WITHSTANDING THE BLAST
A Tarantino script is unfolding in Stellenbosch
The wind in Cape Town at the weekend was next level, meting out quite a battering. Caravans were flipped off bridges and roofs torn off houses. But the Amityville Horror — the unofficial name of our family residence — stood fairly firm. An early assessment showed just a few roof tiles strewn across the front lawn — remarkable considering the ominous groans, cracks and crashes when the wind was whipping violently at 2am on Monday. Prudently, I had secured the kids’ old trampoline, so this time I did not suffer the indignity of retrieving springs, poles and netting from the neighbour’s tree.
Stellenbosch took the brunt of the weekend’s blasting. I saw some surreal wind speeds recorded at the aerodrome there and fantasised about lofting a five wood at the Devonvale golf course with the wind blasting at my back ...
A more low-key, but potentially equally damaging, storm seems to be brewing at Stellenbosch’s iconic investment house Remgro — the topic of this week’s cover story. There are numerous concerns, but what puzzles me is how slowly the deal-making wheels turn when it comes to cleaning up the “rats and mice” in the investment portfolio.
In truth, there is no real rush for Remgro to hone its portfolio. At this point it does not urgently need the extra cash that would come from disposing of noncore investments. Then again, there might be a need to pump a chunk of fresh capital into fibreoptics hub Community Investment Ventures Holdings (CIVH) — which has debt of more than R19bn — if the Vodacom deal is further delayed or even called off. With a cynical market seriously questioning Remgro’s heady valuation of its fibreoptic assets, hurling more money into CIVH at this delicate juncture might not prompt too much enthusiasm.
That said, the portfolio clutter at Remgro is an unnecessary distraction. Aside from investor criticism around the portfolio lacking focus, one might easily also argue that it is lazy. At this time, about 75% or R100bn of Remgro’s R135bn portfolio value resides in just seven investments: Mediclinic, Outsurance, Heineken Beverages, RCL Foods, Siqalo, CIVH and Air Products. So, in truth, there is a slew of smaller investments that probably won’t ever move the needle at Remgro.
But there are also several surprisingly large “portfolio” investments: small stakes in banking group FirstRand (R7.3bn), financial services conglomerate Discovery (R6.1bn) and assurer Momentum Metropolitan (R2.2bn). The collective value of these — plus other undisclosed portfolio holdings — is more than R16bn. This is roughly 12% of Remgro’s total portfolio value.
It remains unclear whether Remgro will sell, unbundle or even retain these portfolio investments which also include legacy holdings in cigarette giant British American Tobacco (after these interests were unbundled to Remgro’s treasury shares about 15 years ago). Certainly, there could be as much as R20bn-R22bn of potential fresh capital to be garnered if Remgro sold off these portfolio interests plus two or three of its “smaller” investments.
These smaller investments are a prickly matter since, in more than a few instances, the strategic rationale for retaining them seems flimsy. In order of size, there is the 25.9% stake in petroleum group TotalEnergies (valued at R3.5bn), 31.4% stake in liquor group Capevin (R1.6bn), participation in the Prescient China Fund (R1bn), venture capital fund Invenfin (R761m), 30% of undersea cable group Seacom (R637m) and 32.3% of broadcast group eMedia (R569m). Remgro also holds an influential 43.5% stake in unlisted investment group KTH (worth about R2.65bn) and 100% of aluminium products group Wispeco (R1.5bn), as well as a 44.1% holding in small venture funder Business Partners (R1.3bn).
Wispeco is a decent little business, but it’s too small to be separately listed, except in the unlikely event that Remgro has plans to list a conglomeration of its industrial assets (which would include Air Products, TotalEnergies and the old PG Glass).
The stake in Capevin, I presume, must be coveted by any number of international liquor groups. Whether Remgro is a seller of its Capevin holding is unclear.
Does the (much-diminished) stake in eMedia still rank as strategically important? Seacom might have strategic relevance in view of the concerted fibreoptics thrust via CIVH ... but the value is hardly a blip on the total portfolio.
The investment in Prescient China Fund seems out of place in an investment company that is largely South Africa Inc focused other than offering a hedge. Perhaps Invenfin which has about 15 investments (including rooibos tea brands business BOS and ride-hailing service Bolt) will remain as a nursery for early-stage ventures. Business Partners is a legacy investment that probably serves a philanthropic purpose as much as a profit purpose.
Perhaps the most interesting holding is KTH. An investment company holding a commanding stake in another investment company conjures up all kinds of disparaging thoughts of dastardly double discounts. KTH chipped in a not-insubstantial R185m to Remgro’s interim earnings though this was significantly down on the previous interim period’s R348m.
KTH is interesting as it also holds a significant stake in Momentum Metropolitan and brings in additional broadcast media assets in the form of Kagiso Media. Would Remgro ever consider ushering Kagiso Media towards eMedia, perhaps looking to create a broader broadcast and specialist media group? KTH’s other sizeable investment is services group Servest, which was also briefly listed on the JSE but has no strategic fit with any segment in Remgro’s portfolio.
It’s a messy cleanup job worthy of the services of Pulp Fiction’s Winston Wolf. Remgro, I assume, would not think of creating a separate holding company to house the rats and mice à la Venfin, created to house the old Rembrandt Group’s “growth” investments in the late 1990s would it?
It’sa messy cleanup job worthy of the services of
Pulp Fiction’s
Winston Wolf