Brait, the investment company in which Christo Wiese is the biggest shareholder, announced on Friday that it will spend more than R1.1bn to bailout executives as it unwinds a structure that was implemented in 2011 to incentivise a select group of executives.
This comes after an 86% drop in the company’s share price over the past three years dragged by its failed UK venture. It lost 4.9% on Friday to R23.85.
In addition to the bailout, the company will spend about R900m to acquire the shares that were provided as collateral for the indemnity Brait had provided to the borrowers when the deal was refinanced in 2014 and 2015.
The original deal saw Brait lend a group of executives R1.2bn in 2011, which together with R300m provided by the executives, allowed them to buy R1.5bn of Brait shares. This gave them an 18% stake in the company through a private entity called Fleet, and would allow them to benefit handsomely were the share price to rise.
The deal was refinanced in 2014,when Firstrand and Standard Bank assumed the loan of R1.6bn which included accrued interest.
Brait has previously set aside R685m to cover the shortfall (net exposure) between the outstanding value of the loan to Standard Bank and Firstrand, and the value of the shares.
But on Friday, the company stated: “This net exposure has subsequently increased by R466m to the date of the transaction primarily as a result of the decrease in share price and will be settled with the lenders as part of the transaction.”
The decision to bail out executives will undoubtedly inflame shareholders.
Shareholder activist Theo Botha cannot believe that the board will not approach shareholders regarding the bailout. “When the structure was implemented in 2011 they sought shareholder approval for it, but now we are being told to pay for it without [them] even asking us. The board should put this to a shareholder vote as it is shareholders that are the ones ultimately paying for this,” he says.
As part of the refinancing, Brait, through a subsidiary in Mauritius, issued an indemnity to the two banks, effectively guaranteeing the loan. In turn, Brait held all the shares bought by Fleet as security for the indemnity. The 36.4-million shares Brait will acquire from Fleet will be accounted for as treasury shares.
Brait bought 90% of UK fashion chain New Look about four years ago for more than R14bn. The retailer is also one of the many companies caught in the middle of the demise of the UK’s retail sector since the country voted in 2016 to leave the EU, sparking concern about long-term prospects for economic growth and consumer spending. Brait wrote down the value of its holding in the group to nil in 2017.
This saw Brait’s net asset value declining over the period and the share price followed suite.
Brait CEO John Gnodde and chair Jabu Moleketicould not be reached for comment.
Prior to 2011, Brait operated as a successful private equity firm. In 2011, it changed strategy to become an investment holding company. Wiese is the biggest shareholder with 36%, according to Bloomberg data.
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