/ 6 April 2018

Sagarmatha, Survé’s perilous peak

'In tech terms
'In tech terms

Sagarmatha is the Nepalese name for the highest peak in the world, Everest, and means goddess of the sky. In South Africa the name hopes to refer one day to an African tech giant to rival the likes of Naspers or even Amazon and Google.

But investors must be convinced that Sagarmatha Technologies can turn a collection of loss-making assets into fourth industrial-revolution gold. The pre-listing statement for Sagarmatha Technologies was released last week and the window for investors to sign on for a private placement closed on Thursday. If R3-billion can be raised from private placements of capital, the company will have the green light to list on the JSE next week Wednesday.

Many of the assets in the company are owned by businessman and media boss Iqbal Survé: 95% of the African News Agency; 83.3% of Loot Online; 60% of IOL Property; 100% of Independent Online; 100% of Sagarmatha Enterprise Solutions. Sagarmatha will also acquire 92% of Surve’s Sekunjalo Independent Media and with it, its 55% stake in Independent Media.

Sagarmatha, previously African Technology and Media Holdings, punts itself as an integrated African technology platform group with aspirations to become the African leader in e-commerce, digital media and syndicated content and technology ventures.

“Sagarmatha is the old Indepen-dent Media and a hodgepodge of new media businesses, recently launched and not making much money,” said Jean Pierre Verster, a portfolio manager at Fairtree Capital.

“Independent Media made an operating loss to June last year … The company as a whole is literally technically insolvent — its liabilities exceed its assets,” he said.

Adrian Saville, chief executive of Cannon Asset Managers, said there is nothing unusual about grouping assets in pursuit of a grand strategy, but in Sagarmatha’s case, “when you get down to the nuts and bolts, it’s an eclectic gathering of loss-making assets”.

The Sagarmatha proposition is fed by three elements, according to Saville: “A renewed interest in South African assets thanks to the appointment of President Cyril Ramaphosa, a spectacular success story of Naspers and more than a decade-long interest in similar type [tech/media] stocks.”

It has managed to capture the imagination of some international investors, such as United States billionaire and veteran investor Jim Rogers, who, according to the pre-listing statement, has committed to buying between R100-million and R150-million in Sagarmatha shares.

Andre Visser, JSE general manager of Issuer Regulation, said raising R3-billion was one of the conditions for Sagarmatha to list. “If this amount is not raised prior to listing then the listing cannot proceed.”

Given the company’s market valuation of R50-billion, as projected by an expert opinion in the pre-listing statement, this should be an easy feat. Sagarmatha anticipates it will raise R7.5-billion from its private placements of 189-million shares, the results of which will be known on Friday.

“But,” said Saville, “the bigger question is how the market cap was valued at R50-billion in the first place.”

At a price of R39.62 a share and 1.2-billion shares to be listed on the JSE’s main board, an independent opinion pegged Sagarmatha Technologies at this hefty price.

“When I saw the valuation, my jaw dropped. I’ve never seen a pre-listing valuation with such a large discrepancy,” said a fund manager who asked not to be named. The R50-billion valuation they seek versus a reasonable valuation of the business based on net asset value or on a multiple of profits were like chalk and cheese. “It’s an 11-digit positive number versus a negative number.”

As calculated from Sagarmatha’s pre-listing statement, the fund manager showed that net asset value is -R547-million, and only turns positive upon cash injected from listing.

The valuation was provided by Redwood Valuation Partners, a firm in San Francisco that claims among its clients technology companies Fitbit and WhatsApp.

“It’s interesting Sagarmatha needed to go to a professional valuation expert literally on the other side of the world,” the fund manager said. “It may be that these valuers are so far removed from South Africa that they don’t have a clue of the context in which the companies operate.”

Redwood’s three partners did not respond to a request for comment.

Loans from the Public Investment Corporation (PIC) and the South African Clothing and Textile Workers Union to Independent Media total R887-million, half of which must be repaid in August

The debt and technical insolvency will count against the company in its attempts to raise capital. But Verster said no company would embark on a listing process without a reasonable expectation of success. Sagarmatha has some committed capital from Rogers and others but this will total a maximum R600-million or 20% of the R3-billion minimum.

This has caused speculation that the only way Sagarmatha’s listing can succeed is if the PIC, which manages funds for the Government Employee Pension Fund, yet again puts pensioners’ money with Survé. The PIC extended R1-billion in debt financing to Sekunjalo Independent Media to acquire Independent Media in 2013. In December, the PIC approved a R4.3-billion private placement with Survé’s AYO Technology Solutions, which will seek to make acquisitions in the IT sector.

Critics speculate the PIC may be enticed to support the Sagarmatha listing, given that the ability to repay its debts is contingent on its success.

The PIC said in an emailed response to the Mail & Guardian that it would not put information into the public domain that “may be market sensitive”.

Sagarmatha did not respond to requests for comment on the specific criticisms relating to technical insolvency and the market value. But in an opinion article published in some Independent newspapers on Thursday, it explained that to value the first “African unicorn” to list on the continent is not easy. (In tech terms, a unicorn is a start-up company valued at more than $1-billion.)

A “multisided platform”, as Sagarmatha is described, typically generates huge margins, the article said. The valuation was done to meet the requirements of the JSE, it said.