LOCAL empowerment group Brimstone Investment Corporation appears to be battling to find its sea legs after an ill-timed foray into shipping and logistics giant Grindrod. The sea has always been central to Brimstone’s investment philosophy – having invested in fishing groups Oceana and Sea Harvest when the empowerment group was launched in the mid-nineties. While the fishing investments have rewarded Brimstone richly over the last two decades, the latest maritime thrust will test Brimstone’s resolve to endure choppy waters.
Brimstone made its initial investment in Grindrod in mid 2014 as part of a BEE consortium in a R1,6bn empowerment deal. The consortium would hold an 8,4% stake in Grindrod, buying the shares at an effective R25/share. Brimstone’s portion of the deal was a cash payment of R450m, garnering a stake of nearly 5% in Grindrod.
Grindrod is one of the best known companies in South Africa, having carved an impressive niche in the shipping segment. In recent years, though, Grindrod – with sales topping R14bn a year - complemented its shipping core to build a company that provides ‘end-to-end solutions’ for the movement of cargo by road, rail and sea. The company utilises specialised assets and infrastructure focused on dry-bulk and liquid-bulk commodities, vehicles and containers.
Brimstone’s rationale for making a long-term investment in Grindrod cannot be faulted. The business is positioned for African growth – especially in the infrastructure segment.
But then the oil price started to tank, and prospects for so many oil rich African economies dimmed. Grindrod’s market value reflected this development – along with lower shipping rates – and the share price closed the first half of last year at R13,45 from R22,40 at the end of 2014.
In July last year Brimstone took advantage of Grindrod’s markedly lower share price and acquired another 1,6 million shares. This moved Brimstone’s stake in Grindrod up to 5,2%.
At the end of June last year the ‘equity accounted’ portion of Brimstone’s loss on the Grndrod investment was around R289m – an astounding figure considering the initial investment (factoring in the additional shares acquired) of around R500m.
Things, however, have got worse. At the time of writing Grindrod’s share price had sunk under R10 on the JSE – the lowest level seen the share price in more than five years. Brimstone’s predicament is whether to wait for the trading tide to change … or it can hoist the main sail ahead of stronger to economic breezes by buying up even more shares in Grindrod.
By Jenni McCann