CHICKENS COME HOME TO ROOST AT HOWDEN
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.