9 February 2010

South Africa: Now Angloplat Can Focus On Catching Impala

Johannesburg — THERE is a delicate balancing act at work in Angloplat 's huge rights offer. On the positive side is the fact that the offer is being fully supported by its parent, Anglo American.

The equity raising will reinvigorate the platinum company, which has been burdened by a growing debt pile, allowing it to extend its expansion and take advantage of the upturn in the global car industry, its main customer.

Yet, on the other side of the balance, the R12,5bn issue does not extinguish but only halves the total debt being carried by Anglo, so you can't help thinking this is less than what might have been hoped for. To get the rights issue away it had to be pitched at a 26% discount to the recent weighted average price of the company. Yet at this level the incentive for investors to follow their rights is high, so it seems unlikely Anglo will increase its existing 80% holding in the company.

For all indebted companies it's a tricky decision whether to take the plunge now or wait until prices improve. The fact that Angloplat has decided to dive in constitutes something of an encouraging sign for the prospects of the company, and the sector for that matter.

Yet there is no escaping that the price is low, and consequently existing shareholders are being a bit scrunched.

The real winner in the transaction is Anglo American. Effectively the deal is a debt-for-equity swap, but as Angloplat's banker Anglo gets the cash. The focus now for Angloplat moves from the debt burden to managing the asset effectively - and closing the value gap with rival Impala.

ONE is forced to wonder whether bank sector analysts were surprised or perturbed by the claims of a group of Acc-Ross shareholders that Nedbank had failed to notify shareholders that its acquisition of shares in the company, now named Pinnacle Point, had exceeded a level where a mandatory offer to minorities needed to be made. Nedbank claims it was holding the shares "nonbeneficially for the purposes of meeting obligations" - that is, single-stock futures obligations - and that the claims are spurious.

The shareholders wish to pursue legal action and the Securities Regulation Panel and Financial Services Board are investigating various aspects of the Acc-Ross shareholding. This could be expensive for Nedbank. The bank has warned the legal action may take some time.

But you wouldn't have thought there was much wrong considering Nedbank's share price yesterday. It closed 2,86% higher at R120,60, well up on the banking sector's 0,88% gain for the day.

Powerful forces are at work in the currency markets, with a sharp divergence in the prospects of the countries within the euro zone. One of the effects has been a welcome break in the R7,25- R7,76 range in which the rand has been trading against the dollar.

As the dollar has rebounded against the euro the rand has weakened, which will bring some much-needed relief to local exporters. Rand Merchant Bank 's currency analysts feel the move outside this range could see the rand move all the way to R8 or more against the dollar.

So much depends now on how the European Union (EU) deals with its lagging members.

"While Greece got begrudging approval for its budget last week and continues to get verbal support from EU policy makers, attention has simply switched to Portugal and Spain.

"Fiscal conditions in these countries are not nearly as bad as in Greece but their political will to deal with the problems is lower," the analysts observe.

The rand is an addendum to this larger battle, but it is now following the euro very closely in its retreat against the dollar.

Factors specific to the rand could emerge later this week, with the state of the nation speech on Thursday and the budget the following week.

In the meantime, to see where the rand is headed, the swooning euro and the rebounding dollar are where the action lies.

Dave Marrs edits The Bottom Line.

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