LOANS TO MANAGEMENT
Brait team ‘will not fly the coop’ on R1.9bn liability
Christopher Seabrooke, chairman of Brait’s audit committee, is adamant that the investment company’s management is sticking around to get growth in net asset value and in the share price back on track.
His comments follow murmurings by analysts that Brait’s investment team would be tempted to fly the coop as a result of a R1.9bn liability connected to loans extended to them to buy shares worth R1.5bn in the company in 2011.
"None of them are walking away, they can all see the green shoots and the upside. We’re feeling very positive," he told Business Day on Tuesday.
The shares were pledged to Brait as collateral for a R1.2bn loan owing to Rand Merchant Bank and Standard Bank, for which Brait is standing surety.
Investment team borrowers contributed R300m of their own capital as part of the transaction.
The loans, which Seabrooke said had been granted at commercial interest rates, were due on December 6 2020.
"If the loans are not extended or refinanced, the loans must be repaid through the sales of the pledged shares and/or through the indemnity," Brait said in its financial results for the year to March 2018. The disclosure led analysts to question whether management would simply throw in the towel because they were "so far in the red", given that Brait’s share price had plummeted more than 70% over the last two years.
Michael Treherne, a portfolio manager at Vestact, said Brait’s liability would increase, as interest on the debt was capitalised over time.
But Seabrooke shrugged off these concerns. "The point is, if Brait doesn’t recoup, [the investment team] lose their money. It’s a hell of an incentive," he said.
The deal had involved nine to 11 investment team members.
Brait’s shares bounced back 3.36% to R38.50 on Tuesday, as the company reported a net asset value per share of R57.32. The share, which once traded at a premium to net asset value, is down 39% over the past year.
This follows a slide in Brait’s net asset value, from R136.27 two years ago. The company posted a R9.7bn loss for the year to March, following a R16bn loss the previous year.
"Our main difficulty in the last 18 months has been New Look. Hopefully we can get that back on track, it is looking much more positive," Seabrooke said.
Brait has written the value of New Look down to zero, after forking out R14.2bn to buy the UK high street retailer in 2015.
New Look’s value was probably negative, considering that it had made an operational loss over the year, Treherne said.
But Seabrooke said New Look’s turnaround plan was under way and things were "looking much more positive". Its other investments, including Virgin Active, Premier and Iceland Foods, fared far better.
Brait also disclosed a related-party deal done with 35% shareholder Christo Wiese’s investment company Titan. In terms of the deal, concluded in August, Brait and Titan would invest in listed securities via a special purpose vehicle. After the parties failed to agree on a strategy, Brait took over what Titan had already bought, using a R1.4bn debt facility, Seabrooke said.
Brait could not disclose what it had invested in because the transaction was not yet concluded. But the investment was not in any way linked to Steinhoff, Steinhoff Africa Retail or Wiese-controlled entities, Seabrooke said. These undisclosed listed investments have posted a notional loss of R166m to date.
The related-party deal was "open to interpretation", said Nic Norman-Smith, chief investment officer at Lentus Asset Management.
"Given all that is going on it would be good to get more clarity on when the deal was made and what the conditions were."