Tokyo Sexwale’s Mvelaphanda Holdings stands at the crossroads, facing either the possibility of flourishing as a major Pan-African conglomerate or becoming overstretched and crashing, commentators suggested last week.
Over the past two weeks Mvela has pinned down two key deals, which raise its gross assets to R10-billion and strengthen its foothold in the mining and financial services sector.
These are seen to have catapulted Mvela chairperson Sexwale into the elite league of South Africa’s billionaires.
Remarking on the broad-based character of recent black economic empowerment deals, Mvela’s CEO, Mark Willcox, said “the creation of the first black billionaires and broad-based empowerment do not have to be mutually exclusive.”
However, BusinessMap Foundation analyst Colin Reddy suggested the company had reached the crossroads. “Either its got its investment approach right, or it has not learned from the lessons of Thebe [Investments] in the early days [of empowerment],”Reddy said.
Reddy believes that Vusi Khanyile’s pioneering empowerment outfit had burnt its fingers by “buying all sorts of assets without focus”.
A respected business strategist said that Mvela would ultimately have to focus or be locked into sectors with depressed margins.
Reddy was also critical of what he perceived as Mvela chairperson Sexwale’s lack of operational control of an increasingly sprawling empire. “It is unlikely that he controls the company,” he remarked, describing the charismatic former politician as “a glorified head of business development or marketing”.
Willcox hotly rejected the analogy, saying Sexwale offered strong leadership and was “first in and last out of the office”, but did not micro-manage.
Although the foundation and driving vision were Sexwale’s, the company had matured to the point where it would go on “as Microsoft would without Bill Gates”.
Last week Mvela unveiled the financing details of its R4,1-billion acquisition of 15% of Gold Fields’s South African assets, which have been bundled into a new company called GFISA.
In the same week, Mvela announced it had struck a deal, with other empowerment groups, to acquire 10% of Absa for R2,6-billion .
Apart from the Absa group stake, Mvela also owns 30% of the bank’s asset management subsidiary, Abvest, and runs a R500-million private equity fund with the group.
In addition to mining and financial services, Mvela has exposure to the energy sector through holdings that include 10% of the Ibhubesi Gas Exploration, with Petro SA and Forest Oil of the United States; the health care sector, through a 70% stake in Afrox health care among other interests; a R100-million property portfolio and miscellaneous strategic investments, some through the private equity fund.
Unveiling the equity fund in March, Sexwale noted that while Mvelaphanda remained a mining and energy company, “we are constantly presented with non-mining opportunities that offer superior returns”.
The desire to explore these has led to the formation of what newly appointed Mvela deputy CEO Yolanda Cuba terms “a diversified, Pan-African conglomerate”. The group has oil exploration rights in Sudan and mining operations in Angola, as well as a joint venture agreement with Gold Fields that covers seven African countries.
In the next six months, the company’s financial services and property interests will, like resources and gas, become stand-alone entities.
But analysts ask what rationale exists for a conglomerate if single-sector opportunities can be pursued globally.
Willcox noted that because of commodity price and exchange rate fluctuations, “earnings from mining are cyclical”, creating the need for a hedging strategy. Through its other investments, Mvela sought to achieve a “consistent earnings stream”.
Mvelaphanda’s criterion was to invest where there was a high yield and good cash flows. “More importantly, we look to transform assets at all levels” by sending senior managers to acquired entities to protect Mvela’s interests.
Willcox defended the multi-sectoral approach, arguing that Mvela had invested in industries that had synergies, starting with mining and energy. The expansion into property was motivated by the fact that almost all Mvela’s subsidiaries have property needs. And as property needed to be secured, Mvela had been drawn into security services.
An investment analyst, who declined to be named, argued that if Mvela was attracted by high margins, it would have to exit high-yield sectors at some point. As high returns attracted an inflow of investments, they inevitably tailed off.
The Mvela equity fund has a stated policy of undertaking investments with a four to six-year exit period.
The analyst expected the company to shed some of its assets in the long run and stick with what provided the bulk of its earnings — mining, oil and gas and financial services.
Hinting that Sexwale was leaning too heavily on white executives, Reddy wondered whether Mvelaphanda would fall short on employment equity on the new empowerment scorecard.
However Cuba, the company’s most senior woman, said head office was staffed by 16 professionals in the areas of corporate finance, merchant banking and law, 13 of whom were black and four of whom were women. They included deputy chairperson Mikki Xayiya and head of corporate finance Brian Mosehla.
Questioning the notion of broad-based empowerment, Reddy said one had to examine how much consortium members received compared to the principals. By choosing partners like Motsepe and Sexwale is “established business was conveying a message that there is only a small group of black people they trust to lead them to receiving more business”.
Cuba hit back, asserting that in the past year alone Mvela had distributed more than R100-million to consortium members, which included the Women’s Development Bank holding investment company, Mabutho Investments, housing the interest of Umkhonto weSizwe veterans; Xolela Mangcu’s Steve Biko Foundation and Sedibeng Mining.
Wilcox told the Mail&Guardian his association with Mvela had begun when he had been won over by Sexwale’s vision in 1998 and abandoned plans to migrate to the US to run a mining investment company.
There is a widespread perception that of all the prominent African National Congress-linked business people Sexwale has the least political ambition. It is seen as significant that he refused nomination for the ANC national executive committee (NEC) at last year’s Stellenbosch conference, while Cyril Ramaphosa, Saki Macozoma and Mathews Phosa continue to sit on the NEC.
Absa executive director Frans du Toit, described Sexwale as an “independent-minded businessman”, adding that he brought to the board a unique understanding of South Africa’s diversity. “He is helping us adapt to a changing world.”
Du Toit noted that while the Abvest and private equity fund deals with Absa were done with Mvela as an entity, the 10% equity deal was done with Sexwale himself, as an influential figure with a specific mandate to put together a broad-based consortium.
Sexwale now leads the consortium with former unionist and public servant Leslie Maasdorp and petroleum company executive Nthobi Angel.
Sexwale is said to believe that since empowerment is necessary to minimise social instability, it cannot itself be a risk.