I thought my Tuesday morning couldn’t get any worse after having to top up my coffee with almond milk. But things continued to sour when the first Sens announcement of the day detailed a proposed delisting of the sizeable empowerment venture African Rainbow Capital Investments (ARC), which has a market value of more than R13bn.
It was not a totally surprising development. There had been mutterings — brought on by the persistently large discount to NAV — about rethinking the listing in the recent past. Still, if the scheme goes through, the JSE will lose another black-controlled investment vehicle — following in the footsteps of New Africa Investments Ltd, Real Africa Investments, Mvelaphanda Group, Makalani, Cape Empowerment Trust and African Equity Empowerment Investments. It’s really only Hosken Consolidated Investments and Brimstone Investment Corp flying the flag these days.
The diminishing black investment power on the JSE is not a great sight to behold — and it certainly won’t placate the agitated narrative from some quarters that the local bourse remains a bastion of white economic influence.
I still think there is a place, or rather a need, for a South African black savings champion — like the Rembrandt Group of yore. It seems, sadly, unlikely at this point. But I also can’t help casting a cynical gaze at the decision by ARC to pitch a 975c per share offer to minority shareholders. Let’s be honest, some punters will delight in the offer.
ARC shareholders might feel they are being robbed of what could be their ‘Capitec moment’
ARC spent the first part of 2024 at levels between 450c and 600c, meaning that some fortunate investors will make a nifty turn by accepting the 975c a share. ARC points out that the offer represents a 12.6% premium to Monday’s closing price of 866c and a 21% premium to the 30-day volume weighted average price of 806c.
More importantly, the offer price is pitched at a discount of almost 23% to the latest NAV for ARC. That might sound cheeky, but I think it’s quite reasonable since discounts on most listed investment counters have widened considerably in the past few years … and discounts of between 45% and 50% are now common.
Then again, some of the latest valuations of TymeBank, linked to the Nubank funding arrangement, might make some feel that the actual ARC NAV is markedly higher. What I don’t like — and, for the record, I’m not a shareholder in ARC — is that the delisting scheme cuts out minority shareholder participation in the group’s most promising investment in TymeBank.
While broadband data and mobile service provider Rain is ARC’s biggest investment (by some margin), I think the influential shareholding in TymeBank is the group’s prize asset. Recent developments, including the introduction of a new strategic equity partner in the form of Nubank, have certainly heightened its potential.
I have no doubt there must be medium-term plans to list the fast-growing TymeBank on an international bourse (most likely the Nasdaq with a secondary listing on the JSE), where, I am fairly sure, the business will attract some serious international investor attention.
To put it bluntly, ARC shareholders might feel they are being robbed of what could be their “Capitec moment” — remembering how this PSG-backed banking venture really caught fire after its listing in 2002.
Overall, the delisting decision is just a little curious … if not illogical. ARC admits in its just-released interim results that “a significant highlight of the reporting period is the strong progress that has been made in maturing the portfolio and reducing the discount at which the share price is trading”. Almost the entire portfolio is now deemed high-growth or mature — which, ARC maintains, would “continue to improve the predictability of earnings and ensure lucrative growth prospects in future”.
Dividend income is growing too. Let the good times roll … surely? But ARC also argues that the current share price does not reflect the true value of the investment in the ARC Fund and trades at a discount to NAV — “meaning that investors in ARC are not receiving the true value of their investment”. I beg to differ. I would be glad to live with a discount until the full value in TymeBank is unlocked. The interim results confirm that the digital bank has shown consistently higher growth in customer onboarding compared to international peers. At the end of 2024 Tyme had 10.7-million customers, and it is “experiencing consistent monthly growth in income-generating transactions”. Total deposits rose to R6.9bn in the six months since the end of June, while net advances increased from R1.9bn to R2.3bn over the same period.
TymeBank, according to ARC, is making rapid progress towards sustainable monthly profitability — even if investments in advanced data analytics and AI to enhance customer experience, develop innovative products and drive higher activity rates might have an impact on short-term profitability.
Meanwhile, the Tyme Group’s first international thrust, GoTyme in the Philippines, is also thriving — reaching 5-million customers at the end of 2024. I sincerely hope ARC rethinks the delisting proposal — or at least gives a sympathetic ear to minorities if there is concerted pushback against the buyout offer.
Is there perhaps not a middle ground that will allow minorities to remain on board to reap what I think will be the huge benefits of maturing and listing TymeBank in the medium term? There appears to be no option to remain aboard an unlisted vehicle, which would have been a worthwhile consideration, I think.
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