Jacque Magliolo reports on the listing of Nthato Motlana’s New Africa Investments
THE listing of New Africa Investments Limited (Nail) brought a cheer from JSE dealers. However, sentiment is already waning with speculation bandied around the corridors of the JSE that the share cannot retain the high attained at listing in weeks to come.
Stockbrokers do not invest in companies but in its share price and their perception of how that price will perform in the future is not “cast in iron”, says a dealer. He indicates that the JSE is to introduce new listing requirements in January 1995 and there is speculation that Nail directors have not taken these into consideration prior to listing.
The first problem is one of shareholder structure and the proposed requirement that 25 percent of a company’s share capital is held by the public. While Nail’s pre-listing statement indicates that 25,6 percent of its shareholders are “other black shareholders,” it does not provide details as to whether these are individuals or organisations.
It has been recently reported that South Africa’s two largest unions are negotiating with Nail to acquire a stake in the company. While Cosatu (membership of one million) has admitted that they are still considering the offer, the National Council of Trade Unions (Nactu) — with a membership in excess of 350 000 workers, has announced that it intends to take up a 13,7 percent stake in Methold, the former name for Nail.
However, not all analysts are pessimistic.” Until the company’s share register is released, we cannot say whether 25 percent of the company is held in public hands or not,” says Mathison & Hollidge industrial analyst Bruce Krugel.
Another structural problem is the pyramid. JSE proposals will prohibit second-tiered pyramids, which means that a holding company which is listed can only have one listed subsidiary. In turn, that holding company cannot have a major shareholder that is listed. While Nail’s shareholders are not listed, Sanlam and Sankorp are likely to seek a listing in the future, which would force them to sell their shares in Nail.
It is doubtful that Nail would be able to acquire Sanlam/Sankorp’s shareholding. Although its pre- listing statement indicates that they bought 30 percent of Metlife from Sanlam, Nail actually controls only 10 percent and has indicated that they wish to acquire an additional 20 percent.
The latest Labour Research Service newsletter, a union barometer, expresses doubts that Nail can carry out this plan. “The first effort by Methold to attract money for its stake in Metlife has failed.” They needed R140-million to buy a 10 percent holding, but received only R34-million. Eventually Metropolitan was paid by the IDC, who are now still waiting for its funds from Nail.
“The second effort is much more ambitious,” says the newsletter. Sanlam is selling a further 20 percent stake in Metlife to Nail, which is also buying Corporate Africa’s seven percent stake in MTN and a 52,5 percent shareholding in The Sowetan newspaper.
Says the newsletter: “If the first effort failed, how can the second effort succeed? Especially as it is more than three times bigger.”
Yet another problem with listing is a number of unsubstantiated promises without disclosure. The pre- listing statement shows that Nail chairman Dr Natho Motlana owns Corporate Africa, which in turn controls 51 percent of Nail. There is no disclosure as to how Corporate Africa raised the estimated R207-million to finance the deal. Without clear understanding of how the corporate structure will function, stockbrokers will be bound to avoid the share.
The share listed at 140 cents and quickly climbed to 200 cents. Without clear disclosure and a removal of doubts, analysts believe that the share cannot sustain this level. This is particularly true in view of Nail’s marginal expected growth rates for its full year to end-September, where it expects to show a 16 percent rise in bottom line growth. This is below the risk-free long-bond rate of 17 percent and below stockbrokers’ and investors’ expectations of a return of about 25 percent.