Marc Hasenfuss: Market Watch

Stellar . . . yet.

Having said that, one thing that did pique my interest in the R1bn fund-raising announcement was the proposed issue of R600m worth of redeemable convertible preference shares. Now here’s the thing . . . only 600 (yes, six hundred!) preference shares will be issued, at a price of R1m/preference share.

The pref won’t be listed just yet (or any time, I’d imagine, considering how illiquid trade in 600 shares would be).

But it is important to note that the pref issue is being underwritten by companies aligned to Wiese (Titan), Pettit (Shanike) and Stellar nonexecutive Peter van Zyl (Thunder Capital). Pettit is certainly showing big confidence in Stellar by offering to underwrite half the pref share issue (with Roodt also opting to participate in the pref offering). If Pettit — already a sizeable shareholder in Stellar — gets a full allocation of prefs, he will be in for the princely sum of R300m!

Now here’s the interesting bit. The pref holders will have the right to convert their prefs into new ordinary shares “at a conversion price equal to the greater of 240c/share and a 20% premium to the closing price of Stellar Capital on the day before the book-build for the pref share issue”.

The pref issue — with dividends settled twice a year at 95% of prime — is an effective way to raise capital at a lower cost, a predictable yield and less of a dilution for shareholders compared with an equity issue. Of course, successful underwriters — who will be able to convert into ordinary shares “on or before three and a half years after the issue date” — stand to make a packet if Stellar’s deal flow is perceived as inspirational by the market.

Even with the share at current levels — around 290c at the time of writing — the underwriters could already make a decent enough turn.

Suddenly I’m not so sure I’d be betting against the Pettit/ Wiese combination . . .