SIMON BROWN: I’m chatting now with Craig Gradidge, the co-founder at Gradidge Mahura Investments. Craig, I appreciate your early morning time. SAB, the BEE Zenzele Kabili shares have been trading on the JSE now for almost two weeks. I want to get to some valuations. Before we do, my sense of it is that it’s a fairly nice structure, relatively clean, and there’s some debt in there. There’s no lock-in and the debt is going to be paid down by dividends which should be in AB InBev. SAB beer is fairly boring, fairly predictable. It should be a good scheme over its lifetime.
CRAIG GRADIDGE: Good morning, Simon. Yes, like you correctly said, a fairly well-structured deal – roughly 55% debt inside that deal, and that debt is vendor-funded. SA Breweries or AB InBev is providing the debt at 70% of prime, so a fairly low cost of debt. As you say, that debt will be serviced by the dividends from the AB InBev shares that Zenzele Kabili owns. But over the next coming years whenever AB InBev pays a dividend, part of that will go to shareholders but the bulk of it will go to settling debt. So a fairly simple deal, with no fancy structuring on the debt side. As you said, an evergreen deal, like many of the others have been.
SIMON BROWN: And it does mean that you give up a few dividends, but you get that because you get that benefit of paying down the debt, and 70% of prime – I could quite be liking that. There wasn’t, as I understand it, a formal IPO process here. In the market there are sellers— do we know who owned the shares to sell into the market post that listing?
CRAIG GRADIDGE: Essentially this is a rollover of the previous deal – SAB Zenzele – which was launched in 2010. That was the broad-based deal that was open to staff, the retailers, and the SAB Foundation. So primarily your sellers are coming from the retailers and from the foundation, as far as I understand, and I think the staff may be allowed to sell a portion. I’m not too sure about the staff deal and the structure of that. It’s essentially a rollover of the previous deal. So a lot of those investors did get a payout with the closing of the other deal, but they had an option to take a lot of that value and convert it into the new deal. So it was the retailers who had to vote for the new deal to go ahead.
SIMON BROWN: That makes a huge amount of sense to me. The last question then. The SAB Zenzele Kabili — we’re talking around a R40 listing price and the like – it’s trading at R180 as of yesterday; it has actually up to as much as R200 late last week. Have you got a sense of a fair value here, because we should be able to take the AB InBev, crunch out the debt and the stake in a sense and come to a fair value? Have you an idea of what that would be?
CRAIG GRADIDGE: I’ve stopped calling it SAB Zenzele, I’ve started calling it ‘Beer Coin’ [Simon chuckling] because the value, as you correctly put, the net asset value, that’s the value of the shares, Zenzele Kabili owns about five million InBev shares, and there’s a debt of R2.9 billion. So if you take the value of the shares at R5.4 billion, less the R2.9 billion, divided by the 40 million Zenzele Kabili shares in issue, you get to a net asset value of around R61/share, given where the AB InBev share price is; you should apply a little discount to that because there’s some gearing and it’s restricted trade – only certain members of the public allowed to buy it, qualifying members — and if you put it anywhere between a 20 and 30% discount, you should arrive at a value of between kind of R42 and R45/share. It’s trading at R180, as you put it.
I certainly don’t see where the value is, why it’s trading up there. It could be some articles that said the initial deal turned R100 into R77 000. Perhaps expectations are misplaced. It just could be significant demand from all the hype around the listing that created demand, very little supply, or people equating one Zenzele share to one ANH (Anheuser Busch) share, which is wrong. There are five million ANH shares in Kabili, but there are 40 million Kabili shares. So the value is a bit out of whack if you ask me.
SIMON BROWN: I take your point. If I’m a seller at R180, I’m happy, but if I’m a buyer perhaps less so.
Craig Gradidge, co-founder of Gradidge Mahura Investments, I appreciate the early morning, sir.
Listen to Thursday’s full MoneywebNOW podcast here.