Grindrod prepares to join the big boys with R4bn capital raising

Big things are happening at Grindrod, things that seem likely to transform the company from a good bet to a major player, and to reward the good people at Remgro who took up a big stake not too long ago to boot. Grindrod is gearing up for some major projects in Mozambique, where a nascent gas industry offers some great opportunities. The company is also planning a major capital raising exercise that will raise around R4bn, boosting its market cap to close to R20bn. At this size, Grindrod will be a real contender in its industry (industrial transportation), able to challenge OneLogix and Imperial. The company has amply repaid the confidence Remgro showed in it during its last capital raising. – FD

ALEC HOGG:  Shipping and logistics company Grindrod is optimistic about raising more capital than first thought in an upcoming rights issue.  It was talking about R3bn.  Now, it’s looking at R4bn worth of new shares.  Andrew Waller, Group Financial Director of Grindrod, joins us.  Clearly, your potential investors or your supporters are quite excited about getting a bigger stake, Andrew.

ANDREW WALLER:  Yes indeed, Alec, thank you.  It’s a very exciting time for Grindrod.

ALEC HOGG:  Rembrandt, the last big rights issue you had – the Remgro/Rembrandt Group, or Remgro as it’s now known – did use the opportunity to take a big slice of Grindrod.  Are they wanting a little additional equity from their normal allocation?

ANDREW WALLER:  Alec, yes certainly, they are being very supportive of us.  As you said, we raised two billion in 2011, solely for the purposes of equity in investment.  We’ve done all of that investing so far.  They’re very supportive of what we’re doing now.  In addition, the Grindrod family are in fact, putting up just over R1bn towards this towards this equity raise.

ALEC HOGG:  The Grindrod family are putting in R1bn.  That’s a huge vote of confidence.  I didn’t know they had that much money left after all these years, Andrew.

ANDREW WALLER:  It’s the two of them together, Alec, Remgro and the family.  They have just over R1bn, which they’re willing to put into the raise.

ALEC HOGG:  Together…okay, and where is the money going?

ANDREW WALLER:  Alec, we have a number of projects in the pipeline, which the board has been looking at for many quarters as we progress them.  Largely, the money is going into Maputo port and largely, the coal and bulk terminal.  Richard’s Bay again…coal and related terminals and then of course, Coega– we have an exciting project on the liquid bulk terminal.

GUGULETHU MFUPHI:  Andrew, it does seem as though energy is a key focus for you, there.

ANDREW WALLER:  Indeed, we have, for quite a long time now, focused on the bulk liquids and the bulk minerals – coal and magnetite – and then oil.  You’ve obviously also seen that we’ve done quite a lot of work on rail.  We’re obviously expecting some more investment in rail, and then you also noticed that we did some investment in agri products.  Whether it’s agri, bulk mineral, or liquid; that’s kind of where we’re focused.

GUGULETHU MFUPHI:  And the attractiveness of the African market…

ANDREW WALLER:  Yes, there’s obviously a lot of work we’re doing in Africa.  To bring those to a bankable feasibility stage is long and hard, but we now have teams, which have been working in Africa for some time and are starting to get a track record together, which is good.

ALEC HOGG:  Andrew, when we see companies raising money through rights issues, the immediate reaction is ‘hang on.  This share price is not overvalued, because no smart business sells off its shares unless they’re getting really good prices for them’.  Your share price has done unbelievably well in the last 18 months, from around R13.00 to its current price of R26.00 so you’ve doubled.  May I ask you, has this played much part in your decision?

ANDREW WALLER:  Thank you for that, Alec.  Yes, we’ve been quite successful in the last year, which has been great.  It obviously puts a whole lot more pressure on us.  In fact, the debate between rights issues and a book build…our advisors did advise to go the book build route because they believe the price will get away at a much tighter price to the trading price prevailing on the day.  We’re therefore going the book build approach and really, we need that capital because we have the opportunities now to invest in these projects, and it’s purely a decision on whether the shareholders believe we should go ahead and invest on the projects or not.  Clearly, we would like a ‘yes’ vote from our shareholders at the general meeting.

ALEC HOGG:  So this is going to take you into a R20bn market cap after you’ve raised this money, which I guess also brings you onto the radar of other investors, companies, or asset managers that might want to put a little bit more cash behind you.

ANDREW WALLER:  Alec, that would be exciting.  We’ve obviously spent a lot of time over the last couple of years, talking to a number of the asset managers in the market.  There have been some discussions around the shares not being liquid enough.  Having said that, you’ll remember that when Remgro came on board, they got 20 percent and they managed to buy up to 25 in the market, so I’m not sure if it’s completely true but there are quite significant people wanting to take quite stakes in the company, which is always pleasing.

GUGULETHU MFUPHI:  Andrew, you’re also looking at reworking your BEE partners.

ANDREW WALLER:  Yes, what has essentially happened is that we’re obviously well compliant in the ownership aspect of all our businesses, but now we have 14 businesses with almost the same BEE party, but with different shareholdings.  What we’ve done is we’ve gone ahead and used advisors to value all those businesses, and we’re looking to essentially, move their shareholding up to the top.

ALEC HOGG:  What about the financial services arm, which does seem to be doing quite well, judging by the new head office?  Are you going to be putting much of this R4bn into there?

ANDREW WALLER:  Alec, none of it is earmarked for the bank.  They are well capitalised at the moment and as you say, are doing very well in what they’re doing.

ALEC HOGG:  So the story here is you went into Mozambique, you found an opportunity there, you’re now getting the support of Remgro as your big shareholder, and other institutions are saying ‘hey, we want some of that, too’.

ANDREW WALLER:  That’s about the answer Alec, yes.

ALEC HOGG:  And the shipping sector, which was always your old stalwart: is that turning up yet?

ANDREW WALLER:  Shipping: two years ago, we bought a number of tankers in joint venture with Vitol, who is the biggest global operator of products tankers.  Last year, we bought a number of Handysize driver-op ships, we’ve seen that the market for new buildings has turned, and the prices are starting to lift.  The rates are not lifting enough yet.  We’ve had a number of little bleeps, which the market got excited about, but we’d like to see that rate starting to lift a little bit more and we expect it still to take another 12 months before that starts happening, of any significant consequence, anyway.

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