16 March 2016
African Rainbow Capital co-CEO Johan van der Merwe speaks to Business Day TV about the investment firm’s latest deal in the financial sector
BUSINESS DAY TV: Patrice Motsepe and Johan van Zyl’s African Rainbow Capital has teamed up with the Buffet Group (Buffet KLT Consortium) in which reclusive billionaire Jonathan Beare is involved, to extend their investment reach into property development, and joining me now is African Rainbow co-CEO Johan van der Merwe.
Johan … I suppose when you think of the Buffet Group, you think Warren Buffett, but it’s got nothing to do with Warren Buffett, but Jonathan Beare is an interesting name I think in South African business circles because he’s not often mentioned. He is reclusive. So how on earth have you come to do a deal with him?
JOHAN VAN DER MERWE: Thank you. Obviously in the business world, everyone knows of Jonathan Beare and we also knew of his investments, not only in property but across the board and obviously the people that he teams up with.
I know Rudi Stumpf quite well and we’d met even before we started African Rainbow Capital, to ask his advice as to how we should set it up. The relationship has just developed and we started looking at opportunities together, and then the property thing came up.
BDTV: So what exactly is it that you are announcing today?
JVDM: At African Rainbow Capital, we’ve been approached by many potential deals on the property side and we realised that even though I was at Sanlam Investments and had property resorts under me, to go and do these deals one by one, you need quite in-depth knowledge of the property industry, of the buildings, of the areas, etc, and we just realised that it would be futile for us to try and run after everything. And we wanted to get a team that’s really clued up, who understands the stuff, who works with it, eats, sleeps, dreams property, and decided to actually rather enter into a joint venture with people with the knowledge and the know-how and for us to obviously bring our credentials to the party as well.
BDTV: So your credentials being BEE credentials, is that essentially what people are seeking from having African Rainbow Capital as a partner besides, I guess the capital that you would bring?
JVDM: Yes, if one looks at even in the broader and not only property, the whole drive behind BEE is there, it is a fact of life. Many times you will ask for a BEE partner and they will say, I’ll be your BEE partner but you have to fund me. So if one looks at the ingredients that we bring from Patrice Motsepe and the fact that he’s a very credible BEE partner, we’ve worked with Patrice since 2004 in Sanlam, we know his values, we know that there’s not an inch of corruption there and that he wants to stay away from anything remotely like that.
Johan and I liked that, and that’s why we partnered with Patrice in the first place. So if one brings that to the table plus you bring the money to the table and hopefully some credibility for Johan and I, in what we’ve built, that’s quite a powerful combination.
BDTV: So exactly what are you going to invest in and how is the joint venture structured between yourselves and the Buffet Group?
JVDM: We’ve got 52% and they’ve 48%, that’s just for the codes purposes etc and to make it quite easy but for all intents and purposes it’s very much a 50-50 JV (joint venture). If we put in R50, they put in R50. They go and find the opportunities, they originate them, they look at the structure, they do all the due diligence, etc and we bring the empowerment credentials for the investee company or the investee buildings and that makes a big difference for them at the end of the day.
BDTV: And it’s not R50, its R500m that you bring to the table.
JVDM: Yes, both parties committed R500m as a start, the R500m each can obviously also be leveraged so the R1bn can easily become between R3bn and R4bn. But if one looks at the property industry in SA, it’s probably hundreds of billions, so there’s so much opportunity for us to go and do this, and the R500m is just the start, and it’s going to increase quite considerably over time.
BDTV: I was going to ask whether or not it’s massively over-traded. There are so many property companies listed on the JSE who presumably have easier access to capital, they’re public, they can go and raise equity should they want to, they can also go and raise debt. That never seems to be a problem, if we consider some of the debt raisings that have taken place, so will you have a kind of niche role in this or is it simply because you have got such good BEE credentials?
JVDM: It’s the BEE credentials. We bring the shareholder element of BEE to any investee company. Just to give you one example, you’ve got a company who owns their own building. It could be a big company. They need to have a BEE scorecard and they say, well, if I sell my building to a BEE company, I can actually get shareholder points for that, for the value that I’m selling. Once I’ve sold it to the BEE company, then I lease it back from the BEE company, then I get procurement points.
And this is what the Buffet people have really worked out and they go and solicit companies now and say, this is what we can do for you and we can actually increase your shareholder points on the scorecard, and we can increase your procurement points on the scorecard by doing this type of transaction. But this is just one of many which they can do.
BDTV: But to me that doesn’t sound like empowerment at all. That just sounds like financial engineering.
JVDM: No, but it is still black money that is going into it, and if one goes back again with African Rainbow Capital, its 100% held by Ubuntu-Botho which is just about over 50% held by Patrice where he’s given 50% of all his money in his lifetime to charity. There’s a 20% Community Development Trust and the rest which is about 25% is very widely held by women’s groups, youth groups, church groups, etc.
So we believe, if we can make good money and good returns for the shareholder, that money eventually goes into empowerment and very good causes at the end of the day as well.
BDTV: Johan, are you not spreading yourselves too thin? Because if you go onto the website, you’ve got all these building blocks as you call them, banking, insurance, distribution, asset management, private equity, property and healthcare. That’s a pretty wide range of investments that you’re building within the company. Are you not overextending yourselves?
JVDM: I don’t think so and that’s why we’re specifically going into JVs with people who have the know-how. On the health side, we are teaming up with a different team. In the business process, outsourcing space, we’re teaming up with another team. There are areas where we, let’s call it "back ourselves", where we think we can do it ourselves, but there are other areas where we say, listen, we know enough of it but we also don’t know enough and that’s always dangerous so rather go and team up with the people who really know, and as I say they just live that asset class and that’s what we want to team up with.