Right now, most BEE investment companies are slimming or even winding down. Fred Robertson of Brimstone achieved his aim of joining the business establishment, and Gloria Serobe of Wiphold has been there for years, so they had nothing to prove when they unwound their holdings in Old Mutual and Nedbank 2½ years ago.
But Patrice Motsepe, head of the Ubuntu-Botho consortium, had different views. The consortium has kept 14.5% of Sanlam and invested much of the profits into African Rainbow Capital (ARC). It is the most prominent of the new-generation BEE companies.
Motsepe doesn’t need to engage in windowdressing. He has appointed the three people he believes are best-suited to run the business. They happen to be white. Granted, they are an exceptional line-up: Johan van Zyl, who as CEO joined Sanlam when it was a poorly rated shop with a 40% discount to equity value in 2003, to about a 26% premium when he left. With the blarney factor of his successor, Irishman Ian Kirk, the premium is now 50%. His co-CEO Johan van der Merwe took Sanlam Investment Management off the canvas and certainly has the energy for the job. For me the joker in the pack is finance director Machiel Reyneke, who worked his magic at short-term insurer Santam with Van Zyl and several other bosses.
There is logic to Motsepe bringing in these old-school executives to run the fund. The value proposition is to provide black capital to predominantly white businesses, which his executives know well. Two-thirds of the 20-strong ARC team are black.
Van Zyl says ARC can demand quite hefty discounts because it is prepared to lock into businesses for several years
— Stephen Cranston
No doubt personal relationships helped ARC invest in technology firm Rain, where major shareholders are former FirstRand executives Paul Harris and Michael Jordaan. It is one of a handful of cellphone network operators with a valuable portfolio of towers.
ARC has also invested in MetroFibre. Van Zyl sat on the Absa board with Steve Booysen, who now installs fibre in housing estates.
ARC has ambitions to be a significant player in financial services, the comfort zone for all three. It has taken a 40% stake in Constellation Capital, run by Ray and Frank Cadiz, and 30% in home loans originator ooba. Van Zyl says there will be opportunities for these businesses to work together. For example, 17%-held Alexander Forbes now distributes a liability-driven investment product for 28%-held Colourfield Liability Solutions.
Potential in TymeBank
ARC sometimes co-invests with Sanlam, as it has done in taking 7% of Afrocentric, which controls Medscheme, a medical aid administrator.
But it is the 10% in new bank TymeDigital that has the most potential. Van Zyl says it is vendor-financed by the main shareholder, the Commonwealth Bank of Australia, other than a deposit of about R56m from ARC.
Though Motsepe has other mining vehicles, ARC also invests in mining. Veterans Bernard Swanepoel and Sipho Nkosi sat on the Sanlam board with Van Zyl, so they were logical partners. ARC even has a direct holding in a mine, potash producer Elandsfontein.
Van Zyl says ARC can demand quite hefty discounts when it buys into companies because it is prepared to lock into businesses for several years. For staying in for 10 years, the discount can be 45%. It is also a discount to pay to get Motsepe’s consortium as partner, as it is a better brand than many others. Yet ARC itself trades on the JSE on a 32% discount. Many would argue that it is just too diversified.
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