Freshly listed ARC sniffs profit coming
African Rainbow Capital Investments’ invested assets rise to R6.6bn since JSE debut as it redeploys R2.5bn of cash pile to selected sectors
African Rainbow Capital Investments (ARC) has grown its assets nearly 50% in the three months it has been listed and could deliver its first profit on the sale of an investment soon.
The investment holding company listed on the JSE main board in September with R4.5bn in invested assets and R4.2bn in cash. This has since grown 48% to R6.6bn after it deployed R2.5bn of this cash towards investments in telecommunications, financial services, mining and agriculture.
One of the investments is the Last Mile Fund, a private equity fund former Harmony Gold CEO Bernard Swanepoel founded. The fund "would potentially invest in the last portion of funding of mining ventures with limited risk to commodity prices, BEE partners for mining businesses, [and] businesses related to procurement for mining companies," said ARC joint-CEO Johan van Zyl.
ARC snapped up 70% of the shares in the fund for R93m, which may dilute to half the fund as Swanepoel and his team
ARC advised BKB that the agribusiness firm could conclude an option agreement with another shareholder to take ARC’s shares off its hands for R409m. This could see ARC coining R189.2m in profits.
Van Zyl said ARC’s shareholders would receive all of it.
"[This is] minus the portion going to Ubuntu Botho Investments [General Partner] for managing the portfolio — both fee and profit share if applicable," he said. "These will only be determined later, as it applies to the total portfolio."
ARC’s growth in invested net asset value was not solely due to its open chequebook, although the company says it would be premature to provide an update of the performance of its unlisted portfolio after such a short period, other than to say it was "satisfactory".
Telecoms provider Rain had rolled out 1,500 base stations by November, with more than 1,000 of the stations active, said Van Zyl.
Phosphate miner Kropz and technology group EOH struck a sour note for ARC.
The West Coast Environmental Protection Association has hauled Kropz to court, claiming violations of its water-use licence. As a result, mining has come to a halt, but Van Zyl said it continued to de-water the aquifer between the mineral and the surface to prevent any environmental damage.
A court date has been set for December 12.
EOH also disappointed ARC despite its improved performance in the latest reported financial period, when it reported earnings and dividend growth in the high teens.
The share price has failed to react, continuing a gradual decline that started in 2016. The share has hurtled off its five-year peak of R178.24 on December 2016, trading in the R77 range on Tuesday afternoon.
"We value the listed investments based on the market price," said Van Zyl.
"In this instance, there is no lock-in period and hence no further discounts for liquidity applicable, hence the market price."," said Van Zyl.