It was a big day on the Stock Exchange News Service with some key announcements coming from companies. One wire that had business news buzzing was Steinhoff – it raised an unprecedented R18.2bn in a rights offer. Sasha Naryshkine joined Alec Hogg in CNBC Africa’s studio to analyse the news and the movements in the markets, he lends his experts insights to the deals as well as America’s keen new interest in Africa as an investment destination. – LF
GUGULETHU MFUPHI: As we throw forward now to our market commentator Sasha Naryskine, who is with Alec at the JSE studios, one thing that has intrigued me Alec, over the last couple of weeks, is the number of rights issues and book builds that we’ve been having from several companies. For example, PSG. Today, we have Huge Group making an announcement, together with several others, like Alexander Forbes returning to the local exchange. For Sasha, does this tickle his interest or make him slightly more curious as to what corporates are thinking
ALEC HOGG: You missed the big one. I think you’re thinking too much about your SAA outfit there, Gugu, which of course we know that Sasha got the memo as well, so thanks, Sasha. It makes her feel a little bit better.
SASHA NARYSHKINE: All in blue.
ALEC HOGG: The big one is Steinhoff – R18.2bn. I don’t know if I’ve ever seen…
SASHA NARYSHKINE: To put that in perspective, that’s greater than the market capitalisation of Grindrod – that’s how big it is.
ALEC HOGG: So you created a new Grindrod by raising money from your shareholders. It’s extraordinary.
SASHA NARYSHKINE: It’s a pretty extraordinary story in itself, remember that in June of 2009, they had 1.28-billion shares and now they’re closer to two-and-a-half. The share capital’s doubled in five years, obviously to do some pretty interesting deals. The company itself has transformed from being a South African business to now being a European/United Kingdom business. It’s interesting, what Marcus Jooste and his troops have done. They’re obviously externalising earnings for local shareholders, so in a way, it’s turned into a Rand hedge. If you want to look at what’s comparable in Frankfurt (because that’s the ultimate prize – a Frankfurt listing), there’s very little in terms of a company of their nature – Conforama – in Europe. For example, you only have Henkel and Beiersdorf – those kinds of business.
ALEC HOGG: The Conforama cost, if I remember correctly – about ten billion.
SASHA NARYSHKINE: Next to nothing…
ALEC HOGG: And now they’ve gone and raised R18bn. Of course, they raised the money and paid for Conforama. The Rand has weakened against the Euro, since then. Marcus is some kind of a manager.
SASHA NARYSHKINE: He’s a financial engineer extraordinaire. They’ve done some pretty audacious deals. Interestingly, Steinhoff always trades at a slight discount to the market because maybe, on balance, people are worried that there’ll be a deal too far at some stage. I think credit must be given where it’s due. It now has R130bn market cap – bigger than Sanlam and about the same size as Aspen, so it’s been an extraordinary story and we must celebrate people like Marcus.
ALEC HOGG: I don’t recall an R18bn rights issue by an industrial company.
SASHA NARYSHKINE: No, me neither – not in the local context.
ALEC HOGG: The problem is I think Mr Jooste is probably going to relocate.
SASHA NARYSHKINE: I suppose it makes sense.
ALEC HOGG: To lose another big business executive from the country…
SASHA NARYSHKINE: That should be celebrated. People should aspire to being global. We can’t think of SABMiller as a South African business anymore. Their biggest shareholder is Altria. It’s not even South African anymore. I think ten or eleven percent of their profits come from South Africa. These are South African businesses that are making it on a global scale. As I said, we should celebrate these successes.
ALEC HOGG: And try to make it easier for them to develop in this country. As David Shapiro always says, we have great business executives. They’re proving it on the global stage, so why not give them a chance to create jobs here. Anyway, that’s another issue. Sasha, let’s just get back to the other news of the day. There was some information coming out about CAMAC. That is a company that the Public Investment Commission has put a lot of money into. There are questions as to whether everything was above board, but they do seem to be moving in the right direction.
SASHA NARYSHKINE: If you’re drawing more of a Nigerian context, you’re going to have big multinationals on a global scale going back to say, a North American or a European context, looking for assets in the developed world. Suddenly, we’ve gone from a point where everyone was growing outside in developing markets, and that’s an opportunity I think, for many small Nigerian businesses that are perhaps looking to get assets ‘on the cheap’. I think those are opportunities for local African businesses to be able acquire these assets, so that’s a positive. That’s moving in the other direction.
