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TUESDAY 7 JUNE 2016 BusinessDay
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Company News
Markets sober ahead of Fitch ratings review
Investments in unlisted firms outperform returns on JSE all share index, writes Madeleine van Niekerk
Long view gives private equity edge on bourse P
RIVATE equity has beaten the stock market in SA, according to an industry association promoting investing in smaller companies. Private equity returned an average of 18.5% per year in the 10 years from January 1 2005 to December 31 2015, compared with an annual total return average of 14.1% from the JSE all-share index in the same period, the Southern African Venture Capital and Private Equity Association (Savca) says in a report. Over five- and three-year periods, private equity funds have delivered 14.8% and 15.2%, respectively; compared with the 12.9% and 12.2% recorded by the JSE’s all-share index, according to the latest RisCura-Savca South African private-equity performance report for the fourth quarter of 2015. Savca represents the industry in Southern Africa, and its 150 members account for about R171bn in assets under management in 2014 figures. The RisCura-Savca report tracks a representative basket of private equity funds in SA. RisCura, the co-author, provides investment services, strategic advice, and analysis. Savca CEO Erika van der Merwe says the robust returns from private equity had occurred despite the challenging market conditions. This is in part attributable to the nature of the investment, which requires a medium- to long-term commitment. During a tenure of up to
10 years — through a majority shareholding, or a significant minority shareholding — the private equity fund manager provides strategic and operational support to the investment target in a way that ensures that longerterm value is unlocked, she says. As an alternative asset class, private equity provides institutional investors with a further option with which to diversify their portfolios, Van der Merwe says. Private equity is essentially an investment into companies that are not publicly traded on an exchange such as the JSE. Firms use private-equity investments to strengthen their balance sheets and to improve working capital for acquisitions and expansion. The industry has a 30-year track record in SA, and is an extremely illiquid asset class, with long-term commitments, making it more suitable for institutions such as pension funds that can afford to tie up funds for extended periods. Institutional investors usually need to invest at least R10m in domestic projects, while in the rest of Africa, some call for at least $10m. Financial services companies Old Mutual and Momentum offer retail private equity funds that reduce the minimum amount of capital required to about R100,000. The strong performance by private equity funds does not, however, threaten listed entities as an investment target, analysts say, because they
BEATING THE STOCK MARKET Pooled, internal rate-of-return (%) 20
18.5% 15
14.8%
15.2%
10
MAARTEN MITTNER Markets Writer
5
0
10-year period
5-year period
3-year period
ERIKA VAN DER MERWE Graphic: RUBY-GAY MARTIN Source: SAVCA
are two different asset classes. Total private equity investment is comparatively small, less than 5% of the amount invested in listed equities, and is regarded as complementary. It is unlikely to ever comprise more than a few percentage points of the listed universe. IG market analyst Shaun Murison says, while statistics show that private equity offers good returns at times, it is essentially not the easiest of investments for the retail investor, due to the large sums of money required. Access to private equity through investments such as a fund of funds allows entry to the class for smaller players. “Often the fruit of the labour will be realised through the eventual sale of the asset, or even at a public listing. “While private equity is starting to
While private equity is becoming more widely available to a broader base of investor, publicly listed companies do provide transparency
become more widely available to a broader base of investor, publicly listed companies do provide transparency with publicly available financials,” he says. Quite often, the one investment feeds into the other, Murison says. RisCura senior analyst Debbie O’Hanlon says there are a number of reasons private equity tends to outperform listed equity. “Private equity firms often take majority or significant holdings in the companies in which they invest. This allows them to have a larger influence on improvements in efficiency, hiring new management where necessary, and implementing growth plans. “This contrasts with listed equity, where shareholders are seldom involved in the running of the company. Firms involved in private equity, transactions are often smaller than listed companies, with more scope for growth and expansion through acquisitions,” either organically within its own borders, or across borders. “Listed equity markets are substantially bigger than private equity, and they perform different roles for investors. Listed markets offer investors access to a broad range of companies at a lower cost, and offer
