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 recapped five important stories on the local market:
- Mr Price released results that I felt were rather poor, yet the market took the stock over 8% higher by the close on the day of release. Either I’m wrong, or the market is wrong. Listen to my reasoning and decide for yourself.
- Southern Sun and City Lodge are enjoying a resurgence in demand for hotel rooms, with the former doing as well as I expected and the latter surprising me to the upside.
- Sirius Real Estate executed a successful capital raise on the market, demonstrating that investors are highly supportive of the strategy.
- African Rainbow Capital has made sure once and for all that I’ll never touch the company with my money, as the latest capital raise is highly painful for minority shareholders.
- Sibanye-Stillwater incurred the wrath of investors with the news of a convertible bond capital raise, but did the market overreact to this news?
Hi GM
I bought the dip of Sibanye & still have 30 years ahead. But haven’t had time to explore the dilution, what does it mean exactly?
If I hold 200 shares before the rights offer, what does it mean after?
Thanks & great podcast
Rowan
Hi Rowan
I might be able to answer your question.
The Sibanye´s cap raise is not a rights offer, but a convertible bond cap raise. Which means the bond can be converted into equities in 5 years time. The conversion is set for 32% higher than what was the current share price. The amount raised is $500mil, which is approx. 15% of the current market cap, so would have a significant dilution effect, if the conversion is far below the 2028 share price.
The marker didn´t really like this, as this, as this can keep a damper in share price growth for the next 5 years. Furthermore the funding is raised in a high interest rate environment and locked in for 5 years, when interest rates are expected to start to decrease in Q2/Q3 of 2024.
However, the conversion would only realistically happen if the share price is above 32% higher than the current share price. On the flip side, as always, raising more capital can help Sibanye increase their earnings over the next few years.
Hope this helps.
Hi Reinardt
Thank your for your feedback on this topic.
A lot of information to grasp & understand. Always good to keep learning. I wander if Ssw will still be paying dividends during this time. Happy investing.
Hi Rowan and Reinardt – apologies for such a delayed response. Juggling many things. I think Reinardt gave a great answer there. And yes, not the simplest thing to understand. But to read about these types of capital raises and understand them is brilliant. Essentially, for Sibanye to raise debt at a decent rate, there needs to be a potential equity kicker. You can do some reading up on mezzanine finance, which is a mix of debt and equity. This convertible instrument falls firmly into mezzanine finance territory!