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I EYED with some interest an article by my colleague Marc Ashton on Reinet Investments, which was published on Fin24 last week. According to Renaissance Capital (RenCap), shareholders can no longer be satisfied with Reinet simply being a proxy for its stake in British American Tobacco (BAT).
Consequently, RenCap has placed a "sell" rating on Reinet.
I suppose the big issue rattling shareholders is that despite securing three deals since listing, Reinet is still reliant – from a cash (dividend) flow and value perspective – on BAT.
With BAT and cash comprising more than 90% of Reinet's value, there will also be more audible gripes over a R700m provision made for "performance fees" for management entities controlled by the Rupert family.
Should Reinet's share price keep ticking up, the fees could be closer to R1bn at the end of March 2011. Admittedly, these are relatively huge fees for a portfolio that really leans on one investment: the 5% stake in BAT.
The truth is that the cautiously-managed Reinet has so far not done too badly - and it certainly has protected shareholder capital in some difficult times for investing.
But one can't blame some investors for feeling that the cost for playing it prudent is too high – especially with Reinet opting to hold back on dividend payments for the foreseeable future.
In fairness, the Rupert performance fee was disclosed upfront – and in a fair bit of detail – in Reinet's pre-listing documents. Participants in Reinet pay for chairperson Johann Rupert's deal-making skills – no matter whether he is sitting on his hands or frantically moving and shaking.
Impressive long-term track record
Rupert also explained (and I think it was at a Remgro shareholders' meeting before the BAT unbundling) that Reinet was initially intended as a private investment vehicle for the Rupert family. Rupert decided to allow public participation after a clamouring from numerous shareholders.
Still, that won't detract from the fact that the market will want more action from Reinet on the new investment front to justify the asset management and performance fees.
I'm a shareholder in Reinet, and have on a few occasions mulled the BAT "predicament". I can say with some certainty that lingering issues around BAT won't prompt me to sell my Reinet shares.
Then again, I never bought Reinet as a proxy for BAT. I bought because the Rupert family has a rather impressive track record of building long-term value (and maybe I should stress "long-term").
But I did do a double take when RenCap suggested Reinet's hand might be forced on the BAT matter by regulatory issues.
Reinet's prospectus and Luxembourg regulations require that no single asset can exceed 30% of total investment assets within a specialised investment fund.
I must confess I was not aware of this, and apparently Reinet has until the end of March 2013 to comply with the rule.
But would this, as RenCap suggests, force a sell-off in BAT shares?
I've never known any Rupert family-controlled companies to be rushed into a sale of assets, so I don't think Reinet will be offloading a chunk of its BAT holding in the short term.
If anything, the regulations – if they do indeed hang like a sword of Damocles over Reinet – might accelerate deal flow in a bid to spread the asset base more equitably.
To date, Reinet has done what I would politely term "interesting peripheral deals": the acquisition of the old Lehman Brothers private equity book (now Trilantic), the new venture capital fund and the mortgage investments in the US.
But the beauty of having someone as influential as Johann Rupert at the helm of Reinet is that you cannot bet against an inspired bit of grand deal-making. Reinet, possibly using its paper as currency, has the capability of pulling off a sizeable deal or two – maybe even with another similar-sized investment vehicle rather than buying into a single entity.
Readers might scoff at this, but what would stop Reinet making a bid for Remgro, which appears to be in the early throes of a portfolio restructuring and already has considerable offshore holdings (including a hefty euro- and dollar-denominated cash pile) in a few years time?
Simply put, I have learnt it's rarely worth betting against the Ruperts – and even less so in a fledgling investment vehicle like Reinet. I'm definitely sticking.
- Fin24
* The writer – recently accused of being a "Rembrandt addict" – holds shares in Reinet, Remgro and Richemont.
Consequently, RenCap has placed a "sell" rating on Reinet.
I suppose the big issue rattling shareholders is that despite securing three deals since listing, Reinet is still reliant – from a cash (dividend) flow and value perspective – on BAT.
With BAT and cash comprising more than 90% of Reinet's value, there will also be more audible gripes over a R700m provision made for "performance fees" for management entities controlled by the Rupert family.
Should Reinet's share price keep ticking up, the fees could be closer to R1bn at the end of March 2011. Admittedly, these are relatively huge fees for a portfolio that really leans on one investment: the 5% stake in BAT.
The truth is that the cautiously-managed Reinet has so far not done too badly - and it certainly has protected shareholder capital in some difficult times for investing.
But one can't blame some investors for feeling that the cost for playing it prudent is too high – especially with Reinet opting to hold back on dividend payments for the foreseeable future.
In fairness, the Rupert performance fee was disclosed upfront – and in a fair bit of detail – in Reinet's pre-listing documents. Participants in Reinet pay for chairperson Johann Rupert's deal-making skills – no matter whether he is sitting on his hands or frantically moving and shaking.
Impressive long-term track record
Rupert also explained (and I think it was at a Remgro shareholders' meeting before the BAT unbundling) that Reinet was initially intended as a private investment vehicle for the Rupert family. Rupert decided to allow public participation after a clamouring from numerous shareholders.
Still, that won't detract from the fact that the market will want more action from Reinet on the new investment front to justify the asset management and performance fees.
I'm a shareholder in Reinet, and have on a few occasions mulled the BAT "predicament". I can say with some certainty that lingering issues around BAT won't prompt me to sell my Reinet shares.
Then again, I never bought Reinet as a proxy for BAT. I bought because the Rupert family has a rather impressive track record of building long-term value (and maybe I should stress "long-term").
But I did do a double take when RenCap suggested Reinet's hand might be forced on the BAT matter by regulatory issues.
Reinet's prospectus and Luxembourg regulations require that no single asset can exceed 30% of total investment assets within a specialised investment fund.
I must confess I was not aware of this, and apparently Reinet has until the end of March 2013 to comply with the rule.
But would this, as RenCap suggests, force a sell-off in BAT shares?
I've never known any Rupert family-controlled companies to be rushed into a sale of assets, so I don't think Reinet will be offloading a chunk of its BAT holding in the short term.
If anything, the regulations – if they do indeed hang like a sword of Damocles over Reinet – might accelerate deal flow in a bid to spread the asset base more equitably.
To date, Reinet has done what I would politely term "interesting peripheral deals": the acquisition of the old Lehman Brothers private equity book (now Trilantic), the new venture capital fund and the mortgage investments in the US.
But the beauty of having someone as influential as Johann Rupert at the helm of Reinet is that you cannot bet against an inspired bit of grand deal-making. Reinet, possibly using its paper as currency, has the capability of pulling off a sizeable deal or two – maybe even with another similar-sized investment vehicle rather than buying into a single entity.
Readers might scoff at this, but what would stop Reinet making a bid for Remgro, which appears to be in the early throes of a portfolio restructuring and already has considerable offshore holdings (including a hefty euro- and dollar-denominated cash pile) in a few years time?
Simply put, I have learnt it's rarely worth betting against the Ruperts – and even less so in a fledgling investment vehicle like Reinet. I'm definitely sticking.
- Fin24
* The writer – recently accused of being a "Rembrandt addict" – holds shares in Reinet, Remgro and Richemont.