NVEST FINANCIAL HOLDINGS LIMITED AND ITS SUBSIDIARIES (Incorporated in the Republic of South Africa) (Registration number 2008/015990/06) (“NVest” or “the Company”) ISIN Code: ZAE000199865 JSE Code: NVE
companies access to capital more frequently,” O’Hanlon says. Private equity funds invest in the range of five to 20 companies per fund, which offers much lower diversification than listed markets. A way to improve diversification is to invest in a fund of funds, she says. Institutional investors allocate about 70% to listed entities and 1% to private equity, O’Hanlon says. Private equity funding company Vantage Capital’s managing partner, Luc Albinski, emphasises the emergence of a number of specialist funds targeting niches such as renewable energy, clean technologies, information technology, agribusiness, and trade finance, among others. Private equity is a useful source for initial public offerings that bolster the equity markets with interesting new midmarket businesses. A good recent example is the listing of Rhodes Food, Albinski says. Looking ahead, Van der Merwe says it is not possible to make a numerical forecast for the industry’s growth, but it is not unreasonable to expect the margin of outperformance to continue in coming years. vanniekerkm@bdfm.co.za
S&P Global Ratings’ reprieve for SA on Friday received a muted response from the markets on Monday, amid scepticism that the country could avoid “junk” status in December. S&P will deliver another ratings review in six months, which is linked to a number of preconditions accompanying Friday’s announcement. The all share closed 0.5% lower at 53,990, after being down more than 1% at one stage. The blue-chip top 40 retreated 0.54%. Domestic trading was subdued under the global backdrop of Friday’s sharply lower US jobs data, with markets eyeing US Federal Reserve chairwoman Janet Yellen’s speech at the World Affairs Council of Philadelphia on Monday. Financials and banks on the JSE were expected to benefit from the reprieve. But these sectors were negative for most of the day, with banks edging a positive 0.35% up at the close. Standard Bank and Nedbank were down 2% in intraday trade, before coming back later. The rand firmed to a fourweek best of R14.92/$ from a previous close of R15.08/$. SABMiller (SAB) ended the day 2.9% lower at R933.49. The market was awaiting the Fitch ratings announcement, either on Tuesday or Wednesday. Like S&P, Fitch has SA’s foreign currency rating at just
one notch above subinvestment grade, or “junk”. Fitch maintained a “stable” outlook, which could change to “negative”. “S&P seems to be setting up for a negative surprise in December due to the lack of reform progress,” said Nomura analyst Peter Attard Montalto. S&P said certain triggers for a potential negative ratings grade remain. These include disappointing GDP data, political tensions, labour instability and additional funding required by state-owned enterprises with weak balance sheets, such as SAA. Net government debt plus government guarantees should not exceed 60% of GDP, from a current 55%. Montalto said SA remained on a near inevitable path towards junk status. “The politics just don’t allow the National Treasury the space to be good at growth-boosting reforms.” Momentum Investments research head Herman van Papendorp said rising political tensions in a low-growth environment posed a significant threat to the sovereign rating outlook in the six months to December. “There were also risks of government buckling under socialist demands and endorsing policy measures that could damage SA’s investment climate,” the reasearch head said. Old Mutual chief economist Rian le Roux said weak growth and a deteriorating fiscal position were SA’s “Achilles heels”. mittnerm@bdfm.co.za
Swisscom climbs after vote against executive pay caps ROXANA ZEGA Zurich
SWISSCOM rose in Zurich trading on Monday, after Switzerland voted against curbing executive pay and adding profitlimiting rules at government-owned companies including the country’s biggest phone carrier. Shares of the provider of landline, wireless and internet services rose as much as 2.3%, to the highest level in a month, and were up 1.1%, to Sf483.8 ($495.5). Voters dismissed on Sunday the “Pro service public” initiative, designed to improve public services. The measure would have limited salaries at statecontrolled firms including Swisscom, banned cross-subsidisation between
such firms and stopped them from making a profit from basic services. The result is a relief for a company battling increased competition. Swisscom, which competes with Sunrise Communications Group and billionaire Xavier Niel’s Salt, cut its cost targets after missing profit estimates for 2015. It warned price pressure might continue to erode revenue, even as the company was increasing network expansion. “Swisscom’s problems are not over, but one big uncertainty was removed,” said Panagiotis Spiliopoulos, an analyst at Vontobel Holding. “The market is obviously relieved, and there’s still some room to go,” said Spiliopoulos, who predicts the stock will “eventually” reach Sf500 again. Bloomberg
TRELLIDOR HOLDINGS LIMITED
(Previously Trellicor Holdings Proprietary Limited) Incorporated in the Republic of South Africa Registration number: 1970/015401/06 Share code: TRL ISIN code: ZAE000209342 (“Trellidor” or “the Company”)
SHORT-FORM ANNOUNCEMENT – ACQUISITION OF TAYLOR BLINDS AND NMC 1.
