The market might have seemed a little indifferent to fashion retailer Pepkor, whose shares are down about 7% year to date.
But the group’s share placement last week was quickly mopped up as Ibex (formerly Steinhoff International) offloaded nearly its entire stake for R26.6bn. The offering drew overwhelming institutional demand, absorbing the full allocation within minutes.
Ibex rebranded from Steinhoff after the 2017 collapse, South Africa’s largest corporate fraud, which spawned myriad lawsuits, restructurings and asset sales.
The Ibex exit allows Pepkor — a 6,000-store retailer across Africa and Brazil with brands such as PEP, Ackermans, Shoe City and Avenida — to operate free of overhang.
The shares were sold at a 6% discount to Pepkor’s prevailing market price with Goldman Sachs, JPMorgan Chase and Investec managing the sale.
Major buyers included the Public Investment Corp, which increased its Pepkor stake to 15.46% after investing $31m, bringing total exposure to $874.34m. US hedge fund Silver Point Capital, which previously bought Steinhoff creditor claims, now holds 8.5% of Pepkor.
Christo Wiese, the one-time chair of Pepkor and Steinhoff, sold Pepkor to Steinhoff in 2014 in exchange for a 20% stake, making him the single biggest shareholder in Steinhoff at the time. He says the price achieved by Ibex was a good one for sellers and for buyers.
“It’s fantastic,” he tells the FM. “It’s just a pity there is a sad element that [Markus] Jooste stole a large portion of that wealth from the old shareholders, including myself. But that’s history, it’s water under the bridge.”
It’s just a pity there is a sad element that Jooste stole a large portion of that wealth from the old shareholders, including myself. But that’s history, it’s water under the bridge
— Christo Wiese
He has moved on after the Steinhoff debacle. “We’ve got exciting businesses, we’re building them and here and there we get involved with new businesses.”
He calls Pepkor a great business. “It has a fantastic management team.” Under CEO Pieter Erasmus, it “can only go from strength to strength”.
As for the 5% Wiese still has in Pepkor: “I’m not selling ... I’m very happy with my stake.”
When it was founded 60 years ago Pepkor had shareholders’ funds of R125,000, he reflects — now it has a market cap of about R100bn.
Pepkor — Africa’s largest clothing retailer — was one of Ibex’s biggest remaining assets. Analysts view this disposal as a milestone in Ibex’s efforts to reduce debt and simplify its corporate structure. It closes a chapter for Pepkor and severs links with a company tainted by scandal. Ibex will use the proceeds to shore up its balance sheet and address legacy liabilities.
Jean Pierre Verster, CEO of Protea Capital Management, says the share placement improves Pepkor’s free float and could trigger a reweighting in the top 40 and other index-tracking funds. “To sell R28bn worth of shares in an hour suggests significant offshore institutional interest,” he notes.
The transaction was made possible after Ibex and the South African Reserve Bank reached a settlement over a R6.3bn dispute relating to exchange control violations. That lifted previous restrictions on Ibex trading its Pepkor shares.
Verster says the clock is ticking for Ibex, which needs to wrap up the whole structure and repay creditors by the end of next year. “That can be extended for two one-year periods — so there is some time left — but it seems the two parties didn’t want to keep on fighting.”
Ibex’s winding-down process continues. It still holds a 72% stake in Pepco (listed in Poland) and has investments such as Bud Group, co-owned with Investec. It previously held Mattress Firm, now part of Somnigroup after a merger with Tempur Sealy.
The expectation is that by next year Ibex will have sold these stakes too, leaving it with assets worth between €6bn and €7bn, says Verster. He notes that the group’s total liabilities are roughly €12bn.
“That still means there’s a €5bn hole in round terms.” Because of that hole, the difference between assets and liabilities, “the chances of previous Steinhoff shareholders getting anything from the contingent value rights is just about zero ... So you really need the Pepco shares to shoot the lights out and go up roughly three times in value before the €5bn hole will be filled and the contingent value rights see anything.”
Anchor Capital investment analyst Steph Erasmus says the market had long expected the Pepkor disposal. “It’s a clean break — finally cutting ties with the Steinhoff era, and increasing the share free float of Pepkor. A larger free float makes stock more attractive to large institutional investors and index funds, which can lead to structural demand.”
He says the investment case for Pepkor is a good one and that the underlying Pepkor price has been quite strong relative to its peers. “Pepkor has been a pretty good story over the last while, with its fintech division offering exciting upside optionality.”
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