Tycoon Patrice Motsepe’s investment firm switches to banks, shuns mining

Saying the boom in commodity prices maybe overdone.
Image: Bloomberg

African Rainbow Capital, founded by South African billionaire Patrice Motsepe, is switching to investing in digital banks and financial startups, while shunning mining stocks, saying the boom in commodity prices maybe overdone.

The firm, which manages assets valued at R14 billion ($935 million), sold its stake in Afrimat Ltd., a supplier of construction materials, industrial minerals and bulk commodities such as iron ore. ARC is also cutting its exposure to stakes in property firms, citing saturation in high-end real estate markets in South Africa and the UK.

“People are struggling to pay and we see lots of people defaulting on payments on houses, and homes are being repossessed by banks,” ARC Co-Chief Executive Officer Johan van Zyl said in an interview. “Of all the businesses, we will probably put more money into financial services into the future, and will probably take a little bit off the table in mining, and property.”

The Johannesburg Stock Exchange’s index of industrial metals and mining stocks has jumped 10-fold in the six years to 2021. That compares with a 45% advance in the banking index, prompting ARC to cut its mining investments and plow the gains into banks. The volatility in commodity markets — the Bloomberg Commodity Spot index earlier this month posted the largest one-week price increase in data going back more than 60 years — is also spooking some investors.

ARC owns a controlling stake in TymeBank, a digital lender founded by Motsepe, and has acquired a 37% stake in fintech startup Crossfin Technology Holdings. The company is also betting on high-speed telecommunication services, one of President Cyril Ramaphosa’s key agendas.

© 2022 Bloomberg

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ARC is valued at 14b?

inform the JSE please

“ People are struggling to pay and we see lots of people defaulting on payments on houses, and homes are being repossessed by banks,” ARC Co-Chief Executive Officer Johan van Zyl said in an interview. “Of all the businesses, we will probably put more money into financial services into the future, and will probably take a little bit off the table in mining, and property.”

makes a lot of sense

Banking is a special type of business. Banks even have their own set of laws that govern them. They fall under the Banks Act that regulates their special privilege to sell inventory that does not exist. They create inventory out of thin air, based on reserves, according to reserve requirements that are set by the Reserve Bank.

If you own mine, a farm, or a restaurant, you can only sell the inventory you have produced, otherwise, you will be committing fraud. When a bank receives a deposit of R10, it can lend out R100 based on that deposit. Fractional Reserve Banking allows the banker to create merchandise at the push of a button. Modern Banking is alchemy, and fractional reserve banking is the philosopher’s stone that creates gold out of thin air.

Why mine for gold when you can print it? It gets even better. If your mine makes a loss you go bankrupt. If your bank goes bankrupt the Reserve Bank will bail you out if you are “too big to fail”. The Reserve Bank stands ready to provide you with merchandise if you run out.

As long as that Reserve Bank is not nationalized! In which case it will bail everyone out by just printing more money – Africa’s economic solution!

Most banks are trading at levels below pre-covid. There could be value there.

But wouldn’t renewable energy be the next hot thing?

I would investigate the original startup investors in Crossfin – one of whom has just had judgment against his company which has been put into liquidation. The old trick….borrow money from the banks, don’t repay and go into liquidation using the money borrowed elsewhere! Or so it seems! Just a word of caution ARC!

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