ALEC HOGG: The big news of the moment is the Americans wanting to get involved with Africa – courting the African Belle, who has been swept off her feet by China up to this point in time. Obama’s late to the party…
SASHA NARYSHKINE: It’s his birthday today.
ALEC HOGG: Obama’s birthday?
SASHA NARYSHKINE: Yes, he shares it with my dad, so that’s the only reason I remember. Happy birthday to everybody.
ALEC HOGG: I didn’t know it was Barack’s birthday. Barack, Mr Naryshkine and Biznews.
SASHA NARYSHKINE: Biznews?
ALEC HOGG: Well, Biznews is only one year old, so I suppose we have a long way to go to catch your dad.
SASHA NARYSHKINE: Yes.
ALEC HOGG: How old is your dad now?
SASHA NARYSHKINE: Sixty-eight.
ALEC HOGG: Happy birthday, Mr Naryskine.
SASHA NARYSHKINE: Thank you.
ALEC HOGG: Just getting back to Barack Obama, his birthday, and his courting of the African Belle…
SASHA NARYSHKINE: In the context of frontier markets, you don’t get more frontier than some of the African markets are, so there’s a lot of work to do at an infrastructure level. It’s a bit like India – same sort of story. Here, you have many people who live in rural locations. However, remember that in India, 47 percent of the population is poorer than even in Africa, so there are two places where capital markets aren’t as developed as everyone would like. The infrastructure is poor, but it could potentially unlock or unleash a completely new consumer on a global scale. If you think about how South African businesses can benefit from this, you’ve seen many consumer/goods related business such as Tiger, placing big stakes on what’s going to happen next on this continent (not with the greatest of successes), with all due respect.
I think that in the fullness of time, they will operate properly in those markets, as they operate here in South Africa. There are opportunities to be had in that regard in this market. That’s why I think you’ll continue to see the inflows here, just because of the size and the scale of our capital market.
ALEC HOGG: A bit like Vodacom are doing with Mpesa – now having a second whack at it – and maybe getting ten million customers that they’re targeting. Just to close off with, a small company – Gugu did mention the rights issue – Huge Group raising R20m so that it can settle the dispute that it has with MTN. That’s not very nice if you invest in a company and you have to go back to your shareholders because you’ve actually blown a relationship.
SASHA NARYSHKINE: As we were discussing off-air, there are actually quite a lot of Treasury shares that are held by the company, too.
ALEC HOGG: How does that happen?
SASHA NARYSHKINE: The company buys them back and they can either use them for a deal or for executive remuneration. Obviously, as a minority you would want them to be able to use the shares at an elevated price for a deal. This is for the purposes – as you mentioned. The fine could have been much bigger, so I guess settling at a lower level is partly positive. The margins are pretty low though, in these types of businesses. What you’re doing is you’re managing people’s calling costs and the margins aren’t that great. I would say that in a world of choices, rather be invested in MTN first, and then Vodacom second.
ALEC HOGG: And Huge perhaps, after you’ve gone through many other listings in the stock market. Have you ever bought shares or been enticed to do so, in this company?
SASHA NARYSHKINE: We do have a few clients that own them, but those are mostly for legacy issues – either associated with the business, or they know an insider etcetera. I have watched it over time and it has bounced hard off the bottom, probably because of the reduction of the fine. It’s relatively big, relative to their market cap.
ALEC HOGG: It could also be that the company itself is buying back its own shares.
SASHA NARYSHKINE: It does help, although as a minority, would one say that’s the best usage of resources? I think in a South African context, probably no.
ALEC HOGG: I love Warren Buffett’s views on share buy-backs. He says that you buy them at ten percent (maybe 20 percent) above book value, not above the inflated market value. Book value is the price that you pay for something at the time it goes into your books at that level, even though it might escalate because of inflation thereafter, book value is a lot lower than what some people…even net asset value can be much lower than that. Anyway, share buy-backs is a very contentious subject. Sasha Naryshkine is a Director at Vestact.
