After the announcement this morning by GND and REM what's your thoughts on the company, you all know mine... see quote "Investing in Grindrod will give Remgro exposure to industries with solid growth prospects, the two companies said in the statement."
It shouldn't dilute - because you will, as a shareholder, be given the option to subscribe for an additional 28% of shares - 28 shares for every 100 held. The part which is not clear, is how much you will have to pay for them. There is going to be a lot of cash injected into GND, which unfortunately will go into servicing their debt. Never my favourite kind of investment, when you replace a cheap form of capital with an expensive one.
Lets see what happens over the next few years with this one... I still believe the market/economy needs to pick up before one sees any significant gains in this company. but then Remgro is the SA Berkshire basically and they surely see the same logic i have, one needs to get in while still out of interest by the vast majority if you really want to make a decent buck in the end... i love analysing such deals and seeing where it leads to. I have a dream of running an investment fund of sorts oneday on such principles...
Grindrod has always had a very interesting expansion strategy of purchasing ships, etc at the low of the market if i recall correctly? perhaps this capital raising is to do the same as they say they want to diversify and projects like Maputo does just this...
Debt good for a capital intensive company? Sure, maybe, but a debt equity of 1.7 not so good - and a negative cash flow to boot, especially for a well established company in a dwindling global market. They already took on R1bn more than they can already accomodate debt wise, so I don't really see how he can use the R2bn for anything else? The problem for me is that as a shareholder(which I am not), I will have to pump more money into GND, thereby re-inforcing failure, to quote the art of war, couple that with reduced EPS, and no real growth stories yet, I don't see the upside here? Admittedly, the strategy of diversifying their income is sort of working, they still have massive mountains to climb to beat their shipping revenues. And the margins on their other businesses are looking pretty dissapointing
But diluting you unless you put more money in is still diluting. They're meant to be cash-rich so they don't have to do stuff like this. Anyway, at least shareholders now know that they shouldn't do it again for the next few years at least.
Buying Remgro isnt really like trying to get some exposure in Grindrod, its a tiny-midget position that almost cannot be seen as real exposure... I like acquiring shares in companies that will have very good long term gains, and i do think that Grindrods business will pick up in the future and now is surely quite a good entry... but we will have to wait and see :)