FirstRand Unbundling Plan May Spur Others in Johannesburg

JOHANNESBURG (Capital Markers in Africa) – A holding company’s multi-billion dollar proposal to distribute its shares in Africa’s most valuable bank may spur other similar deals as pressure from investors to unlock value gathers pace, money managers said.

RMB Holdings Ltd. said Tuesday it plans to distribute its 34% stake in FirstRand Ltd., valued at 130 billion rand ($8.8 billion), to shareholders as part of a reorganization leading to an eventual delisting. Billionaire Johann Rupert’s Remgro Ltd., another investment company that owns 28% of RMB Holdings and a direct 4% stake in FirstRand, also said it will distribute some or all of these holdings.

The news would be welcomed by investors who regard some investment holding companies as having cumbersome structures that impose extra layers of cost and management, according to Johannesburg-based money managers Vestact. There could be pressure for others to follow this path.

“A lot of these companies are trading at a discount to net asset value and I think after five years of relatively poor market performance the management companies are under pressure to unlock value and returns to shareholders,” said Henre Herselman, a derivatives trader at Anchor Private Clients. “So I think it’s likely to see similar moves from others that are in a similar situation.”

RMB Holdings gained 4.6% in Johannesburg Wednesday as Remgro jumped 6.1%, the most in almost four years. FirstRand retreated 1.5%.

The unbundling of FirstRand is expected to unlock about 15 billion rand for RMB Holdings shareholders, Chief Executive Officer Herman Bosman said by phone. “Under our guidance, the business grew tenfold,” but it is now a “mature self-sustaining business” that no longer needs the input of a holding company.

Already, some major South African groups have sought to reorganize in a bid to achieve better value for their assets. Old Mutual Ltd. unbundled its 52% holding in Nedbank Group Ltd. in 2018, while Agribusiness-focused Zeder Investments Ltd. said in July that it would dispose of its stake in Pioneer Foods Group Ltd., purchased by PepsiCo Inc. for about 24.4 billion rand. In September, Naspers Ltd. carved out its 31% stake in Chinese internet giant Tencent Holdings Ltd., along with other international businesses and placed them in Prosus NV, which has a 101 billion-euro ($112 billion) listing in Amsterdam.

“With extra layers of fees under conventional structures and these skimming investor value, you usually see discounts widening over time,” eroding shareholder value, Casparus Treurnicht, a money manager at Gryphon Asset Management said by email. “I will not be surprised to see Reinet Investments SCA doing something similar,” he said.

Reinet, chaired by Rupert, was established in 2008 as an investment vehicle, taking on luxury group Richemont’s interest in British American Tobacco Plc as its principal asset. Reinet gained 1% on Wednesday.

Source: Bloomberg Business News