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*Rand Merchant Bank (RMB) is a leading African Corporate and Investment Bank and part of one of the largest financial services group (by market capitalisation) in Africa – FirstRand Bank Limited.
South African based shipping and freight logistics provider, Grindrod Limited, recently decided to spin-off and separately list its shipping business on the Nasdaq in New York, with a secondary inward listing on the JSE. The Corporate Finance team from Rand Merchant Bank (RMB), a division of FirstRand Bank Ltd, was called in as lead financial adviser to assist Grindrod with this complex restructure and set it up for future success.
A brief history
In 1910, Captain John Grindrod established Grindrod as a clearing and forwarding agency in South Africa, and made history by creating the first container depot and service in the country. Seventy-six years later, in 1986, the company listed its shares on the JSE through a newly established holding company, Grindrod Unicorn Group Limited (known as Grincor). In 2001, it changed its name to Grindrod Limited.
The company has historically focused its business along three distinct lines: Shipping, Freight Services, and Financial Services.
Grindrod Shipping is headquartered in Singapore and operates in both the dry bulk and liquid sectors of the market with a modern, low cost fleet of vessels which are owned, chartered and operated by IVS and Unicorn Shipping respectively. Since being formed, Grindrod has expanded and diversified its freight services business to provide integrated services across road, rail, ports and terminals in Africa. In 2005, Grindrod acquired Marriott Corporate Property Bank, which today trades as Grindrod Bank, an established financial services business.
The company is represented in 32 countries worldwide, employing more than 5 500 people with a current annual turnover of ZAR10.2-billion and total assets of ZAR36.5-billion.
After a review by the board, and in order to realise value for Grindrod shareholders, the company decided it was an appropriate time that the shipping division should be a stand-alone business, with a listing in a jurisdiction that would best suit the type of business. The business would have its own dedicated management team, board of directors and investor base which would support the shipping business’s strategy.
Late in 2017, against the backdrop of recovering charter rates and higher asset prices in anticipation of improving market conditions, Grindrod announced the decision to separately list its shipping business on a suitable international stock exchange. The decision fell on the Nasdaq in New York, where there is an actively traded market in shipping company stocks.
There are currently 15 shipping companies listed on the Nasdaq with a market capitalisation of approximately US$2.7-billion. This is in stark contrast to the fact that there are currently no pure play shipping companies listed on the JSE. The decision was therefore made to have Grindrod’s Shipping business listed on the Nasdaq with a secondary listing on the JSE. Grindrod Shipping will be the first Singapore based company to be listed on the JSE and the first company to simultaneously list on Nasdaq and JSE.
RMB was mandated as lead financial adviser to assist Grindrod to advise, plan and execute this complex restructure.
“The separation of the shipping business from the Grindrod Group and separate listing was pursued mainly to enable Grindrod’s shareholders to more clearly identify the different characteristics of the Freight Services and Financial Services businesses from the Shipping business, and to value them separately. It will enable the management teams of each business to focus solely on their businesses and pursue their respective strategies. Ultimately it will allow Grindrod Shipping to list and raise capital in a jurisdiction where shipping is understood,” says Ferdi Vorster, Investment Banking Director at RMB, who worked extensively on this restructuring solution.
“Each company will be in a position to appropriately incentivise its employees and to elect a board of directors with the appropriate experience, skills and sector knowledge,” adds Ferdi.
To implement the restructure, Grindrod has sold its interest in Grindrod Shipping South Africa and Grindrod Shipping Pty Ltd to Grindrod Shipping Holdings Ltd, an independent, newly incorporated Singapore-registered company.
As consideration, Grindrod Shipping issued compulsorily convertible notes valued at about US$320.68-million. The compulsorily convertible notes were distributed to Grindrod shareholders and then automatically converted into ordinary shares in the new Grindrod Shipping, which is primary listed on Nasdaq and secondary inward listed on JSE.
With no established precedent to provide a blue-print, a number of unique and innovative solutions were required to satisfy all of the (sometimes contradictory) requirements of Singapore law, the SEC and Nasdaq regulatory requirements in the United States, and the JSE Listings Requirements and Exchange Control regulations in South Africa.
“The deal team was required to navigate significant legal, regulatory and operational issues across multiple jurisdictions in order to successfully deliver this first-of-its-kind transaction,” says Stephen Friesenecker, Co-Head of Equity Capital Markets at RMB.
“It was a unique challenge to co-ordinate so many different stakeholders, advisers and regulators from New York to Durban to Singapore. There was also significant complexity in ensuring that the listing, issuance, trading and settlement of Grindrod Shipping shares could operate seamlessly across both stock exchanges,” adds Stephen.
“Corporate restructurings and listings are usually complex and involve many parties, stakeholders and legal implications. This complexity is substantially increased when it is done over more than one jurisdiction. That’s why we typically offer our clients a fully integrated solution. Grindrod has been one of our most valued clients over the past ten years. For this transaction, we called in the expertise of our Corporate Finance, Structuring, Exchange Control and Equity Capital Markets teams to structure and implement a composite solution,” says Jessica Spira, Business Development Director at RMB.
We believe that RMB, through our Solutionist Thinking and proven execution capabilities, set Grindrod Shipping up for success to charter its own course through international waters.