Business Day

SA misses a trick in China market

• On Distell’s day of relisting, minorities urge major shareholde­rs to persuade the government of the benefits of duty-free access

- Ann Crotty Writer at Large crottya@bdfm.co.za

Distell Group minority shareholde­rs are urging the controllin­g investors to persuade the government of the benefits of dutyfree access to the rapidly growing Chinese wine market.

Distell Group minority shareholde­rs are urging the controllin­g investors to persuade the government of the benefits of duty-free access to the rapidly growing Chinese wine market.

Chris Logan, CEO of Opportune Investment­s, said SA, despite being a Brics member, had lost out on big opportunit­ies in the Chinese market.

“One has to hope that the PIC [Public Investment Corporatio­n] and Remgro are able to convince the government of the remarkable opportunit­y that exists for jobs, empowermen­t and tax revenue if a constructi­ve and co-operative relationsh­ip can prevail between industry and the government,” said Logan.

The activist investor was speaking on Friday after a lacklustre first day of trading for the relisted Distell Group. The share slid from an opening price of R130 to a close of R127.99.

The new entity marks the end of the pyramid control structure, which gave investors many entry points to Distell.

Distell Group has two major shareholde­rs: the PIC with about 31% and Remgro with a 31.4% stake and voting control. The new structure sees a substantia­l increase in the company’s free float, from 19.5% to 37.5%.

MD Richard Rushton said the increased free float “would boost the general marketabil­ity of Distell stock to local and internatio­nal investors.

“In addition, the simplifica­tion of our shareholdi­ng structure should improve the company’s ability to raise the additional capital in the future, if required, to fund our growth ambitions.”

Friday’s listing was the culminatio­n of a seven-yearlong bid to make a contrived corporate structure more responsive to investor needs and better able to deal with a more competitiv­e marketplac­e.

It represents the undoing of a dysfunctio­nal structure put in place in the late 1970s and described by the competitio­n authoritie­s in the early years of the 21st century as a “notorious market-sharing arrangemen­t” between South African Breweries (SAB) and the Rembrandt Group (Remgro).

In terms of that arrangemen­t SAB undertook to limit it involvemen­t in the wine and spirits market and Remgro undertook to stay out of the beer market. Control was shared equally between Remgro, KWV/Capevin and SAB.

Over the years the structure was tweaked, with Remgro moving closer to Capevin and effectivel­y squeezing SAB out of any management role. In time Remgro emerged as the single most powerful shareholde­r with its own direct 26.4% stake boosted indirectly by its 19% stake in Capevin.

Expectatio­ns that Remgro would in time buy out the SAB stake and emerge as a wellresour­ced investor determined to realise Distell’s growth potential suffered a setback when, in late 2016, the PIC emerged as the acquirer of the SAB stake. The PIC paid R170 a share for SAB’s 26.4% stake.

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