Remgro, the biggest investment company on the JSE, on Tuesday defended its decision to unbundle its 25.8% stake in logistics specialist Grindrod.
Market watchers have questioned the motive for unbundling, which coincides with Grindrod’s strong operational turnaround and the imminent sale of Grindrod Bank.
Clucas Gray portfolio manager Brendon Hubbard said the unbundling decision was “irrational and irresponsible”. He noted that many of Remgro’s shareholders — particularly international investors and index tracking funds — would not have the mandate to hold Grindrod shares. “They will be dishing out Grindrod shares to people that might not want them. Some offshore shareholders might even have to google what Grindrod is ...”
Remgro’s stake in Grindrod is worth about R1.7bn. With the group in the throes of buying out minority shareholders in private hospitals subsidiary Mediclinic International and investing heavily in its fibreoptic investments, extra cash on the balance sheet might not be amiss.
Hubbard said there had been several recent offers to buy Grindrod, and questioned why no thought was given by Remgro to a book-build exercise, which would have brought cash back to the group.
At Tuesday’s investment presentation, Remgro executive director Pieter Uys said with Grindrod’s shipping interests unbundled and the bank sale announced, the group was in a position to review its own interests in Grindrod.
“We looked at all the various options — including selling our stake and also seeing if there was an opportunity to take Grindrod off the market.
“But all the offers we received were a lot less than the net asset value (NAV) of the business, and we did not consider this the best outcome for Remgro shareholders.”
Remgro CEO Jannie Durand pointed out that if the Grindrod stake had been sold, the cash proceeds would attract capital gains tax (CGT) and also sit in the group’s portfolio at a 40% discount. Currently Remgro’s share price discounts its last stated NAV of its investment portfolio by about 40%.
“What we are giving shareholders is the full value of the Grindrod shares back to them.”
‘A perfect position’
Durand conceded there could be an overhang in the market after the unbundling of Remgro’s Grindrod shares. An overhang of shares can cause a marked, but often temporary, weakness in a share price.
Durand, though, reassured: “Grindrod is in such a perfect position, especially with current supply-chain constraints. The company is well geared for the future ... I think it is a great share to hold.”
There were also enquiries about whether the unbundling decision was not undertaken to alleviate concerns about a possible conflict of interest with shipping giant MSC.
Grindrod and MSC, in partnership with Remgro, are both bidders for private partnership participation in the Port of Durban upgrade. Recently MSC also emerged as a consortium partner to Remgro in proposals to buy out minority shareholders in Remgro-controlled private hospitals group Mediclinic.
Uys stressed that there were “Chinese Walls” within Remgro that precluded conflict-of-interest issues. He added that at the time of the Durban port bid, Grindrod and MSC were not aware of their respective participation.
SmallTalkDaily analyst Anthony Clark did not believe Grindrod management expected the exit by Remgro. “I’d say it was ‘foisted’ upon them.”
But he believed that in the long run, this might not be a bad outcome for Grindrod shareholders.
“With Remgro soon out of the picture and Grindrod having a wider free-free float, any number of suitors could enter the fray to look at Grindrod. They already have a JV with shipping giant AP Moller — Maersk. Global shipping companies are awash with cash currently.”
Clark believed that MSC could not be ruled out as a possible suitor for Grindrod.
