Finweek English Edition - - Companies & markets -

LET ME DE­CLARE MY po­si­tion at the out­set. I’ve been a small share­holder in How­den Africa through­out both its list­ings on the JSE and was one of the small mi­nor­ity who ob­jected strongly to last year’s 241c spe­cial div­i­dend, which in the guise of op­ti­mis­ing the bal­ance sheet and dis­tribut­ing sur­plus cash in fact en­tailed bor­row­ing R100m from Stan­dard Bank to fi­nance a vir­tual strip­ping of the as­set base.

Pay­ing div­i­dends out of bor­rowed money was il­le­gal once upon a time, but that was then, and this is now.

In ef­fect, the com­pany bor- rowed money to fi­nance the dis­in­vest­ment from SA of its con­trol­ling share­holder, How­den UK. Nat­u­rally, the deal was steam­rolled through by the ma­jor­ity.

We were as­sured that the pro­posal had been judged “fair and rea­son­able” by em­i­nent ad­vis­ers. A hollow laugh was the only ap­pro­pri­ate re­sponse from those of us who have long ex­pe­ri­ence of th­ese “fair and rea­son­able” en­dorse­ments.

Now the chick­ens have come home to roost. The 2006 pre­lim­i­nary re­port (which, in­ci­den­tally, isn’t posted on the com­pany’s in­ad­e­quate web­site) says there’ll be no div­i­dend be­cause of the re­duc­tion in NAV (share­hold­ers’ eq­uity fell from R184m to R35m) and the in­crease in gear­ing.

So much for the fiction that last year’s fi­nagling was in­tended to bring about a sounder fi­nan­cial struc­ture. Pass­ing the div­i­dend ad­mits that what was done last year didn’t bring about a sounder fi­nan­cial struc­ture; on the con­trary, it de­stroyed a per­fectly sound bal­ance sheet.

Well, at least the then non-ex­ec­u­tive, if hardly in­de­pen­dent, chair­man, Michael Fos­ter, has had his re­ward. He’s since been ap­pointed CE of How­den’s ul­ti­mate hold­ing com­pany, Char­ter plc.

Char­ter is no doubt happy that it has pulled its in­vest­ment out of SA but re­tained a con­trol­ling stake in How­den Africa at a neg­li­gi­ble, if not zero, book value. Lo­cal in­vestors, who might have pre­ferred a steady and in­creas­ing stream of nor­mal div­i­dends – as I know I would have – may take a dif­fer­ent view and will feel that their op­po­si­tion to last year’s scan­dalous trans­ac­tion has been to­tally jus­ti­fied.

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