stellar gets time to unlock value
13 June 2018
By: Marc Hasenfuss Source: BusinessDay
Investment company’s shareholders approve contentious increase in the dividend rate on preference shares
Stellar Capital Partners (SCP), the small investment firm that has retail tycoon Christo Wiese as a major shareholder, has been given breathing room in its efforts to unlock value.
Shareholders in SCP on Tuesday engaged executives in a robust debate before approving a contentious increase in the dividend rate on the company’s preference shares.
Shareholders that participated in the Cape Town meeting included investment entities that have built meaningful stakes in SCP in recent months, notably Hollard-aligned investment company Westbrooke, Rational Expectations (linked to Capitec Bank founder Michiel le Roux) and Genesis Capital Partners.
The R600m worth of preference shares will now carry a dividend rate of 120% of the prime rate.
A drastic fall in SCP’s net asset value over the past 18 months triggered the change to the preference share structure.
R600M WORTH OF PREFERENCE SHARES WILL NOW CARRY A DIVIDEND RATE OF 120% OF THE PRIME RATE. A NET ASSET VALUE DECLINE HAS LED TO THE CHANGE IN THE PREFERENCE SHARE STRUCTURE
According to Stellar’s interim report to the end of December, two financial covenants set out in the convertible preference share circular — namely the asset cover ratio and net asset value minimum threshold — had been breached.
But Stellar had obtained waivers of compliance with all preference share financial covenants from holders of 92% of the preference shares, including banking giant RMB. The revised preference share arrangement means Stellar has bought time to unlock the value of its heavily discounted investment portfolio, which includes majority stakes in asset manager Prescient and security technology group Amecor as well as an influential stake in JSE-listed Torre Industrial.
Shareholders were still keen to gauge whether a restructuring of the preference share agreement was the most prudent option for Stellar, noting that certain executives were ordinary shareholders as well as preference shareholders.
Stellar CEO Peter van Zyl stressed the preference share restructuring did not signal a long extension of the arrangement. “It’s not a long-term instrument … we intend to settle the preference share liability over the next 12 months. We can do this in a piecemeal (repayment) process as well.”
Van Zyl reminded shareholders that SCP has already indicated that two of its investments were up for sale and another investment might be disposed of through an empowerment deal.
He said incurring interest-bearing debt would prove more costly than the revised preference share structure.
SCP nonexecutive director Corrie Roodt said that the revised preference share structure was in the best interest of shareholders, precluding any preference shareholder — and specifically a bank — from pushing the company into a fire-sale of its investments.
SCP carries a sum-of-the-parts value of about 105c per share, but trades at about 60c on the JSE. The large discount has prompted calls for SCP to unlock value.
However, Jared Winer, an executive at Westbrooke, was concerned that the revised preference share arrangement could delay efforts to unlock value at SCP.
He said that preference shareholders — that earned dividends on their preference shares — could afford to wait for an eventual unlocking of value.
Large SCP shareholder James Bishop suggested that the company had no choice in the matter.
“It’s the only way to redeem the preference shares in an orderly fashion.”