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Corporate finance corner (M&A / capital raises)

• Cognition Holdings wants to dispose of its majority stake (50.01%) in Private Property (Pty) Ltd. The buyers are BetterHome Group, ooba (the home loan company, not the similar-sounding way to get home after you’ve been drinking) and Fledge Capital. The Private Property business is planning to invest in its growth in both upstream and downstream markets and needs capital to do so, which Cognition doesn’t want to be responsible for providing. Cognition will sell the stake for a whopping R150 million in a Category 1 transaction under JSE listings requirements. The shareholder approval requirement is actually 75%, as this deal represents the “greater part of the assets and undertaking of the company” (i.e. the majority of Cognition’s assets) and thus falls within s112 of the Companies Act which requires a special resolution. In the last financial year, Private Property generated profit after tax of R10.2 million. With an implied valuation for the full business of R300 million, the buyers are really opening their wallets for this thing and must see significant potential. To put this into perspective, Cognition’s market cap is only R172 million and they are getting R150 million under this deal! Caxton looks set to receive a very juicy dividend from this (along with the other shareholders in Cognition).

• Although African Bank’s equity isn’t listed on the JSE, it can’t be long until we see that name on the JSE once more. In addition to the deal to acquire Grindrod Bank, African Bank has also announced that it is the successful bidder for the majority of Ubank’s assets and liabilities. It will also take on Ubank’s employees on a going concern basis. The cash price for the deal is R80 million. Ubank has a strong presence across mining and rural communities and has been under curatorship since May 2022 (although it has continued operating). African Bank talks about building a “compelling listable proposition” – a clear nod to a future return to the JSE. The sooner the better!

• Tongaat Hulett is still trying to figure out the next steps to sort out its balance sheet and recapitalise the company. The company has renewed its cautionary announcement accordingly. Shareholders can’t do anything anyway, as the company is suspended from trading on the JSE.

• Impala Platinum has acknowledged that the decision by the Competition Tribunal regarding the offer to Royal Bafokeng Platinum shareholders will not be finalised by 29th August as was previously hoped. The current long stop date for the deal is 26th September and Implats believes that it can still be wrapped up before then, although there are no guarantees. Implats has the right to extend this date and I can’t see why they wouldn’t do so. In the meantime, the stake in Royal Bafokeng has reached 38.39%, as Implats has been acquiring shares from significant holders. It can do this because it hasn’t reached a controlling stake yet, so it doesn’t need the Competition Tribunal’s go-ahead for these smaller acquisitions.

• Now that the dust has settled on Ascendis Health’s capital raise, the company has announced that Carl Neethling has an 11.7% stake in the group. Although he is also a director, I included it here as he is first and foremost a strategic investor.

Financial updates

• Grindrod has announced its interim results for the six months ended June 2022. This has been an incredible period for the group, with the share price up more than 134% in 2022. In the core businesses, revenue increased by 31% and EBITDA was 37% higher, driving headline earnings growth of 53%. The Port and Terminals side of the business was the runaway success, growing earnings by 164% as volumes at the ports in Mozambique and South Africa increased sharply. Grindrod Bank grew earnings by 63% and the credit loss ratio is running below 2021, with a deal currently underway to sell the banking business to African Bank for R1.5 billion. In the non-core businesses, the strong oil market has improved the situation at Marine Fuels, with Grindrod working with management and its co-shareholder to exit that business. There is only one remaining asset in the private equity portfolio, so that part of the value unlock is nearly complete. The KZN north coast property remains a headache that Grindrod needs to solve. At group level, headline earnings increased by – wait for it – 10,000%! Headline earnings per share was almost as dramatic, with growth of 8,557%. These are obviously nonsensical numbers, reflecting a base period that was highly impacted by operating conditions. HEPS is now 60.6 cents vs. 0.7 cents in the comparable period. An interim dividend of 17.20 cents has been declared.

• After a rollercoaster ride of note, including a failed attempt to offload a huge portfolio of commercial property, Rebosis Property Fund is entering business rescue. The group’s financial situation is precarious, with exposure to a rising interest rate cycle and high operating costs for the properties. Over 50% of Rebosis’ revenue is sourced from national and provincial government tenants as well as municipalities, who are notorious late-payers. The company highlights this issue in the announcement, though some in the market believe that this is a distraction from the other strategic missteps that brought the company to this point. As a result of commencing voluntary business rescue proceedings, the board applied to the JSE for a suspension of trading in the company’s two classes of shares on the JSE. This is because the board effectively loses control of the company and cannot take responsibility for compliance with listings requirements, as the business rescue practitioner takes over from here. Unless that practitioner can magically find a buyer with billions available for commercial property, or knows how to collect debts from the government, I’m not sure what they can really do here. Part of management’s turnaround strategy was a “Going Green” strategy. It’s a pity they ended up almost going bankrupt instead.

