South Africa: ARC Investments chases acquisitions

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African Rainbow Capital (ARC) Investments, the JSE-listed, black-owned investment holdings company backed by Patrice Motsepe, has R2bn for acquisitive deals and plans to spend some of it in financial services.

The company, which is majority-owned by the unlisted African Rainbow Capital, would unveil deals in financial services in the coming weeks, including one that increases its stake in Afrocentric Investment Corporation, co-CEO Johan van Zyl said on Tuesday after announcing ARC Investments’s maiden results.

ARC Investments listed on the JSE in September 2017. Since African Rainbow Capital’s formation in 2015, it has invested more than R7bn in 40 deals, making it one of SA’s largest black-empowered investment holdings companies.

On Tuesday, for the first time since its formation, it provided detailed information on its underlying investments and future strategy.

At the end of December, intrinsic net asset value amounted to about R9.1bn, comprising a portfolio value of R7.1bn and cash of nearly R2bn.

Investment income between September 7 and December 31 amounted to R341m, with an annualised return on the intrinsic portfolio value of 14.8%.

ARC Investments would target an annualised risk-adjusted return of 16%, said chief financial officer Machiel Reyneke.

The company’s portfolio spans, among others, telecommunications, mining, agriculture, property and financial services. Its single largest investment is mobile network operator Rain, in which it has a 20% stake valued at R1.9bn, or about 26.7% of its entire portfolio.

Investments in Alexander Forbes, Afrimat, BlueSpec and Elandsfontein Exploration and Mining account for a further 32% of its portfolio.

Newly licensed digital bank TymeDigital, in which ARC held a 10% stake, had already registered about 280,000 customers on its platform, primarily in Pick n Pay stores, said Van Zyl.

It would launch as a fully fledged retail bank in the middle of September.

The bank’s majority shareholder, Commonwealth Bank of Australia, had committed A$1bn ($0.79bn) to rolling out the bank, he said.

The unlisted African Rainbow Capital is wholly owned by Ubuntu-Botho Investments, the product of one of SA’s most successful black economic empowerment (BEE) deals. Motsepe and about two dozen black community groups and companies are shareholders of Ubuntu-Botho, which is Sanlam’s single largest shareholder, holding a 14.5% interest in the insurer that was worth R25bn at the end of 2017.

When done the right way, BEE was a “suitable framework” for redistributing wealth in SA, said Van Zyl.

“A lot of how BEE has been done is completely wrong. It creates one or two rich people who don’t contribute back to society or the company.”

ARC Investments would inject some debt into its portfolio once its underlying investments started paying dividends, Van Zyl said. The company could also approach the market for capital in future, once its business model was better understood.

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