Nhleko wants AfriSam cemented on continent

2011-10-01 15:20

Having conquered Africa as head of a mobile phone company, former MTN boss Phuthuma Nhleko now has his eyes on turning cement producer, AfriSam into a continental powerhouse – if he succeeds in taking over the group.

These plans are revealed in the proposal to take control of the debt-ridden cement producer. In the proposal, Nhleko’s company Worldwide Africa Investment Holdings (WAIH) says it sees AfriSam’s future not as a business bound by geographic constraints within South Africa and Tanzania – as is currently the case – but as a company reaching across Africa.

In December last year, Nhleko sent the non-binding proposal on behalf of his company to two key shareholders of AfriSam, the Public Investment Corporation and Cemasco, in which he laid out his plan to buy a controlling stake in the company and then help it reduce its back-breaking R12.8 billion debt.

The proposal boasts that Nhleko’s extensive business contacts in Africa could be of benefit in a drive to expand AfriSam across the continent.

“Mr Nhleko’s strategic relationships on the African continent (political and commercial), vision and the tactical implementation thereof, could have a most favourable impact on AfriSam’s ability to broaden its vision, enabling it to embark on its next phase of growth,” reads the proposal, dated December 9 2010.

Despite his strong business credentials, Nhleko’s bid for AfriSam nearly stumbled after it faced opposition from Bunker Hills, a 37% shareholder in the cement producer.

The black-owned investment firm accused Nhleko of attempting to eliminate black investors in AfriSam after he proposed that black investors be bought out before he could invest.

Initially, WAIH said it was walking away from its bid to acquire AfriSam, but it later changed tack and bought 37% of the cement group’s

R12.8 billion debt, making it a major creditor. WAIH now wants to convert the AfriSam debt it holds into a stake in the company.

AfriSam risks being taken over by its creditors if it fails to settle its debt.

Analysts agree that Nhleko is an experienced campaigner on the continent and the business contacts that he made when he was the chief executive of MTN could come in handy if AfriSam extends its tentacles across Africa.

During his 9-year reign MTN expanded from a small South African telecoms firm into an emerging market cellphone giant, boasting more than 140 million subscribers and spanning 21 countries across the continent and the Middle East.

Nhleko built MTN by winning cellphone network licences in lucrative markets like Nigeria and by making key acquisitions in Africa and the Middle East.

Quinton Ivan, an analyst at Coronation Fund Managers, believes Nhleko’s strategy of growing AfriSam’s African footprint is sound, because profits are likely to come under pressure in South Africa as new competitors enter the local cement market in the next few years.

“There will be a lot of new supply that will be coming into the local market, which is weak at this stage. This is likely to reduce the pricing power of current incumbents as customers will be able to push back. The new players are prepared to come in at lower prices.

Because of what is happening in South Africa, some players are looking to diversify into other African markets.

“Countries like the Democratic Republic of Congo, Angola, Tanzania and Kenya are growing at faster economic rates than South Africa and are in deficit.

“The African markets are highly fragmented and are not as competitive as South Africa market, so there is an opportunity to generate good returns in those markets,” said Ivan.

He said although AfriSam was making an operating profit, it was eaten away by the interest that the company was paying on its gigantic debt.

Ivan expects Nhleko to triumph in the battle for the control of the cement maker.

“The balance of power is sitting with Phuthuma. He can write a cheque and the other guys (Bunker Hills) don’t have R12 billion to settle their debt. “They will either have to roll over their debt or inject more equity (cash) into the company,” said Ivan.

A chief executive of an asset management firm who declined to be named because he has business interest in the same industry, said he understood why Nhleko wanted a piece of AfriSam.

“I would put money into AfriSam if I had an opportunity to do so. The manner in which the company’s debt was structured was wrong. If this problem can be sorted out, anyone who has invested in the company will make a killing,” he said.

The fund manager, who has been involved in financing infrastructure projects across Africa, says the continent over the next 40 years requires about ­$93 billion (R735 billion) in infrastructure-related investment per year to meet its development goals. The bulk of this investment is needed in energy and transport sectors, where construction companies and cement producers like AfriSam stand to make good returns.

Itu Moraba, the chief executive of Ross Asset Management, concurred:

“The SADC plans to invest between $300 billion and $400 billion over the next 5 to 10 years developing its infrastructure by building roads, power stations, and dams.

“A lot of people are eyeing these projects,” said Moraba, whose company is interested in investing in AfriSam.

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