Hold on tight - there could be serious turbulence this week. As has been the case in recent months, the problems are in China. This time, the risks relate to a company called Evergrande, a spectacularly larger Chinese property developer undergoing an even more spectacular collapse.
The company has $300m in debt according to CNBC. The share price is down around 80% this year as Evergrande faces an existential crisis as it cannot pay its debts. The contagion risk within China is substantial, with the potential to cause major issues for construction companies and banks.
The risks are closer to home than you may think, particularly for iron ore prices which have already suffered a significant drop. That's not good news for the rand or for Afrimat, although the latter is a brilliantly run company that is busy wi th deals beyond iron ore (see one of today's feature articles).
The former, the rand, is the currency of a country with an unemployment crisis. The trade surplus is under serious threat as iron ore and platinum group metal (PGM) prices have fallen sharply, so my view on our currency is bearish.
Speaking of assets I don't like, Accelerate Property Fund is really setting new standards in terms of how poorly minority shareholders can be treated. In a dispute with Azrapart, the developer of Fourways Mall, Accelerate has agreed to a R300m settlement. Accelerate doesn't have the cash, so shares will be issued instead.
The current share price of R1.15 represents a discount of more than 80% to the net asset value (NAV) per share. The market cap is around R1.15bn, so around a quarter of the market cap is about to be issued in shares at a massive discount to NAV. This is incredibly value destructive for sharehol ders.
Who is Azrapart, you ask? A related party, indirectly owned by Accelerate CEO Michael Georgiou. The company has noted that "where appropriate, the necessary shareholder approvals will be sought." The reality is that a conflict of interest to this extent (the fund and developer being linked to the same person) means that I would never invest in Accelerate at any price.
Moving on, MTN holds a 29% stake in IHS Towers and has announced that the company has filed to potentially list on the New York Stock Exchange. If that goes ahead, it should be good news for MTN as investors may then attribute a higher value to the stake in IHS than before. Of course, this assumes the IPO goes well.
Fairhead and Arrowhead are still negotiating a potential single-step merger, as an alternative to the deal for Fairhead to acquire the B ordinary shares in Arrowhead (for which agreements have been conclude d).
In addition to the Afrimat article, there's a detailed piece on Spur and its tale of two halves. Spoiler alert: RocoMamas is shooting the lights out.
Make sure you listen to the latest episode of Magic Markets, the second in the #HerenyaSeptember series in which we learn all about trading from Petri Redelinghuys and the team at Herenya Capital Advisors. In this week's show, he responded to a selection of questions we received from listeners. We are recording another Q&A show this week, so send through those questions!
Finally, Chris Gilmour gives us an update on the major global stories.
Enjoy your Monday!
The Finance Ghost
