Patrice Motsepe’s African Rainbow Capital (ARC) Investments is struggling to close the company’s huge discount to net asset value (NAV), with the group’s patience wearing thin and not ruling out delisting from the JSE — with many investment holding companies failing to convince the market of the value of their assets.
Discount to NAV is the amount by which the net asset value exceeds the share price, calculated as the share price divided by the net asset value and expressed as a percentage.
ARC Investment market value is about R11.1bn, while it values its assets at R20bn.
“The JSE listing has proven beneficial to the company, providing valuable access to capital which we have utilised on several occasions over the past seven years,” co-CEOs Johan van der Merwe and Johan van Zyl said in their letter to shareholders.
“However, the listing has not been successful in attaining a fair market value for our portfolio. The share price’s discount to net asset value continues to weigh on our ability to raise capital and create value for our shareholders,” they said.
“At present, almost 80% of the shares are being held internally between ARC and friends and family or related parties, and a further 10% by the PIC as a strategic shareholder. This arrangement offers very limited liquidity to prospective shareholders.
“While we continue to explore avenues to address the NAV discount and unlock shareholder value, it is clear that the current listing structure presents challenges in achieving a fair market valuation for our portfolio. Management remains committed to finding solutions and will actively pursue strategies to close this gap.”
Due to ARC Investment’s share price discount to NAV, the dozen companies that it owns are worth more individually than they are collectively under the holding company’s umbrella.
The joint CEOs said that investors had offered a variety of reasons for the discount, and management had made valiant efforts to address their concerns, including reducing the management fee, trimming the long tail of investments and validating portfolio valuations through disposals.
“Even the break-even of several of our early start-up businesses, with valuations now on par with industry-accepted valuation metrics, has not been successful in narrowing the discount.”
One of the JSE-listed groups with a huge discount to NAV is Naspers. To address this, the tech group has spent more than R50bn buying back its own shares in an unprecedented open-ended share buyback programme.
Investment holding companies such as Remgro are also trading at a significant discount to NAV. One of the crown jewels in ARC Investment’s armour is its stake in data-only network operator Rain and TymeBank.
ARC Fund owns about 26% of Rain. It values Rain at R20bn, implying a valuation of R5.2bn of its stake in the company, which also has esteemed business people such as Paul Harris, Willem Roos and Michael Jordaan as its shareholders.
ARC Investment also has a commanding stake in Alexforbes, among other financial services groups.
ARC Investments, which listed on the JSE in 2017, is a passive investor in the ARC Fund, a permanent structure vehicle that invests in a range of economic sectors.
The company in the 2023 annual report already flagged that it was considering whether there was value in being listed, should the discount remain excessive.
ARC Investments chair Mark Olivier in his letter to shareholders published in the group’s annual report said one of the focus areas for the board in the 2025 financial year would be to assess a delisting of ARC Investments while continuing to deploy strategies to narrow the discount to net asset value and the low free float.
“The discount poses a considerable constraint as it hinders the Fund’s ability to raise capital, economically, to fund growth. This was evident during the year in the R750m rights issue, which was priced at a significant discount to net asset value and has resulted in a dilution of growth on a per-share basis,” he said.
“Despite investing in several well-executed strategies to reduce the discount, the discount to net asset value has persisted.”
The other priorities for the board, Olivier said, was to increase exposure to businesses that support primary agriculture and food security and to up capital allocation to the financial services sector, “particularly disruptive fintech and building on a more entrenched Sanlam partnership”.
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