Commodities: IDC's friends

Johannesburg - The value of listed assets held by the Industrial Development Corporation (IDC) increased 28% to R33.6bn from R26bn in the year to March 2007. In the three months between the end of March and June this year, the assets added a further R5bn to R38.3bn. This was up 46.3% on the March 2006 figure, beating the overall returns on the JSE.

Of most significance is that the listed assets, virtually all commodity resources make up 55.9% of the IDC's approximately R68bn (to end June) balance sheet. Add to that the R1bn (up from R314m in March 2006) in the Mozal aluminium smelter and the commodities component grows to nearly 60% of the balance sheet.

The state's developmental financier holds significant amounts of shares in blue-chip companies listed on the JSE and other exchanges in developed countries.

Its biggest and most valuable stake is the 7.9% in oil and gas company Sasol, valued at R12.9bn in March and R14bn at the end of June, followed by 13.4% (valued at R7.6bn) in Kumba Iron Ore and 1.2% (R6.6bn) in BHP Billiton. There are other investments accounting for R9.5bn in commodity-based companies.

Sasol let-down

Although the investments showed overall excellent performance in the year, the same cannot be said of the IDC's investment in Sasol. It was the worst performer in the portfolio with a mere 3% gain in the twelve months to March 2007. This increased to a 14% gain at end June, valued at R14bn. The share remained virtually unchanged from its March 2006 price of R215.

Compare that with the excellent return in the 24.4% stake the IDC holds in Merafe Resources - 152% to R730m in March from R290m a year earlier. This had jumped 264% to R1bn at the end of June 2007.

Steel producer Mittal Steel SA's 8.8% (R2.47bn) shareholding gave the second-best performance with an 86% (R4.6bn) return on the year, which increased to just under R5bn (101%) in June. That was followed by the 2,9% held in stainless steel maker Acerinox SA, listed in Spain and based at various factories in Spain, the US and in South Africa. The stake was valued at R781m in March 2006 and R1,4bn (82.3%) a year later but down to R1.3bn (70.6%) in June.

In BHP Billiton the IDC holds 1'2% valued at R3.8bn in March 2006, worth R5.5bn (44.4%) a year later and R6.6bn (73.3%) in June. It held 14% (worth R4.6bn) of Kumba Resources in March 2006, which was sold down to 13.4% (valued at R6.2bn) twelve months later.

Kumba money-spinner

In Kumba the IDC derived the most value. The unbundling of Kumba Resources into two separate listed companies, Exxarro Resources and Kumba Iron Ore late in 2006 unlocked wealth that the IDC was quick to realise. It cashed in its investment in Exxarro and netted R1.65bn while it still holds an unspecified number of preference and ordinary shares in the unlisted controlling structure. The current value of the 13.4% stake in Kumba Iron Ore is R7.7bn.

Outside the listed assets, manure and fertilizer producer Foskor returned the most value, increasing its net operating income 576% to R514m against R76m in 2006.

The investments and the fact that IDC?s balance sheet grew 33% last year mean the corporation has more funds and can liquidate more investments to fund the planned R10, 4bn in new ventures.

"As part of our strategy, we divest from mature investments to invest in new ones," says IDC chief executive Geoff Qhena. Could that mean the corporation would be divesting from any of its investments this financial year?

"We only divest if we have (other) equity investments in which we have to invest for more value." Pressed to identify investments the IDC would liquidate to free up cash for new investments, Qhena says the IDC would't identify any as that would create an overhang for the share price.

CFO Gert Gouws is quick to add that the corporation was under-borrowed and would rather borrow at this stage than sell any shares. "There is a very realistic chance that we will not divest in any of these companies," says Gouws. Asked if the corporation was happy with Sasol's performance, Gouws says the IDC "still believes Sasol is a very sound investment, especially taking into account its expansion plans".