MARKETS PROMPT CHANGE OF MIND?
HAS CAPE EMPOWERMENT TRUST (CET) changed its mind about selling its significant minority stake in gaming investment company Grand Parade Investments (GPI)? In August this year CET declared its intention to sell off its hard won stake in recently listed GPI in a “competitive disposal process”. The official line was that CET couldn’t exercise due influence over GPI but rather wanted to concentrate on investments where it could actively add value.
The real reason for the GPI sale proposal, of course, is that CET is lumbered with a good deal of debt. To move forward with any confidence and take advantage of well-priced opportunities, CET needs to cull that debt quickly.
Last month events took an interesting turn, with CET issuing a cautionary notice – which intriguingly contained no reference to the GPI sale. Finweek hears reliably the cautionary doesn’t relate to the GPI sale. If that’s indeed the case, then it might not be amiss to speculate CET is contemplating offloading its 22% stake in listed property counter Ambit.
Now that may sound unlikely to most observers, especially since CET has stressed its future focus will be on services and property. However, a hefty debt load – CET has total borrowings of more than R400m – can often push directors to desperate measures.
Quite clearly, CET isn’t having much luck offloading its GPI stake at an acceptable price. Since listing, GPI – despite holding a strong portfolio of gaming assets – has lost ground on the JSE. Arguably, GPI’s current price of around 250c discounts the underlying value of the individual casino investments (most notably, SunWest) as well as taking no cognisance of the possibility of generous dividend flows and corporate action.
Selling off GPI at current levels (presuming there’s an empowered buyer for a large tranche of shares) would be foolish and would open CET up to criticism as regards value destruction. Clearly, its next best option is then to sell off its Ambit stake, which one assumes could fetch between 365c/linked unit and 385c/linked unit. The price would depend on how badly another property entity wanted CET’s “king-making” stake – noting that Absa (25%) and Redefine (22%) are Ambit’s major shareholders. Proceeds from such a transaction (if settlement is mostly in cash) would be sufficient to rid CET of the bulk of its debt load.
Some CET shareholders might regard the speculated property sale as disappointing in terms of portfolio diversity and also question management’s strategic decision-making in such tricky times. But holding an unencumbered stake in cashspinning GPI might serve CET very well over the longer term.