Brait scrapes together cash for R6bn bond repayment
Bond is convertible but with the group’s stock down more than three quarters since issue, bondholders are unlikely to accept shares as payment
Investment group Brait, in which billionaire Christo Wiese is the largest shareholder, is scraping together cash, mostly from its SA businesses, as a bond repayment of more than R6bn looms large in 2020.
The bond of £350m, issued when Brait was on an acquisition spree four years ago, is a convertible one, but with the group’s stock down more than three quarters since its issue, bondholders are unlikely to accept shares as payment.
Brait, in a change of strategy from mostly letting its investments keep the cash they generate, received nearly R798m in the year to end-March from those companies. This included interest, debt repayments and was nearly double the amount received the previous year.
Most of the funds, so far, have come from the group’s two biggest assets — gym chain Virgin Active and SA food manufacturer Premier, which owns consumer brands such as Snowflake flour, Blue Ribbon bread and Super C.
Brait will receive an additional R610m by the end of June from refinancing the debt of Virgin Active’s SA business.
To convert the bond to shares will not make sense for shareholders, according to Gryphon Asset Management portfolio manager Casparus Treurnicht.
“The share price nosedived since these bonds were issued and converting to shares at an old ratio would make them less valuable than simple buying at the current price,” said Treurnicht.
Now Brait is preparing itself to redeem the bonds at par value £350m, which means shoring up cash reserves and raising credit facilities, he said.
Virgin Active, which has 238 clubs in eight countries and is the market leader in SA, accounts for about 53% of Brait’s assets, while Premier represents 27%. It also has an investment in British frozen goods retailer Iceland Foods.
Brait is progressing a number of opportunities to generate cash proceeds from its investment portfolio,” the company said, without giving more detail. But selling down stakes in its investments is not completely off the table, as the company said elsewhere in its results that “portfolio realisations” were also an option.
“Brait will continue to announce to the market as and when significant inflows are realised,” the group said.
The annual results show Brait’s net asset value (NAV) was down 25% on the previous year, which the group ascribes mostly to tough trading conditions in its own investments and its peers taking a beating on the stock market. This forced Brait to do a downward adjustment to the values of Virgin Active, Premier and Iceland.
In 2015, Brait also invested more than R14bn in British fashion retailer New Look, but wrote the investment down to zero two years ago.
“Weak consumer demand, inflationary cost pressures and increased promotional activity among our competitors have affected the performance of our portfolio companies and their peers, which has negatively impacted our NAV,” Brait said.
In 2018 it reported a drop in NAV of nearly a third which, at the time, reflected some of the writedown on New Look.
Brait’s share price is down nearly 90% from its high in April 2016. After the release of the results on Tuesday, Brait shares gained 2.9% to close at R18.15.
Wiese is still a director of Brait and owns about one third of the stock. In the early 2000s he and Brait took Pepkor private, only to sell it to Steinhoff in 2014 in a R63bn deal.