[miningmx.com] — CYRIL Ramaphosa’s Shanduka group looks to have made a profit of up to R2.3bn on the disposal of its 11.8% black economic empowerment (BEE) stake in iron ore and base metals group Assore.
That is probably the reason Shanduka has agreed to leave some money on the table in the deal for Assore’s next empowerment partners by selling its shares at R163, which represents a 23% discount to Assore’s 30-day volume weighted average price (VWAP) of R212.91.
Shanduka acquired the 11.8% stake in 2005 through a BEE transaction in which it bought 5.7% from Old Mutual and received another 6.06% in the form of newly issued shares.
The value of the deal at the time amounted to R418m, based on the acquisition by Shanduka of 3.29 million shares at the then market price of R127 a share.
But Shanduka did not actually pay the stated nominal price of R127 a share because the 6.06% stake acquired from Assore was issued at R85 a share. The company announcement did not specify what Shanduka paid for the shares acquired from Old Mutual.
In fact, Shanduka did not put up any of its own funds at all because the deal was funded through preference shares provided by Standard Bank and facilitated by Assore.
The Assore share price subsequently rocketed on the back of the iron ore boom and Assore shares were split five-for-one in September last year, which is why the 11.8% stake being sold by Shanduka now consists of 16.46 million shares.
Tuesday’s announcement states merely that the 2005 investment by Shanduka “has yielded attractive returns to Shanduka and its shareholders’.
That’s the mother of all understatements. Asked to confirm that Shanduka’s profit on the deal amounted to more than R2bn, Assore spokesperson Jacque de Bie said: “Yes, that sounds about right.’
In reply to emailed questions, Shanduka CEO Phuti Malabie said: “The investment return exceeded our minimum requirements, net of funding and other costs incurred.’
Shanduka could not sell those shares before 2014 without permission from Assore, but this early disposal has been negotiated between Shanduka and Assore because it is a “win-win for both companies’, according to de Bie.
In terms of what Assore is calling its “third empowerment transaction’, the 11.8% stake is being sold to a special purpose vehicle called MS904 which is owned by two independent empowerment trusts set up by Assore.
According to an Assore statement, “the shares will be ultimately owned and controlled by and for the benefit of B-BBEE (broad-based black economic empowerment) groupings who will become long-term shareholders in Assore.
“The discount achieved on the Assore shares creates an immediate economic benefit underpinning the third empowerment transaction, and ensures the sustainability of the third empowerment transaction for the future B-BBEEE beneficiaries.’
Standard Bank is to fund the acquisition of the shares by MS904 through a R2.7bn loan facility, and Assore has agreed to guarantee MS904’s funding obligations.
The benefit of the new deal for Assore is that these shares will in future be owned by long-term shareholders, so extending its compliance with empowerment legislation well beyond the previously negotiated 2014 timeframe negotiated with Shanduka.
Assore chairperson Desmond Sacco commented that the transaction “not only delivers considerable value to Shanduka as our former BEE partner, but it will further broaden the company’s empowerment base by providing support for broad-based BEE while also securing Assore’s empowerment status for the long-term ahead of the 2014 target.’
Malabie said the reasons for the 23% discount on the sale, in addition to the contractual lock-in until 2014, were that “discounts are normal when dealing with listed share blocks of this magnitude, and it was a further intention to provide immediate upside for new empowerment parties’.
Asked what Shanduka intended doing with the proceeds, Malabie said: “In addition to a rationalisation of our group balance sheet, our investment strategy is to partner with investee companies where we can add value and influence the strategic direction in chosen sectors such as mining and consumer brands.
“This transaction provides us with an opportunity to take further meaningful stakes in those sectors, and allows us to become operationally involved and therefore play a meaningful role in the mainstream economy.’
