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PROPERTY: Rapid Exit At Rapiprop

 



Recent Western Cape Business News

A deal involving a shuffling of shareholdings in Rapiprop 158, a property-based fruit-farming venture in the Western Cape apple-lands, is open to interpretation.

The transaction raises questions around the viability of large-scale fruit farming ventures with one partner opting to bail out and the other clearly determined to stick it out.

The story goes like this: Last month Cape Empowerment Trust (CET) announced the sale of its strategic stake in Rapiprop for R9 million. CET had held the Rapiprop stake for a little more than two years.

The buyer of CET’s 10% stake was fruit exporting giant Capespan – already a major shareholder in Rapiprop. The other major partner in Rapiprop is Total Produce Plc, which is a strategic shareholder in Capespan.

Common sense would dictate that CET disposed of its share of Rapiprop in order to accelerate its debt culling exercise – which has recently seen the empowerment company dump its stakes in property ventures as well as some of its stock in Cape-based gaming group Grand Parade Investments (GPI).

But CET, in an announcement to its shareholders, declared that the Rapiprop venture was not a core investment. The empowerment company also pointed out that its interest in Rapiprop had been whittled down to just 10% following a recent rights offer (an exercise used to raise fresh capital by issuing shares for cash).

CET initially acquired a 20% in Rapiprop in September 2007 for R10.7 million. In mid-2008 CET valued its stake in Rapiprop at R20 million – inferring an enterprise value of R100 million for Rapiprop at that juncture (ie just before the global financial markets meltdown).

In defending it’s rather early exit from Rapiprop, CET stressed that the fruit-farming venture might require further capital. CET also suggested dividend flows from Rapiprop were unlikely in the short to medium term.

Cleary CET was not banking on any short-term benefits from Rapiprop.

The fact remains that CET was prepared to let go its Rapiprop stake at a small loss to the original purchase price. It’s difficult not to see this as a rather desperate exit.

So the question remains: Will CET regret its exit at Rapiprop; or is Capespan really left holding a lemon?

On paper Rapiprop looks a fine idea. Rapiprop’s modus operandi is simple: it acquires farms (preferably at below market value) and then introduces modern farming practices and attempts to improve management.

So far Rapiprop has made two significant acquisitions – the Applethwaite farm in Grabouw and the Queen Anne farm in the Vyeboom district.

The well known Applethwaite farm covers over 300 hectares and exports over 260 000 cartons of apples, 50 000 cartons of pears and 100 000 trays of plums a year.

The Queen Anne farm – which specialises in apples and pears (in a 65:35 split) exports between 250 000 and 280 000 cartons to the European and UK markets annually.

While these sizeable farms should boost Capespan’s ‘in-house’ capacity markedly by stabilising and securing sufficient production volumes from SA, it seems the Rapiprop venture has of late been struggling a tad.

For the six months to end-June 2009, Capespan reported that Rapiprop had a difficult first half with fruit volumes hampered by adverse climatic conditions. Production costs also increased and sales prices dipped.

No details were given of Rapiprop’s financial performance in the interim period although more detail should be forthcoming when Capespan releases its year to end December 2009 final results.

It would seem Rapiprop generated fairly solid profits in financial 2008 – possibly around R12 million.

With this in mind CBN suspects Rapiprop is a venture that – like most agricultural endeavours – needs time to set down roots for sustainable profitability.

We’ll know soon enough whether Capespan has done well to plough back R9 million into the business at this delicate juncture.


 
 
 
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