MORE QUESTIONS ON THE PIC
The Public Investment Corp’s (PIC) commitment to following its rights in Efora Energy’s capital raise will add to the many questions about governance at the asset manager. Efora is raising R600m by issuing 1.2 billion new shares. The firm’s market cap stands at R170m.
While recent corporate activity on the part of Efora has transformed it into a company with worthy assets in the fuel industry, the PIC’S 60.72% stake in the oil producer and retailer is one of those controversial investments for which the PIC is currently attracting unflattering headlines.
At that level, the PIC’S stake makes it an operator of the asset, just as it is with others, such as cement producer Afrisam. The PIC has been struggling to put Afrisam on a firm, independent footing since acquiring it in a controversial 2006 deal. The situation is no different at Efora. It does not help that the PIC’S equity partner at Afrisam is the same Phembani that is the second-largest investor in Efora.
The PIC invested in what was then a venture capital play, Sacoil Holdings, back in February 2011, with an initial investment of R70m for a 7.4% stake in what was only an oil exploration company. Its assets were shares in two oil exploration blocks in Nigeria, and some in the Democratic Republic of Congo.
It was only in 2014, when Efora acquired the Lagia Oil Field in Egypt, that it generated revenue. By this time the PIC had controversially,and inexplicably, raised its stake to more than 40%. This was followed by a crude trading allocation in Nigeria in 2016.
In May last year Efora acquired a controlling interest in fuel retailer Afric Oil, a fuel-product distribution business in Southern Africa that was majority owned by Phuthuma Nhleko’s Phembani Group.
Afric Oil operates fuel distribution and retail dealerships in SA and some neighbouring countries. In the Afric Oil acquisition, Efora raised to 71% its indirect interest in Afric Oil, while the PIC held the remaining 29% stake on behalf of the Compensation Fund.
Afric Oil is the other leg of Efora that came with any revenue, in the form of the 30Ml of distributed fuel. This revenue stream helped bump Efora’s group revenue by 125% to R2.6bn in the nine months to February. The loss per share narrowed 33% to 42.34c a share in that period.
Granted, most of that reporting period was through a depressed oil market, which has since swung from $40 a barrel to more than $73/bbl. But it’s still a long way from bringing cheer to Efora’s shareholders.
Dominant stake
Even though the PIC has not explicitly committed to underwriting the Efora capital raise, its dominant stake serves exactly this purpose. With CEO Thabo Kgogo and strategy executive Willem de Meyer, Efora is in capable operational hands. The leadership provided by strategic equity partner Phembani should also put many misgivings to rest.
But none of this explains the PIC’S keen desire to maintain such a dominant stake, by committing more funds into a company that clearly has never met its strict investment criteria. Efora has not paid a dividend to investors for a very long time. It is not about to do so. Profits have been few and far between.
Of course the R364m that is required to follow the PIC’S rights in Efora is no big deal to the R2 trillion manager of state employees’ pension funds. But it is exactly these kinds of poor investments that have landed its leadership in hot water.
Skipping the rights issue would be a strategic way for the PIC to reduce its Efora stake to levels that put it in line with its strategy of investing in blue-chip companies that attract high credit ratings and returns at least 200 basis points above the inflation rate.
None of this explains the PIC’S keen desire to maintain such a dominant stake, by committing more funds