FIFI PETERS: African Rainbow Capital, the investment company founded by Patrice Motsepe, today published its annual results. The company, which has investments in a wide range of sectors such as telecommunications, mining, agriculture and financial services, tripled its cash in the year to June to 669 million rand.
I’m joined by the Co-CEO of African Rainbow Capital, Johan van der Merwe, to learn more about the numbers. Johan, thank you very much for your time. You’re in a healthier financial position than you were this time last year, and yet you’ve decided not to pay dividends, assuming you think the money could be better used elsewhere. Is that so? And if so, where do you plan to send this money?
JOHAN VAN DER MERWE: Good evening, Fifi. Nice to join you and your listeners. Yes, you hit the spot. I think the investment company will continue to pay dividends [is] basically admitting defeat that you can’t put that money to better use. So we have plans for that money. We already have certain commitments. Obviously, after the five-year rollover in September, we have reached a maturity level where we are not only investing, but also divesting. So over time you’ll see that we’ll also be raising money and getting more money through sales. We are looking for better opportunities and good opportunities to put that money elsewhere. This is not to say that we will never pay a dividend, but at the moment we do not have any plans to pay a dividend.
FIFI PETERS: As with Afrimat, where you sold about 12.4 million rand worth of shares in the period under review, you hinted at the possibility of disinvestment. I think the natural question will be: who is next or what is next?
JOHAN VAN DER MERWE: This is the main thing. On the mining side, we invested in Afrimat. He has a fantastic and very competent management team. In fact, the share increased much better than we even expected, and the sale of Afrimat is almost a “little punishment” for how well they did, which is never nice to see. But yes, we have profited from that side. It has become too big a part of our own portfolio valuation, especially if we are also mining. We still have between 600 and 650 million rand worth of Afrimat shares. But as you mentioned, we did sell shares worth Rs 740 crore last year.
FIFI PETERS: On the other hand, in terms of where you see opportunities and where you might invest, let’s just start with the companies that are currently in your portfolio. You had a hand in the Elandsfontein project. Could there be more money for them, could there be more money for your other investment companies, given the fact that it’s still quite difficult there if we look at the growth of the South African economy.
JOHAN VAN DER MERWE: Yes, it’s true, Fifi. Some of our bigger investments were actually earlier cycle investments like Rain, TymeBank, and also the mine. The mine did take more money than we expected. It was something we wanted to spend, but obviously you have to look at it from scratch every time. We think we will get a very good return for the money we spent there. On this side, commissioning took a bit longer. We still have some challenges, but at least we can see the light at the end of the tunnel. It is important that there are small reserves of money.
As you say, we’re entering a very uncertain environment with rising interest rates and then obviously inflation as well. And when our investees, existing companies, need money, we want to be there for them and help them as well.
But I think we’re in that cycle now where we’re not only investing, but we’re divesting, and we’ve also gotten bids on some of our companies.
So I think in the next few years you’re also going to see more sales than what you’ve seen in the past because we’ve actually built the portfolio so far,
…while now I think we’re winding it down, bolt-on acquisitions, but certainly where we don’t see that we can add more value and we think that a certain investment is over for us, we also we will sell.
FIFI PETERS: It’s interesting because we seem to be in this consolidation environment. You’ve highlighted right now that some of your companies that you invest in are potential takeover targets. Don’t forget to share who dropped whose attention at this stage or not [able] share this detail?
JOHAN VAN DER MERWE: It’s difficult because we are only shareholders in some of them, and many of them have other shareholders, especially the founding members of these and so on. But there is one very interesting business that we have invested in in South Africa called PayProp. They have a platform that really supports rentals. They collect all the rent and then give you a very good way of reporting etc. It’s a business that has expanded into the UK, they’ve expanded into Canada and now into the US as well.
Based on this, one of the large American companies made a bid for this company, which we are considering at the moment.
If we sell this business in the near future, which we believe we will, it will generate between 450 and 500 million rand cash for ARC.
FIFI PETERS: Who could go where?
JOHAN VAN DER MERWE: This is a good question. I think we definitely want to bolster some of the acquisitions in the financial services space. And another area where Dr. Patrice Machepe is very interested in us playing a bit more of a role is food security. So you’ll probably see us at least looking at the agricultural side a little bit more as well. But as you know, agriculture also goes through cycles – whether you have droughts or hailstorms or problems with that – but that’s an area that he certainly wants to impact as well. So you’ll see that we may be looking at some of those opportunities in the near future as well.
