JSE listing – A little Motsepe goes a long way

Patrice Motsepe’s African Rainbow Capital (ARC) is set to squeeze maximum value out of his peculiar advantage in the South African business world: being a black capitalist who actually has capital.

A new R8.5 billion investment fund, African Rainbow Capital Investments (ARC-I) will list on the JSE on September 7.

It will pursue the same strategy as the property partnership ARC announced earlier this year: find people who need both cash and BEE points and help them out by investing at a discount.

This is the next step in the evolution of ARC, which was born out of Motsepe’s spectacularly successful BEE deal with Sanlam in 2004.

ARC is wholly owned by Ubuntu-Botho Investments (UBI), the BEE vehicle that owns 14.5% of Sanlam and in which Motsepe has a 55% stake.

ARC has been building a portfolio of assets with UBI money under the management of former Sanlam CEO Johan van Zyl and former Sanlam Investments boss Johan van der Merwe.

ARC will now “seed” the new ARC-I with most of its assets in return for a 51% stake in the listed entity. A total of R4.5bn in assets will go into the listed company and new investors will subscribe for the other 49% for a total of R4bn.

Speaking to City Press this week, Van der Merwe explained the rationale for the listing.

“If you look at the opportunity set in South Africa, there are hundreds of billions in possible transactions. They all need credible empowerment.

“By listing, we double the size of the universe of opportunities ... This is an opportunity to bring in outside money and keep the empowerment credentials.”

Among the new investors are the Public Investment Corporation, Sanlam Private Wealth and Singapore’s sovereign wealth fund GIC.

The key is that ARC’s shareholding will always remain 51%. “At the end of the day it will still be controlled by black money,” said Van der Merwe.

“If white money enters it, that white money is helping the whole thing to be better for the black shareholders,” he said.

Because ARC won’t dilute its shareholding, there is a limit to the scale of the new investment group.

“Even though Patrice has a lot of money, there is a limitation,” said Van der Merwe.

“It can’t be hundreds of billions of rands, but it can be tens of billions. We don’t want to be the biggest, we want the best return.”

ARC-I is in effect a hedge fund. Its assets will be run by a general partner, which will earn a fee of 1.25% on returns which can escalate massively if certain targets are met.

That general partner will be controlled by UBI.

Among the well-known participants in the new listed venture is former Exxaro CEO Sipho Nkosi, while Van Zyl and Van der Merwe will be directors of the general partner.

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