three months ended March 2022 and sales volume was down 3%. EBITDA was down by a whopping 32% quarter-on-quarter though, as the tin price achieved dropped by 19%. Net cash increased by 6% to $138 million. An interim dividend of 38.13 cents per share has been declared. The company is exploring the Mpama South project, which would take Alphamin’s production to around 6.6% of the world’s mined tin.

Share buybacks and dividends

• There’s an interesting scenario playing out at Datatec. The cash dividend is 111 cents per share and the current share price is R43.01, so that’s a 2.6% dividend. There’s a scrip dividend alternative though, which means investors can elect to receive shares instead of cash. Here’s the fun thing: the scrip alternative is based on the ratio that 111 cents bears to the 30-day volume weighted average price up to 4th July, which is only R36.77 per share because it shot up recently based on the announcement to sell Analysis Mason. This has made the scrip dividend far more attractive than it would usually be, effectively being issued at a 14.5% discount to the current market price.

• Another scrip dividend decision is facing shareholders of Accelerate Property Fund. If I understand the announcement correctly, the difference between the cash dividend and the scrip dividend is substantial. The final price for the scrip dividend will be announced on 12th July.

• Not all buybacks relate to ordinary shares. We’ve seen banks mopping up preference shares on the market, as this has become a less desirable source of capital for financial institutions. Investec has gone the route of a general buyback, repurchasing just over 3% of the issued preference share capital. The aggregate value of repurchases was R90.5 million.

Notable shuffling of (expensive) chairs

• After the tragic passing of founder David Kan, Mustek has needed to make big decisions about who will take the company forward. With Hein Engelbrecht now appointed as group CEO, additional appointments include Neels Coetzee as the head of the largest operating company in the group and Shabana Ebrahim as Group Financial Director. It’s really not an easy situation for the team at Mustek and I wish them well.

Director dealings

• With Blue Label Telecoms busy trying to rescue Cell C, certain directors seem to be voting with their money and in a way that shareholders won’t like seeing. The spouse of an independent director sold shares worth over R40k and an entity related to a different director sold shares worth over R292k.

• Value Capital Partners is an investor in PPC and the investment principals sit on the board as non-executive directors. This means that whenever the investment fund increases its stake, it shows as a dealing by an associate of directors. The fund has bought shares in PPC worth nearly R9 million.

• A director of Trematon is buying shares in the company, admittedly in relatively small transactions. The latest purchase is only worth R28k. It’s an illiquid share with a wide bid-offer spread though, so the director seems to have standing bids in the market that are being hit from time to time.

Unusual things

• Aveng’s McConnell Dowell business has been in dispute with a customer since March 2016. This is a great reminder of how slow a legal process is. In great news for Aveng, the claim has been settled and payment of R282 million has been received. This cash has been retained by McConnell Dowell. Separately, the company repaid R275 million in debt in June, taking the total debt reduction over the past financial year to R350 million. If the Trident Steel deal goes ahead, Aveng would settle remaining debt in South Africa and would have a stronger financial position. Aveng dropped 5% on the day and has lost 44% of its value this year, as the market has lost all interest in marginal plays.