African Phoenix Chasing Deals to Ditch Legacy of Failed Bank

(Bloomberg) -- African Phoenix Investments Ltd. is weighing as many as 10 deals to add to a lone holding in an insurance company inherited from African Bank Investments Ltd., its failed predecessor.

The Johannesburg-based company is looking to chart its own course after emerging from the ruins of the unsecured lender, which collapsed in August 2014 after bad debts surged and investors balked at giving it more cash. African Phoenix is weighing investments in industries spanning security and packaging to telecommunications, with at least two deals undergoing due diligence, said Executive Officer Siyabonga Nhlumayo.

“We’ll be able to stand behind offers on the table in terms of writing the check,” he said in an interview. “But it’s not a case of being a bank and just looking for a return. We’d like to work with these businesses to transform them, grow their earnings.”

The investment company is planning to benefit from South Africa’s push to increase the participation of black people in the economy more than 24 years after the end of racial-segregation rule. Managed primarily by black South Africans, African Phoenix will seek to take meaningful stakes in companies across a range of industries, the CEO said.

Core Team

With a core team of four, including Finance Director Shafiek Rawoot, a former Goldman Sachs Group Inc. analyst, African Phoenix has 1.2 billion rand ($84 million) to 1.4 billion rand available to invest over the next three years.

“Each investment case must stand on its own” and shouldn’t need to depend on other businesses within its stable for the cross-selling of products, said Rawoot. “There are stories of synergies working, but in our experience I think the synergies are often overstated.”

Right now, the company’s only operating subsidiary is Stangen, which sold credit life insurance and funeral policies to African Bank customers. It has fully impaired its holdings in Residual Debt Services, which took on all of the lender’s bad debts, and Ellerine Holdings, the furniture retailer owned by African Bank Investments that has been in business-rescue proceedings since the lender folded.

The firm will target mid-sized companies generating profits of 40 million rand to 50 million rand, Rawoot said.

New Structure

African Phoenix earlier this month proposed buying back the preference shares of African Bank Investments in a bid to resolve an impasse with investors in the securities over the deployment of its capital, the CEO said. Holders of preference shares expect to be paid dividends, but the company would rather pour this cash into new investments because its portfolio is so small, Nhlumayo said.

It also plans to buy a stake in a yet-to-be-established private-equity fund called the API Capital Fund as part of a reorganization of its structure, which will see it become an investment company under the Johannesburg Stock Exchange’s listing classifications. It will be run by a black-owned fund manager and overseen by members of African Phoenix’s management team along with independent executives.

The fund will seek to diversify its portfolio as South Africa’s economy struggles to emerge from a recession, Nhlumayo said.

“It’s a lot more difficult in this environment to pinpoint sectors that are geared for growth,” he said. “It is easier to back management that have a proven track record over different cycles and economic environments,” rather than waiting for opportunities in certain sectors to appear.

Shares of African Phoenix were unchanged by 9:34 a.m. in Johannesburg on Thursday for losses this year of 13 percent.

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