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FINANCE | African Rainbow Capital
AFRICAN RAINBOW CAPITAL
African Business Network
South African investment company offering BEE credentials
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FINANCE | African Rainbow Capital
African Rainbow Capital (ARC) was formally launched by South Africa’s leading businessman Patrice Motsepe in 2015 as an investment holding company that acquires significant minority shareholdings in companies across select industries to improve their black economic empowerment (BEE) status. ARC provides BEE credentials via its parent company Ubuntu-Botho Investments – an entirely blackowned financial services entity that was created by Motsepe in 2004 out of his vision to make a difference in the lives of ordinary South Africans. Since its introduction as a means of eradicating the effects of Apartheid, BEE has remained a vital consideration for almost all businesses in South Africa, although some sectors, such as mining, have higher legislative requirements than others like financial services and retail.
Therefore, being a fully black-owned and controlled company makes ARC an attractive
“All in all, there is a scorecard that
proposition for South African companies
companies must adhere to, where points
looking to boost their BEE scorecard while
are made through black ownership, black
also partnering with an investor that can
employment, procurement from BEE
provide capital and add value.
players or from investing in corporate social imbursement,” says ARC’s co-chief executive
ARC initially focused on building a portfolio
officer Johan van der Merwe.
of investments in financial services platform
African Business Network
assets before broadening its interest into
R9.6 billion since the company listed on the
non-financial services businesses across a
Johannesburg Stock Exchange in September
wide range of sectors, including IT, telecoms,
2017.
business process outsourcing (BPO), construction, agriculture and mining.
Investment strategy When considering an investment, ARC will
This expanding investment strategy has
look to invest a minority stake in an early
created a diversified portfolio which has
stage business with significant capital
increased in value by more than 80% to
growth potential, and one that would also
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FINANCE | African Rainbow Capital
Patrice Motsepe, founder and chairman of African Rainbow Capital provide strong synergies and cross-selling
formally launched in February 2019 and aims
opportunities within its existing investments.
to provide simple, accessible and inexpensive banking services that are designed from the
“Our strategy first and foremost is to look
ground up with consumers in mind.
at areas where we can make a difference in South Africa. Many sectors in the economy
The bank charges no monthly fees and many
are well run, like banking and telecoms, but
everyday transactions are also free, unlike
the costs for the consumer are among the
some of South Africa’s traditional banks
highest in the world.
which retain complicated and confusing banking fee structures and regularly charge
“What we are trying to do at that level of
‘hidden’ day-to-day transaction fees.
financial inclusion is broaden the spectrum of people who can benefit from the overall
Therefore, TymeBank is a perfect example
strength of those sectors,” says van der
of ARC’s strategy to invest in companies that
Merwe.
can make a difference in South Africa, in that the challenger bank aims to reduce costs for
For example, ARC’s flagship investment
the consumer in one of the country’s biggest
is a disruptor in the banking sector called
industries.
Tymebank. South Africa’s first digital bank
African Business Network
Johan van der Merwe, co-CEO of African Rainbow Capital In June, TymeBank received a R200 million
A telecoms disruptor
investment by private equity group Ethos
Another of ARC’s major investments is with
Artificial Intelligence (AI) Fund which will
telecoms challenger Rain - a ‘full service’
allow the bank to embark on the next phase
mobile network operator that focuses on
of capital raising to facilitate its continued
data as its primary offering as opposed to
growth in the South African market.
voice-based communication. ARC’s 20% stake in Rain resembles R2.3 billion of its total
The bank aims to secure two million
portfolio value.
customers over the next three years, having attracted more than 500,000 clients by early
Rain has made significant progress in
July, which is little over five months since its
building a dedicated national LTE advanced
launch in February.
network, holding an allocation in the 1.8 GHz spectrum along with other major operators,
At the same time, ARC announced that it had
and is also the only licence holder in the
made a separate R100 million investment
2.6-3.6 GHz band - where most of the 5G
into Ethos AI Fund, having identified the fund
developments are taking place.
as a way of providing access to an ecosystem where new technologies in support of the
“Our company has put up infrastructure that
Fourth Industrial Revolution are optimally
will drive the cost of data down not by 50%
commercialised.
