Finweek English Edition - - Companies & Markets - MARC HASEN­FUSS

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.

Shaun Rai

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