Motsepe business U-turns on fund fees
African Rainbow Capital Investments ( ARC Investments), an investment holding outfit backed by Patrice Motsepe, caved in to investor pressure over plans to use a third of a proposed R750m rights offer to pay fund management fees, saying the plan is now off the table.
In a statement on Friday, after the company received a barrage of criticism for doling out cash to settle outstanding fees to UBI General Partner for day–to-day management of a fund that houses ARC Investments’ underlying businesses, the company said it had abandoned plans to use R205m from the share sale to pay the fund manager.
ARC Investments, whose ARC Fund counts among its assets digital newcomer TymeBank and mobile data network operator Rain, will settle the fees from its internal cash resources.
Co-CEO Johan van der Merwe told Business Day that since announcing the rights offer on September 15, the company had become aware of adverse market commentary, which challenged the merits of the management fee being levied for managing the portfolio of 49 investee companies.
Van der Merwe said ARC Investments has sufficient cash resources to pay the management fee before the rights issue is implemented.
“Due to the misunderstanding of the mechanism we intended to use, management decided to demonstrate that the proceeds from the rights issue are not required to pay the management fee.
Management has opted to defuse the situation by issuing the Sens statement and still settle the management fee before receiving the proceeds of the rights issue,” he said.
The fees, which are paid quarterly to UBI General Partner
— whose board is led by Motsepe and also counts former Nedbank CEO Tom Boardman
as a director — built up over the past few quarters as part of the company ’ s plans to hold on to cash to navigate challenges of the Covid-19 pandemic.
“The delayed payment, amongst others, enabled the ARC Fund to follow its rights when Rain raised capital to capitalise on the fortuitous opportunities brought about by the pandemic and the national lockdown,” he said.
The U-turn also comes amid investor calls for the company to narrow a yawning discount between its market capitalisation, which is languishing almost three-quarters below the value of its underlying assets.
The value of ARC’s portfolio — which includes a stake in pension fund administrator Alexander Forbes — has grown to R9.5bn, dwarfing the market capitalisation of R2.8bn.
ARC Investments’ situation mirrors the dilemma faced by Naspers, whose market value was at times 40% less than the sum of its parts.
Naspers tried to fix that by spinning off its pay-TV business, MultiChoice, and hiving off and separately listing its global ecommerce business, Prosus, in Amsterdam.
Sabvest, another investment holding company with stakes in documents storage group Metrofile and financial services company Transaction Capital, is in the same boat.