South Africa: The aftermath

Yesterday South African financial markets digested the shocking announcement of the replacement of finance minster Nhlanhla Nene. On the surface the equity market performance looked somewhat benign. The JSE All Share index ended down just 1.09% after trading in the green for portions of the day. A sectoral view however, painted a very different picture as the market began to price in the implications of irresponsible political meddling in the South African ficus, the resulting credit downgrades into “junk” territory and the subsequent spike SA government borrowing costs. Banks and financial stocks were decimated. The banking index featured as the largest decliner, down 13.52%. FirstRand led the losses with a 14.84% collapse. Other decliners included a 14.53% drop in Barclays Africa and a 13.54% fall in Standard Bank. Meanwhile, the financial index shed 8.06%, led by a 14.27% slump in Discovery and a 10.66% drop in Sanlam. Property stocks also suffered as Growthpoint and Redefine fell 10% and 9.67% respectively. As celebrated financial journalist Bruce Whitfield put it in a tweet, “Genghis Kahn wrought less havoc on the Mongol plains than JZ has done through the financial sector today”. In contrast, the gold index gained 9.82%, while the resource index added 3.23%, with both indices benefiting from a weaker rand. In fact, anything with the majority of its assets outside SA borders did spectacularly well in rand terms yesterday. I said it yesterday and I’ll say it again: Offshore portfolios and trading facilities are available to Rand Swiss clients. Email info@randswiss.com if you’d like to discuss your options.
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South Africa: Rand in free-fall

The South African rand went into free-fall last night following the shock announcement by President Jacob Zuma that Nhlanhla Nene was to be replaced as Minister of Finance. ANC veteran David van Rooyen, who holds a Master’s Degree in Public Development and Management and an MSc Finance from the University of London, will replace him. The market’s reaction was clear and concise. In the aftermath of the decision the rand weakened by 76 cents as it raced to a new all-time record low of R15.385/$. Looking forward, President Zuma’s decision is likely to have wide reaching effects on the domestic economy. Further credit ratings downgrades, a weaker exchange rate and decimated investor sentiment are only the beginning. This morning, the rand has pared some of its overnight losses and was last trading just below the R15.00/$ level, from a previous close of R14.597/$ on Tuesday. If you still haven’t moved a portion of your wealth offshore, we are still taking offshore account applications via our website here. 
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Kumba Iron Ore: Sishen’s restructuring

Kumba Iron Ore, a division of Anglo American, ended sharply lower yesterday, down 8.63% to R36.00. This decline was partly due to an operational update in which, Kumba cut its 2016 production target by 28% to 26mn tons at its main mine, Sishen. In addition, CEO, Norman Mbazima, stated the group would restructure the mine owing to the supply glut in iron ore and the slowing growth in China. As it stands, Kumba is targeting costs of $30 per ton and a break-even price of $40 per ton in 2016. This will be done by re-configuring the Sishen pit to allow for more flexibility, whilst reducing costs and risk.
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SABMiller: Still a few hurdles

SABMiller rose 1.36% during yesterday’s session to trade at R881.92, a new all-time high for the group. This was in spite of news that Anheuser-Busch InBev’ CEO, Carlos Brito, is scheduled to testify, along with other industry officials, before a subcommittee of the Senate Judiciary Committee in Washington later today. Brito will try and ease concerns of U.S. lawmakers with regards to the planned $110bn acquisition of SABMiller, which would result in an entity accounting for half the U.S. industry’s profit. As part of the deal, AB InBev plans to sell SABMiller’s 58% stake in MillerCoors to Molson Coors for $12 billion as it seeks to gain approval from the U.S. Justice Department.
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MTN: More Nigerian shenanigans

MTN received yet another letter form the Nigerian Communications Commission on Friday regarding its massive fine. After first receiving a letter on the third of November, outlining a reduction of the fine to around $3.4-billion, the group received another letter later during the day indicating that there had been an error in the first letter. The second letter, which was stated to supersede the first letter, informed the company the fine had actually been reduced by 25% to 780-billion Naira, or $3.9-billion. The payment date remained 31 December 2015, while neither the first letter nor the second letter set out any details on how the reduction was determined. The company is carefully considering its response and the Executive Chairman, Phuthuma Nhleko, has re-engaged with the Nigerian Authorities before responding formally.
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PSG Group: Successful bookbuild

Two day’s ago, PSG announced the launch of an accelerate bookbuild, aiming to raise R1.5bn. Yesterday, just one day later, PSG announced it had received bids to a total value of R3.9bn. The company has decided to accept bids of R2.2bn at a placing price of R245 per share. Thus, the placing price represents a discount of 7.9% to the 30-day volume weighted average traded price of PSG’s ordinary shares for the 30-trading day period ended 2 December 2015. Lastly, 9 million new PSG ordinary shares will be issued, constituting approximately 4% of PSG’s issued capital.
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MTN: Nigeria reduces fine by 35%

In a SENS released early this morning, MTN advised shareholders that the Nigerian Communications Commission has reduced the fine imposed on the company from $5.2bn to $3.4bn. In addition, the NCC has informed MTN the reduced fine will now be due on the 31st of December 2015. As it stands, MTN is carefully considering the NCC’s reply and will now urgently re-engage with Nigerian authorities before responding formally. Hence, it comes as no surprise that shareholders have also been advised to exercise caution when dealing in the company’s securities until a further announcement has been made.

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Exxaro: Coal prices Arnot too expensive

On Tuesday, Exxaro rose 5.76% to trade at R47.59, despite news reports stating Eskom had decided to let its contract to buy coal from Exxaro’s Arnot coal mine run down. The main complaint from Eskom has been the high price of coal coming from the operation. The Arnot mine is located in Mpumalanga and supplies a 2,352 megawatt power plant with the same name. If Eskom does not renew the contract, over 1,700 jobs will be on the line, while Exxaro’s pre-tax profit would be reduced by R17.1mn. Following yesterday’s gains, Exxaro has trimmed some of this year’s losses, but has still fallen 54% in 2015 alone.

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Illovo: Tough environment

In an interim report for the six months ended 20 September 2015, Illovo advised shareholders that it had encountered a number of challenges. These included regional drought conditions, reduced demand for sugar in Malawi and sustained pressure on sugar export prices. As a result, the group has seen a 7% decline in revenue to R5.489bn, while the operating margin fell to 23.5%, down from 16.1% in 2014. Illovo’s operating profit decreased by 36.7% to R881mn, while its headline earnings per share fell by 58.1% to 71.7 cents.

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