INDIPENDENT ONLINE (BUSINESS REPORT) article
CAPE TOWN - REMGRO, the R113 billion investment vehicle controlled by the Rupert family, has enjoyed high-profit retention over the past 20 years, with its shareholding in Mediclinic, FirstRand, Rand Merchant Bank (RMB) and Rand Merchant Investment Holdings (RMI) proving particularly profitable for the group.
The Centre for Competition, Regulation and Economic Development (CCRED) on Wednesday said that the value of Remgro’s highly diversified interests held over a long period placed the company at the top of the South African conglomerate groups.
The CCRED said the aggregation of Remgro’s principal investments as at December 31, 2015, gave it influence over firms with a total market capitalisation of R1.3 trillion. It said this represented 12 percent of the total market capitalisation of the JSE.
“This increases to approximately 27 percent when including the total capitalisation of British American Tobacco (BAT) in which the company, through Reinet Investments, holds shares,” the CCRED said.
Last month, Reinet said its investment in the tobacco maker grew to 70.8 percent of the net asset value as of the end of March following BAT’s $49bn acquisition of Reynolds American earlier this year.
Reinet now holds 68.1million shares in BAT, representing 3.7 percent of BAT’s issued share capital.
The Luxembourg-based Reinet was created in 2008 with the unbundling of the Remgro-Richemont-BAT group. Johann Rupert serves as chairperson of Remgro, Richemont and Reinet.
CCRED said Remgro’s major interests in its portfolio included a 25.8 percent stake Unilever South Africa, a 31 percent holding in Distell, a 77.5 percent share in RCL Foods, a 42 percent stake in Mediclinic and a 28.2 percent holding in RMB Holdings. It said this meant that Remgro had direct interests and influence in nine firms in the JSE Top 100 firms by the end of 2015.
It said Remgro had 29 significant investments in listed and unlisted companies, including a significant stake in eMedia, the owners of e.tv and Total South Africa.
CCRED said this was indicative of an approach to extract dividends and profits from investee firms to finance its own additional investments rather than that of its investee firms.
“Over the period under review, Remgro’s revenue increased 116 percent, similarly earnings before interest and tax also grew 202 percent. Overall, key contributors to Remgro’s net profits are Mediclinic, RMB, RMI and FirstRand.”
Remgro’s shareholding in Mediclinic has recently come under the spotlight. In May, a research note published by the Competition Commission’s inquiry into cross-directorships and cross-ownerships in the private healthcare industry said the size and breadth of Remgro’s and Afrocentric’s financial interests in the private healthcare industry could stifle effective competition in the sector. Afrocentric owns Medscheme holdings, a medical scheme administrator.
Remgro’s chief executive, Jannie Durand, sits on the boards of Mediclinic, and the FirstRand Group, which has shares in MMI Holdings.
CCRED said Remgro’s investment in unlisted firms suggests an appetite in Remgro to invest “opportunistically” in entrant firms in strategic sectors and make long-term commitments.
“There is also a concern that these firms may establish positions of market power in the sectors in which they operate, with the potential to reduce the likelihood that new, particularly black-owned entrants, could contest these markets in future.”