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Brait convertible bond

Whoa, what happened to Brait on Friday? The share price was slammed in early trade as the company announced a convertible bond offering, the terms themselves were announced in the closing auction of the market. The closing auction is around ten to five in the afternoon, the uncrossing price settles just after 5pm. This is when all the volumes on the buy and sell ends of the market match each other. Not only does volume dictate, more importantly, the price of the volume dictates where the share price will uncross in that last trade.

In the second announcement of the day the company announced that they had raised 350 million Pound Sterling via a convertible bond offering, carrying a semi annual coupon payment of 2.75 percent per annum. The conversion price i.e. where the bonds, the debt, converts to Brait equity is 7.9214 Great British Pounds, which at the current rate of 1 to 20.93 (wipe that tear away) is 165.82 Rand a share. Or, as Brait points out in the release, a 30 percent premium to the current trading price. Under the terms of the agreement from Brait and the bondholders, the company has the right to select whether or not they (the bondholders) get cash, shares or a combination of both.

Why raise the money this way? Part of the answer is that they intend to list the bonds on the open market segment in Frankfurt. Sound familiar? Sound like Steinhoff? The same person in common between Steinhoff and Brait is Christo Wiese, who is represented in both companies through his holding entity, Titan. Titan has a nice sound to it. The entity that represents the empire of Wiese (perhaps not all of it), as per the Brait annual report, owns 179.9 million Brait shares. At 130 Rand a piece, his stake in Brait is worth 23.38 billion Rand. The annual report also points out that "Dr CH Wiese also has an indirect beneficial interest in 1.5 million preference shares and 30 000 single stock futures with a nominal exposure to 3 000 000 Brait ordinary shares."

I suppose those may, or may not be open, I'll have to check the SENS closely. Total number of shares in issue as at the end of the financial year, 516.49 million. OK, so perhaps a listing in time in Frankfurt too, thinking out loud here. Michael has done a lot of math here across the desk from me. He worked out that each bond issued = 12624 shares (at that price of 7.9214 Pounds). Multiply that by 3500 and you get to 44.184 million new shares, should they be all issued. That represents a dilution of less than 9 percent on the current shares in issue. That was then the reason that the stock price found itself at that closing level of 130 Rand. Of course the board may choose to convert half of those, or none, or all, the resources are going to be yours as a shareholder.

And what to do with the money? i.e. What do you get for the dilution as a shareholder? "The Company intends to use the GBP350m proceeds from the offering for general corporate purposes with a primary focus on funding strategic acquisitions in line with its stated strategy of driving sustainable long-term growth and value creation in its investment portfolio." More unlisted businesses of size and scale and fewer listed businesses, it is their intention to sell their stake in Steinhoff around the listing of the shares in Frankfurt. They would then realise the funds in order to pursue other interests.

At the same time of this announcement Brait updated shareholders to three smallish deals, two businesses exited and one investment. Southern View Finance Limited, which represented 3 percent of their last NAV update was exited above the carrying value (as per the last update). They also exited a business called Chamber Lane Properties at above their last reported carrying value, the transaction represents only 1 percent of their total NAV. And lastly, an acquisition of 41 percent of a business called DGB (Pty) Ltd, representing 2 percent of total assets. Nothing earth shattering, just an indication that the company is twitching and moving fast. Who are DGB? The Boschendal and Bellingham farms, South Africa's largest independent wine and spirit producer and distributor. Which way Douglas Green? Now you know, in the Brait stable. The Bellingham farm dates back to 1693. This recent drop in the share price (like many others) is an opportunity to own the stock if you do not already.


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