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VENTURES: The Cape's Cash Kings

 



Recent Western Cape Business News

THE Cape’s two best-known business tycoons – Johann Rupert and Christo Wiese – appear to both be sitting on serious piles of cash.

Professional investors might well interpret this rather ominously, perhaps arguing that if these serial investors are hoarding cash there is probably a belief that investment markets are still in for a torrid time.

Although Greece just managed to push through the austerity measures required for a bail out, a number of prominent European markets are still looking vulnerable.

Locally, investors are finally starting to look spooked by the ANC Youth League’s unrelenting crusade to nationalise mines (and banks, and who knows what else) – especially with very unconvincing reassurances being uttered by the ANC proper.

Some would argue that any indications that Rupert and Wiese are happier these days to sit on cash should be contextualised. And that maybe is a good point, because both Rupert and Wiese still have plenty ‘skin in the game’.

Rupert holds an array of local interests in Remgro (stakes in Medi-Clinic, Unilever SA, Distell, RMB/FirstRand, new assurance giant MMI, SEACOM, e-tv etc) and Richemont remains one of the best known luxury goods brand houses in the world. Rupert also clings onto his family’s fortune maker, tobacco, through a 5% holding in British American Tobacco via new investment vehicle Reinet. Indeed Reinet has also been making a few selected investments including the Jagersfontein diamond recovery venture.

Wiese still holds a major stake in supermarket giant Shoprite and clothing retailer Pep, and also has a variety of smaller portfolio interests in business that range from industrial/agricultural supplier Invicta Holdings to vehicle tracking specialists Digicore and mining group GoldOne International and Stellenbosch-based investment specialists PSG Group.

To be perfectly frank, neither Wiese nor Rupert are bailing out of their core investments.

But let’s look at what they are doing in terms of building heaps of cash.

The Rupert family’s two big investments – Remgro, and Richemont – both hold significant chunks of cash. Reinet, to a lesser extent, but one could easily consider the R20 billion stake in the very defensive and cash-spinning BAT as a ‘currency’.

Let’s look at Remgro first. While this diversified industrial investment company has traditionally leaned towards holding significant amounts of cash on its balance sheet (if only as buffer to ensure dividends are retained in tough times), the current cash holding sits at a rather imposing R5.6 billion at the end of March compared to R4.6 billion last year.

To put that in perspective; R5.6 billion is more than 10% of Remgro’s current market value and bigger than the market value of a well-established Cape company like Oceana.

Interestingly, the bulk of Remgro’s cash (roughly R4 billion) resides offshore – held mainly in dollars, euros, pounds some Swiss francs. The group’s cash balances will be further augmented by the R230 million earned from selling its stake in Fundamo to Visa (see separate story in this edition).

While Remgro certainly appears to be building capacity for a rainy day, the company has been adding to investments here and there. Most notably further investments have been made in Business Partners (the old Small Business Development Corporation), a R106 million investment to stretch its stake in Dark Fibre Africa to 41% and a new R120 million investment in Lashou, a Chinese marketing specialist.

Richemont, which generates heaps of cash from world famous brands like Cartier and Mont Blanc, is currently sitting on around R25 billion (2.6 billion euros) of net cash at the end of March 2011. That is roughly equivalent to almost 12% of Richemont’s market value, and well up on last year’s 1.9 billion euros.

At Reinet – at 236 million euros (R2.3 billion) has physically the least cash in the Rupert family companies – the situation is perhaps most interesting. The cash holding has shrinked markedly from around 343 million euros (R3.4 billion) last year.

Reinet chairman Johann Rupert, though, remains ultra-bearish on the investment markets. He noted recently: “Until we are more certain we have decided that we serve our shareholders best by not making ‘major bets’ on the future”.

Then supporting our earlier notion that BAT is essentially a currency for Reinet, he added: “The resilience and cash-flow generation of the tobacco industry and the sound performance of BAT have led us to hold on to this investment until we find alternate hedge strategies”.

Christo Wiese’s cash collection is a tad different in that the retail tycoon is not well known for holding large cash piles (and has never really showed too much fear of debt).

Wiese has in the last two months signalled an intention to raise substantial new cash by way of his participation in two specialised listed vehicles, Tradehold and Brait SA.

Wiese recently underwrote a rights offer to raise £59 million pounds (around R650 million) for Tradehold, which holds a small portfolio of UK-based properties and a minority stake in unlisted UK-based retailer Instore Plc.

There has been speculation that Wiese may be mobilising Tradehold as a new investment vehicle to take advantage of attractive asset prices in the prevailing market uncertainty.

Officially Wiese has said the fresh cash injection will enable Tradehold to “take advantage of the anticipated growing number of opportunities to expand its property portfolio with larger quality acquisitions that, up to now, has been outside its financial reach”.

Wiese’s participation in Brait SA (where he will serve as a non-executive director) is more intriguing.

Basically Wiese – through a targeted investment mechanism – takes the role as anchor shareholder in newly capitalised Brait with a influential 33% stake.

Brait’s R6.5 billion fund raiser was tagged to deals that saw Brait acquiring significant stakes in of 34,9% in Pepkor (Wiese’s holding company for Pep) and 49,9% in Premier Foods.

Brait also shifts its business model from a manager of third party funds to becoming an investment company – with some suggesting Bait will effectively become Wiese’s investment company.

The bottom line is that there is a lot of cash sloshing around between the Cape’s two premier deal-makers. CBN, and a host of ordinary investors, will watch with bated breath to see when the duo start buying in earnest.


 
 
 
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