Possible voyage to foreign shores
Will years of talk be translated into action?
FOR A NUMBER OF YEARS Grindrod has been toying with the idea of an offshore listing. As the shipping and freight group has grown and posted solid earnings figures, the case for going offshore has been stronger. Grindrod, the only shipping group listed on the JSE, feels its operations are not fully understood locally.
That may be why potential has never really been reflected in the share’s rating, currently on a price-to-earnings (p:e) ratio of 7,9 times. There’s no exact comparison on the JSE, but Imperial Holdings is often accepted as the closest, and it trades on a p:e of 13,7.
However, under new CEO Alan Olivier the latest proposal in the offshore listing saga is the most dramatic – unbundling Grindrod, effectively splitting the group into two separate entities, one international shipping and the other the SA-based operation, which would include the land-based freight and related operations.
Ironically, such a move would also largely undo much of the strategy of the past four years, as former CEO Ivan Clark (now deputy chairman) deliberately sought to grow the land-based operation to try and remove Grindrod from the often volatile cyclicality of world shipping markets.
Olivier says nothing is definite at this stage but the unbundling proposal is clearly under serious consideration. “Yes, I suppose it would undo earlier work and make the international shipping business more volatile. We’ve spent a lot of time talking to analysts overseas, and generally we’re told the vast majority of investors who want exposure to shipping want it through a shipping company, not a sort of shipping and landbased conglomerate.”
Grindrod, he adds, would like to raise its foreign shareholder base (only in the region of 6%), have more coverage from shipping analysts overseas and see the share rated more in line with overseas shipping peers. In terms of market capitalisation, Grindrod’s international shipping business would fit into the top half of listed foreign shipping companies.
Olivier says there are a number of possible stock exchanges for Grindrod to list on – New York, Dubai, Singapore – but the favoured choice would probably be London. The market there has a better understanding of shipping and more analysis of shipping companies. He feels the SA-based operations are large enough for a separate listing and that while some investors may have been attracted to Grindrod’s share because of attempts to contain the volatility of world shipping markets “if we unbundled they would have a choice”.
If Grindrod does decide to list overseas this year, it’s probably a good time. World markets can be difficult to predict, but Olivier says three significant factors are in place – shipping markets are currently strong, Grindrod’s fleet is growing as demand increases for charters, and the weaker rand/US dollar exchange rate helps as international shipping is priced in dollars.
For instance, the group is currently able to charter out some vessels at about double the rate it’s paying. Olivier says the current high level of ship values and long-term charter rates “indicates an expectation of continued firm shipping markets in the foreseeable future”. Also encouraging, he says, is the high level of contracted income expected from the fleet, with 74% of the fleet contracted out for this year, 54% for next year and 36% in 2009. This will provide steady, annuity-type income for Grindrod over the next three years. At present levels the contracted out portion of the fleet will earn about US$143,3m (R1,03bn).
It looks like Grindrod will also continue its acquisition programme. Virtually ungeared and with strong cash flow, it has the capacity to spend R9bn over the next three years. But on what? “That’s the question. We would like to spend the capital, but it depends where the opportunities are,” Olivier says.
An offshore listing, though, is likely to open up more acquisition opportunities for Grindrod. But it will also continue to support the land-based operations in South Africa, where growth in earnings (up 59% in the past financial year, though off a comparatively lower base) are starting to come through strongly.
Though small, the only part of the group that looks out of place is Grindrod Bank, previously called Marriott Corporate Property Bank.
Grindrod’s shareholding dates back more than a decade, to what some insiders privately call “a Durban Club deal”. Last year Marriott asset management and property services were sold to Old Mutual. Grindrod acquired the
It looks like Grindrod will continue its acquisition
remaining 50% of the bank to make it a wholly owned subsidiary, but what does it do with it now?
Olivier will only say the acquisition was attractive, at a discount to net asset value. The bank has been recapitalised and repositioned, with a new wealth management division, but it would not be surprising to see it sold in the next couple of years.
Dramatic offshore listing plan. Alan Olivier