R5bn in fishing rights up for grabs
Established heavyweights will control SA’s deep-sea trawling sector for longer, after a delay to the new rights allocation process
The much-awaited allocation of valuable long-term fishing rights is set to be delayed for at least 18 months, based on talk around the quays between SA’s JSE-listed fishing companies.
The move will give listed companies a reprieve, but is a setback for black-owned firms and new entrants into the sector.
Earlier this month rumours began swirling that recently appointed environment, forestry & fisheries minister Barbara Creecy has postponed the fishing rights allocation process (Frap) to gain a better understanding of the dynamics of the industry.
New rights were supposed to be awarded by the start of 2021, and were expected to rebalance fishing quota allocations to empower community-based and small black-owned enterprises.
The rights were last awarded to the market’s long-standing heavyweights in 2005.
Listed fishing companies — which include Oceana Group, AVI’s I&J, Sea Harvest and Premier Fishing — are expected, to varying degrees, to lose quota in key species to accommodate new entrants to the sector.
Some industry players suggest the process could be pushed back by 18 months, and others say it could take two years. Attempts to get the department to confirm the delay were unsuccessful.
Small Talk Daily investment analyst Anthony Clark says deep-sea trawlers — particularly the big rights holders like Oceana, Sea Harvest and I&J — are understandably jittery about Frap 2020. He says similar processes conducted by the department in 2013 and 2015/2016 were controversial, leading to lengthy delays, prolonged litigation, disruption of fishing and the destruction of value for companies invested in fishing.
Under the current Frap 2020 proposal, up to 30% of fishing rights could be taken away and re-allocated, says Clark.
"The proposed delay to give the new minister time to evaluate the process and engage presumably with stakeholders in the R5bn sector will be welcomed by the ‘big three’ [Oceana, Sea Harvest and I&J] … taking some pressure off them and their earnings. However, the news will not be welcomed by the black-owned smaller listed Premier Fishing and unlisted players, which hoped to score big from the Frap 2020 exercise."
Industry participants say the lead-up to Frap has been fraught with tension. One source notes: "Though a delay extends the period of uncertainty, the new minister is probably being prudent in wanting to understand the issues … some of which are contentious and could add operating risk to established companies that have heavily invested in the fishing sector for the long term."
Though fishing companies seem likely to wait out the Frap impasse, the delay could inadvertently prompt further corporate action in the sector. Three significant deals have been struck recently: Sea Harvest acquired Viking Fishing, Premier Fishing took a controlling stake in the Talhado squid business and unlisted TerraSan bought the Saldanha Group’s pelagic assets. Consumer brands giant AVI also briefly mulled over a possible sale of its hake fishing and processing business I&J, before abandoning that idea.
Whether the delay in implementing the Frap might lead to AVI revisiting the idea of disposing of I&J remains to be seen. It is not an asset that sits comfortably in AVI’s consumer brands portfolio, and it is understood that the group’s many offshore shareholders are not terribly enamoured with the fishing operations (despite the consistently producing solid profits).
Rival consumer brands giant Tiger Brands this year unbundled its majority stake in Oceana to shareholders. It allowed empowerment group Brimstone, which also controls Sea Harvest, to increase its stake in Oceana to a commanding 24%.
AVI would probably find an enthusiastic buyer and empowerment partner in Premier Fishing — though the two companies might not have the same idea on pricing. Premier bought its controlling stake in Talhado at a low single-digit earnings multiple. AVI would no doubt be looking for a richer price tag for the profitable I&J.
Oceana, now one of the largest fishing enterprises in the world following the acquisition of Daybrook Fisheries in the US, might also use the impasse to bring additional empowerment ownership to selected local fishing operations.
Its Lucky Star canned pilchard business has already shown its ability to operate profitably in a drastically reduced catch quota scenario. With local pilchard stocks depleted and the quota drastically cut, Oceana has re-engineered Lucky Star to operate off a model based on importing 90% of its stock.