ACQUISITION 1.1 Shareholders of the Company are referred to the Company’s announcements on SENS on 6 June 2016 (“Full Announcements”), advising: 1.1.1
that the Company has entered into an agreement with Odyssey House Proprietary Limited (“Seller”), in terms of which it will, through a subsidiary, purchase an effective 92.5% interest in the Seller’s business (“Business”), comprising Taylor Blinds and Shutters and NMC Decorative Mouldings (“the Acquisition”); and
1.1.2
that the Company is withdrawing the cautionary announcement previously made in connection with the Acquisition.
1.2 The Acquisition will be implemented on the last business day of the calendar month in which the final condition precedent is fulfilled or waived, it being anticipated that this will occur on 30 June 2016. Subject to the fulfilment or waiver of the conditions precedent, ownership of and risk in and benefit attaching to the Business shall be deemed to have passed to Trellidor on 30 April 2016. 2.
RATIONALE FOR THE ACQUISITION The Acquisition advances Trellidor’s strategic objectives of diversifying and expanding its product range and distribution network. The Business’s product offering is complementary to that of Trellidor with substantial value to be realised through the Acquisition, including potential distribution through Trellidor’s African network, which continues to grow in line with its stated strategy.
3.
PURCHASE CONSIDERATION The purchase consideration for the Acquisition will be an effective cash payment of R148 742 122 as well as the assumption of certain liabilities (“Purchase Consideration”). The Purchase Consideration will be paid in two tranches and is subject to possible reduction in the manner detailed in the Full Announcements.
4.
NOTICE TO SHAREHOLDERS 4.1. This announcement contains only a summary of the information in the Full Announcements made on SENS and does not contain full or complete details. Please refer to the Full Announcements for additional information, including further particulars regarding the Business, as well as the conditions precedent and other material terms relating to the Acquisition. 4.2. Any investment decisions by investors and/or shareholders should be based on consideration of the Full Announcements made on SENS and on Trellidor’s website (www.trellidor.co.za), as a whole.
5.
FULL ANNOUNCEMENTS The Full Announcements were released on SENS on 6 June 2016 and are available for viewing on Trellidor’s website at www.trellidor.co.za. In addition, the Full Announcements are available for inspection or may be requested and obtained in person, at no charge, at the registered office of Trellidor at 20 Aberdare Drive, Phoenix Industrial Park, Durban and the offices of Trellidor’s sponsor, PSG Capital, at 1st Floor, Ou Kollege, 35 Kerk Street, Stellenbosch and at 1st Floor, Building 8, Inanda Greens Business Park, 54 Wierda Road West, Wierda Valley, Sandton, between 08:00 and 17:00 on every business day from Monday, 6 June 2016 until Tuesday, 5 July 2016 (inclusive).
6.
WITHDRAWAL OF CAUTIONARY Whereas the particulars of the Acquisition have now been announced, caution is no longer required to be exercised by shareholders when dealing in their securities in Trellidor.
7.
GENERAL 7.1. This announcement is the responsibility of the directors of the Company. 7.2. The Acquisition qualifies as a Category 2 acquisition for the Company in terms of the listings requirements of the JSE Limited.
6 June 2016 Durban
Sponsor and Transaction Advisor to Trellidor
Raw materials enter bull market RANJEETHA PAKIAM and SHARON CHO Singapore
THE four-year bear market that pushed commodities to the lowest level in a quarter of a century is coming to a close, as supply constraints stimulate a recovery in everything, from soya beans to zinc. The Bloomberg Commodity index, which tracks returns from 22 raw materials, is on track to close more than 20% above its low on January 20 2016, meeting the common definition of a bull market. While the index has come close to breaking out of the bear market that began at the end of 2011, it has never sustained a rally long enough, until now. It is still down about 50% from the high reached in that year. Raw materials have outperformed bonds, currencies and equities in 2016, on speculation that supply disruptions and production cuts are whittling away the surpluses that caused the biggest price collapse in a generation, at a time that demand improves. Citigroup said in May that commodities had turned a corner, increasing its forecasts from metals to grains, amid an oil-led recovery. “The broad-based recovery in commodity markets this year has tipped several markets into bull-market territory,” said Mark Keenan, head of commodities research for Asia at Société Générale. “Overall, sentiment is good, but remains cautious. The market is evolving significantly, more specifically across the oil markets.” Brent crude has now surged to more than $50 a barrel from a 12-year low in January, amid disruptions from Nigeria to Venezuela, pressured by oil cartel Opec’s policy of sustaining production.Bloomberg