26 Feb

Deal Wizard of South African Gold Mining Is Scaring Investors

Investors might be running out of patience with Sibanye Gold Ltd.’s colorful chief executive, Neal Froneman.

The South African miner’s stock plunged by a record 16 percent Thursday after the company warned it may consider selling assets, metals streams and — only as a last resort — new shares, if the recent strength in the rand persists.

Sibanye is under pressure to reduce debt after a rapid-fire series of deals that transformed the company from a staid and steady gold producer to a diversified precious-metals miner with both southern African and U.S. assets.

The company’s net debt is 2.6 times underlying earnings and almost as high as its current market value.

So far, investors have given Froneman, an industry veteran who earned himself the the nickname ‘Mr Fix-It’ for turnaround successes in the 1990s, the benefit of the doubt. But Thursday’s plunge suggests that might not continue forever.

“The biggest issue here is there is too much debt,” said Arnold van Graan, an analyst at Nedcor Securities. “We are seeing a lot of balance sheet risk building up if the rand-gold price stays where it is.”

South Africa’s rand has gained about 20 percent versus the dollar in the past three months, as investor optimism builds following leadership changes in the ruling party and President Cyril Ramaphosa’s appointment. Gold priced in rand has declined by about 14 percent in the same period.

Gold and platinum-group metals are sold in U.S. dollars, and while the majority of Sibanye’s gold and a substantial amount of the group’s costs are denominated in rand, its results and financial condition are affected if there is a material change in the value of the rand.

Sibanye gained 1 percent in Johannesburg Friday. The plunge in the company’s share price was overdone and it is still generating free cash flow, Morgan Stanley analysts said in a note. But the company’s debt level could present a challenge if the rand keeps strengthening.

To read the full article, click here. 

31 Jan

South Africa Boutique Investor Joins Viceroy in Questioning Capitec

Benguela Global Fund Managers (Pty) Ltd. wrote to Capitec Bank Holdings Ltd. earlier this month questioning its loan practices, even before a short seller alleged the South African lender was concealing write-offs.

Benguela, which manages 3.6 billion rand ($301 million), raised concerns about Capitec’s “aggressive practice of rescheduling arrear loans and advances,” according to a letter dated Jan. 19.

In a separate letter to its investors, Benguela said it had “serious reservations” about Viceroy Research’s approach and its assertion that Capitec should be put under administration was “shocking and irresponsible,” after the short seller released a report about the allegations.

Capitec, which makes unsecured loans mainly to low- and middle-income households, posted its biggest-ever intraday share drop on Tuesday after Viceroy alleged it was hiding write-offs by refinancing defaulted loans with new debt.

It then recovered most of those losses after South Africa’s central bank said it has no evidence to suggest the lender’s stability is in question.

“Benguela totally condemns the Viceroy approach to raising governance issues and it appears to be motivated by pure greed than actual interest in the company,” Chief Investment Officer Zwelakhe Mnguni said in his letter on Tuesday.

Full Disclosure

Speaking at a press conference in Cape Town late Tuesday, Capitec Chief Executive Officer Gerrie Fourie declined to answer questions about whether it had received a letter from Benguela and said he would respond next month. Fourie also denied the allegations made by Viceroy and said the report was full of inaccuracies.

A spokesman for Capitec said on Wednesday that the lender is busy with its response to Benguela. Viceroy didn’t immediately respond to an emailed request for comment.

Capitec discloses “all our figures of rescheduling in a transparent way,” Chief Financial Officer Andre du Plessis said in an email on Tuesday. The company has “absolutely” no plans to take any additional writedowns because it already does a detailed analysis of its book at a weekly credit committee, he said.

To read the full article, click here.

07 Dec

Investors Are Looking at Zimbabwe’s Budget: Post-Mugabe World

When Patrick Chinamasa marks the start of his second stint as Zimbabwe’s finance minister by presenting the budget on Thursday, investors will be looking for policy changes in addition to fiscal plans in the post-Robert Mugabe era.

While the government needs to rein in runaway spending, end cash shortages and recapitalize banks, signals that it plans to revise or repeal contentious policies such as forcing companies to transfer 51 percent stakes to black Zimbabweans could be a game-changer. It could lure back investors and smooth engagement with lenders like the International Monetary Fundand the World Bank.

Chinamasa, a lawyer, was reappointed last week by President Emmerson Mnangagwa, less than two months after former leader Mugabe moved him to another portfolio. Mugabe resigned two weeks ago after an army-led coup ended his 37-year rule. During his tenure, agricultural output collapsed due to forced repossessions of commercially productive, mainly white-owned farmland, Zimbabwe abandoned its currency in 2009 due to hyperinflation and the economy has halved in size since 2000.

A half-hearted attempt at solving expropriation, taming inflation and curbing the country’s massive import bills would be a continuation of Mugabe’s “insular budgetary policies,” said Charles Laurie, head of country risk at Bath, England-based Verisk Maplecroft. There will be “intense scrutiny” of Chinamasa’s plans by investors who expect “business-friendly budgetary policy,” though the focus would mostly be on the empowerment law.

“Repealing or gutting the law will be an essential step in signaling to foreign businesses that Zimbabwe is serious about fostering a viable business environment,” Laurie said. “It’s nearly impossible to imagine a revival of Western investor appetite should this politically motivated law remain on the books.”

Leading Efforts

Chinamasa has led efforts to revive the struggling economy and tap fresh credit. While Zimbabwe has paid $110 million of arrears to the IMF, it’s still saddled with $1.7 billion arrears to the World Bank and African Development Bank and external debt exceeds 70 percent of gross domestic product.

To read the full article, click here. 

27 Nov

South African Rand, Brazil Pension Saga Top Emerging-Market Bill

Emerging-market investors can almost always count on South Africa to keep them on their toes these days.

Rand-denominated bonds will trade Monday for the first time since S&P Global Ratings lowered the country’s local-currency debt to junk last week. Elsewhere in emerging markets, Brazil’s government is seeking to drum up support for the pension overhaul, Mexico will nominate a new central bank governor and India will release third-quarter economic data.

South Korea and Israel head a list of central banks setting interest rates. Policy makers in Angola, Ghana, Kazakhstan and Mauritius are also due to hold meetings.

South Africa  

Domestic bonds and the rand, among the worst performers in emerging markets this year, are likely to decline on Monday after S&P cut the nation’s local-currency debt to junk and Moody’s Investors Service warned it may do the same.

The yield on South Africa’s rand-denominated bonds due December 2026 has risen almost 80 basis points this quarter, the most since the three months ended December 2015.

India

Third-quarter economic data will show how quickly India recovered from a slowdown caused by a partial cash ban late last year. Gross domestic product increased 6.5 percent year-on-year, according to a Bloomberg survey of economists and analysts, from 5.7 percent in the three months through June.

Mexico

Investors will keep a close eye on who will be nominated as central bank governor as Augustin Carstens prepares to leave at the end of the month. The median forecast of economists surveyed by Bloomberg is for the benchmark interest rate to remain unchanged at 76 percent until the second quarter of 2018. But traders on Thursday increased bets on a rate hike after Mexico’s inflation unexpectedly climbed in the first half of November.

To read the full article, click here.