Si­mon’s stock tips

Hedg­ing risk

Finweek English Edition - - SIMON SAYS - BY SI­MON BROWN

African Bank took out a fair bit of debt based in Swiss francs (CHF), with re­cent debt amount­ing to almost R2.2bn in Fe­bru­ary last year. With the rand now some 20% weaker against the franc that could re­ally hurt, ex­cept it seems that African Bank did do some things right. The Sens an­nounce­ment states: “African Bank has ex­e­cuted a CHF/ZAR cross cur­rency hedge.” There are no fur­ther de­tails, but on the sur­face it would seem the bank has hedged the cur­rency risk so the re­cent move won’t have any im­pact. I am a big fan of com­pa­nies hedg­ing risk such as this. Rather re­move the risks beyond man­age­ment con­trol, such as com­mod­ity price moves, cur­rency move­ments and the l ike. Now sure, those buy­ing gold min­ers want that risk as it may re­sult in re­ward, but I still think some hedg­ing of pro­duc­tion over the last few years would have put min­ers in a bet­ter po­si­tion.

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