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FINANCE | African Rainbow Capital
Johan Van Zyl, co-CEO of African Rainbow Capital but by 50 times over the next three to four
TymeBank to test the distribution of its SIM
years, to really make the country competitive
cards at Tyme kiosks across South Africa.
in this emerging space,” van der Merwe reveals.
Moving into mining ARC’s strategy of investing in early stage
Rain has already established a strong
companies also extends to the mining sector,
partnership with Vodacom, whereby Rain is
where the company has focused on open
allowed to install its equipment on towers
cast, non-traditional commodity projects
owned by Vodacom and Vodacom in turn
away from the high cost underground mining
is allowed to obtain available spectrum
market.
to sell data to its clients. This resembles a breakthrough deal for the challenger and will
ARC initially acquired a 25% stake in the
help it expand on its 40,000 strong customer
Elandsfontein mine - South Africa’s largest
base.
known sedimentary phosphate deposit, which is being developed by London-listed
While the strength of Rain’s product offering
junior Kropz.
in the telecoms market was enough to pique ARC’s interest, the investment also provided
Despite being poorly understood by the
a strong chance to create synergies with
general investor community, phosphate is
existing companies, and this was borne out
used to produce fertiliser, making it a vital
when Rain announced a partnership with
component of the agriculture industry.
Resource GlobalNetwork Network 66 African Business
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FINANCE | African Rainbow Capital
Again, this is where ARC’s wish to make a
two entities to create a long-term company
difference comes to the fore, considering
that can provide phosphate into the market
the importance of boosting food production
in the longer term.”
as populations rise on the continent and globally.
In March, ARC released results for the first six months of the 2019 financial year that
“Elandsfontein is on the West coast of the
fell below the company’s high expectations.
Cape, close to a deep port harbour so it’s
Intrinsic net asset value edged up just 1% to
relatively cheap to ship the phosphate out,
R9.6 billion in the period, below its medium-
and we can mine at a fraction of the cost
term target of 16% growth per year, although
that Morocco [the world’s biggest phosphate
the company did outperform the overall
producer] does.”
equity market in South Africa, which fell by 12% in the same period.
Kropz also owns assets in Ghana and the Republic of Congo which also happen to be
Challenging conditions
large-scale, low-cost deposits. “We have a
Following the announcement, ARC pointed
good package of assets with Kropz. Once
to a weak economy in South Africa, declining
we get the technology going on the Western
share prices and the writedown in value of its
Cape, we can transport that to these other
BPO venture Bluespec, but also highlighted
African Business Network long-term expectations,” acknowledges van der Merwe. Despite the disappointing interim results, ARC’s executive director believes its latest investments are solid assets with strong exponential value that can deliver high returns on equity. “All these businesses offer massive increases in intrinsic value compared to what we paid for them, and in the next six months we think that will come through. “Even though the economy is tough, we are fairly positive that we may get the intrinsic value up in the order of 5-10% within the next six months,” he concludes. its internal policy to place new investments in
ARC plans to achieve this through
the costs column during the first six months.
consolidating synergies between its businesses and increasing efficiencies, while
“A big part in the way the results were
also looking to develop its portfolio with new
presented was almost self-inflicted. We put
investments, after the company announced
the TymeBank valuation in costs although
that R700 million is available for investment
the intrinsic value is multiples of what we’ve
over the rest of the year.
paid for it. Also, the other big investment we made, Rand Mutual Assurance, was also put in costs. “So, if we were to include our own intrinsic valuations in the report, it would have resulted in a fairly different picture. The expectations are high, but these are fairly
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To tell the resource market your story, contact: jacob@africanbusinessnetwork.co.za WWW.AFRICANBUSINESSNETWORK.CO.ZA Published by Anderson Murray Media Ltd