• Northam Platinum has released results for the year ended June 2022. Times have been good overall in mining, evidenced by a 48.3% EBITDA margin. The year wasn’t without its challenges though, with lost production shifts due to operational issues like Covid, regional community unrest and the tragic loss of two lives at Zondereinde. Unit cash costs per equivalent refined platinum ounce increased by 18.9%, with above-inflationary increases in input costs and more employees in service in preparation for an expanded production profile. Expansionary capex jumped from R1.8 billion to R3.1 billion and maintenance capex decreased slightly from R1.5 billion to R1.4 billion. Due to the cost pressures, a 4.4% increase in revenue wasn’t enough to drive growth in profits, with HEPS down by 2.9%. The group remains highly profitable and has been executing extensive share buybacks over the past couple of years, resulting in a 28.9% reduction in issued share capital. Northam describes itself as being at a “critical juncture” in its growth trajectory and has elected not to declare a final dividend despite such a profitable year. The share price is down more than 16% this year.

Operational updates

• Things really aren’t looking good at Conduit Capital. Although the insurance subsidiaries had put in a good performance in the 12 months to June 2022 and in July as well, the regulatory decision to put one of the subsidiaries under provisional curatorship with a restriction on new business at the end of July threw a huge spanner in the works. Although the company has appealed this situation, the regulators (the Prudential Authority and the Financial Services Conduct Authority) are having none of it. The curator has been unsuccessful in lifting the restriction on new business. The company notes that “much uncertainty exists” and shareholders are advised to exercise caution. Conduit needs to find a new investor to recapitalise the business but had been looking for one for a long time with no success, so it’s not obvious that an investor will now be found.

• Afristrat Investment Holdings has released an update on the situation at FirstCred Limited Botswana. An investigation commissioned by FirstCred and finalised in August 2022 has revealed “gross misuse” of the BWP120 million raised from investors by the former management of Getbucks Limited Botswana between 2017 and 2019. They may have gotten the bucks, but nobody else did. Afristrat lost BWP50 million through this process, so you can now see why the company has been interested in this investigation. Two other investors tried to liquidate FirstCred and the Botswana High Court denied the application, granting an order of Judicial Management instead to give the company an opportunity to resolve its debt position under current management. Afristrat notes that this at least provides a chance to recover some of the investment value, though it is rare for anything material to be recovered in these circumstances.

Share buybacks and dividends

• British American Tobacco is keeping the SENS wheels turning by continuing to repurchase shares on a daily basis.

Notable shuffling of (expensive) chairs

• In more Rebosis news, non-executive director Monica Khumalo has resigned due to “conflicting business opportunities and time constraints” – I can’t blame her, really. I would rather weed my garden than be involved in a business rescue, nevermind give up time with businesses that are potentially growing.

• Alexforbes has announced three new director appointments. Marinda Dippenaar will join the board as a representative of African Rainbow Capital (and with many years of prior experience at Alexforbes), Pavin Dhamija joins the board from Prudential Financial and finally Gary Herbert also gets a board seat as a partner and co-founder of LeapFrog Investments.

• Mike Aitken, chairman of the investment committee of Emira Property Fund and having served on the board since 2007, has given notice of his retirement. James Templeton has been appointed as the new chairman of that very important committee.

• Clicks has announced the appointment of Nomgando Matyumza to the board, with extensive experience across many sectors. Her other existing directorships are Standard Bank, Sasol and Volkswagen SA.

Director dealings

• A director of Omnia Holdings has sold shares in the company worth over R122k.

Unusual things

• A long and arduous announcement came out on Friday morning about a censure imposed by the JSE on Ben La Grange, a member (CFO, no less) of the disgraced management team of Steinhoff that presided over the destruction of value for investors. The JSE’s announcement goes into great detail about La Grange generating an invoice at Markus Jooste’s instruction that did not have “any legitimate commercial reason” – and we aren’t talking small numbers here. That invoice helped a Steinhoff subsidiary show a profit of R376 million instead of a loss of R329 million. On this basis, La Grange is disqualified from being a director of a listed company for ten years and has been fined R2 million. In arriving at this decision, the JSE highlighted his “constructive and unwavering co-operation” and his “full and frank engagement” with the JSE. Investigations into other individuals who were at Steinhoff during that time are ongoing.

• The business rescue practitioners of PSV Holdings are fighting with DNG Energy Limited, a material shareholder in the company. After a lot of expensive letters were exchanged during 2022, the practitioners eventually ran out of patience and took steps to liquidate the company. DNG needed to prove that it had funds available to save the company and had requested enough time to finalise the agreements with bankers. The situation is now rather awkward, as DNG has signed facility agreements with its funders but the motion to apply to court for a liquidation has been filed. DNG now has to fight legally for the right to keep the company alive. It all sounds like a mess. I’m no expert on these matters, but I’m not sure what purpose “business rescue” serves if not to rescue a company from liquidation. If DNG has the money, that should be all that matters.