ONE HALF OF THE PROBLEM
African Bank has announced that it is in negotiations to finally sell Ellerines. One of the questions is what it will get for the retailer. Considering African Bank paid some R10bn for it, it is going to be a fire-sale price whatever the price is. (I predict, with my tongue firmly in my cheek, maybe one of those 99c sales.) This certainly will help stem the losses at African Bank but leaves two issues. Firstly, will it keep the Ellerines book and still be able to offer the debt to Ellerienes clients, or will the buyer want the whole business? African Bank initially indicated it wanted to keep the book.
Secondly, Ellerines is only half the bank’s problem. It still needs to fix the other, which is lending. That is doable but still very tough. I think another rights issue might occur. The investors expect that success to filter through to the new venture. But there is one critical ingredient missing: winning. A large part of a large company’s winning ways is about just that – it is the winner within its sector or industry and it uses the force of winning to continue winning; almost in a sense bullying the other companies in the industry. In short, it is easier to continue to be a large winner then to try starting from scratch.
Starting from scratch is exactly what these vanity companies are doing. That said, Brain Gilbertson has finally seen the share price of his Pallinghurst Resources moving. It’s up over 100% in the last year, albeit still below the stated net asset value (NAV).