FIFI PETERS: Well, we’ll be watching this space closely. So only at TymeBank, your financial services company, or basically a bank. The last time we spoke to the bank on SAfm, the CEO was talking about the first account being opened in the Philippines, or said to have been opened in the Philippines. How are things going with TymeBank in this part of the world?
JOHAN VAN DER MERWE: It’s going well. They have a bank there. They call it GoTyme. As you know, “Tyme” stands for “take your money everywhere”. That’s why it’s a digital bank. Obviously, South Africa delivers on the plan to a very large extent. it took us a little longer to grow the bank here. We now have over five million customers. But we believe in everything that we have received [where] The Philippines is really now, the rollout of the bank will be much shorter in terms of the knowledge that we have gained.
As you could see, we also got our banking license in Pakistan. So we will be distributing in Pakistan as well. In those outside the jurisdiction [it is] It is very important for us to find a very good partner and we think we have a great partner in the Philippines and we are also talking to a lot of people in Pakistan. First, we want these partners to have good distribution, and second, they also want to have deep pockets, because opening a bank is no small feat.
FIFI PETERS: Regarding South Africa, you said that TymeBank has about five million customers. So the Shoprite Money Market account was touted as a potentially big challenge to TymeBank’s growth. Would you agree?
JOHAN VAN DER MERWE: Yes, I think so. If you look at retailers, even mobile operators, they all have access to financial services to some extent. We believe that over time it will become very important to have the right type of products, and just having a savings account or something like that is not enough. You should also offer a range of services. And in many of these cases – and I’m not saying we’ve done this yet – we’d like to join hands with retailers, with mobile operators to see how we can actually build partnerships in these areas to make what is best and good for customers.
FIFI PETERS: In terms of mobile networks and mobile telco players, you and I talked a little bit earlier about the potential MTN/Telkom/Rain disaster – or maybe it’s not even a disaster because that’s a more negative word. But the interesting activity going on between the three of you now, the eventual prize is Telkom, which MTN initially showed interest in. For the interest of a SAfm listener, why do you think a Rain/Telkom alliance is potentially better than an MTN/Telkom alliance? And, if the Rain/Telkom alliance doesn’t happen, what will Rain look like after that?
JOHAN VAN DER MERWE: I think that’s a very good question, Fifi, and obviously, as I said before, we’re only a 20% shareholder in Rain, so it’s up to Rain’s management and board to do that, but we have people on the board, so Anyway, I have a little understanding of it. So it’s important for us to be at the table when it comes to taking over such valuable assets……10:41 like Telkom. We think the combination of Rain and Telkom can serve very well. We are concerned that if MTN completely takes over Telkom, there will be less competition because Vodacom and MTN will have too many gorillas. [with]……11:06 Telkom on one side, and a distant third will be us and possibly some other mobile operators.
So I don’t see the competition authorities, which are usually very good in South Africa, going to allow a complete takeover of Telkom by MTN. I think there will be even more unification. I would like to believe in a merger of more or less moral equals. There is a lot that we can bring to the table. They have a lot of things. And combined, at least there could be a third very good mobile network operator in South Africa and a data provider. Then you have the likes of Vodacom, MTN and Rain/Telkom who I think will serve customers and the public much better because there will be more competition.
FIFI PETERS: is correct. Cell C – Do you have an opinion on these assets?
JOHAN VAN DER MERWE: No, we don’t. We know they’ve been through their challenges too. I think they sort them out somehow and so on, but we haven’t looked at that right now. I think the market because we don’t give the market enough information about Rain, because Rain is an unlisted business and because as an investment holding that only has 20% of Rain, the market needs a lot of information about Rain, but it’s difficult because they see the competitive advantage of not being listed and not having all their strategies, plans and numbers. Obviously there is a certain minimum that we should get, but the same with Cell C. This information is not always readily available, but I believe that it will be a better service for the public when there are stronger mobile operators, and not just the two gorillas and the rest.
FIFI PETERS: Well, time will tell how this story ends. Johan, thank you so much for joining the show right now. Johan van der Merwe is the co-CEO of African Rainbow Capital.