Patrice Motsepe’s African Rainbow Capital Investments (ARCI) is likely to fork out R700m in capital gains tax after its decision to move its headquarters from Mauritius to SA as part of its delisting process.
“ARCI will be required to pay capital gains tax on disposal of its interests in the portfolio companies held through the ARC Fund. As such, ARCI will be required to raise a deferred tax liability in respect of its entire direct holding of portfolio companies held through the ARC Fund at date of redomicile,” the company said in a circular to shareholders.
“It is estimated that at redomicile, ARCI, through the ARC Fund, will recognise a deferred tax liability of R713m which will negatively affect the net asset value of the company.”
ARCI is a passive investor in the ARC Fund, a permanent structure vehicle that invests in a range of economic sectors.
The investment house has also set a date on which to delist from the JSE — with the company set to ditch its listing at the end of next month — less than 10 years after it listed.
The ARCI share price does not reflect the true value of the investment in the ARC Fund and trades at a discount to the net asset value of the ARC Fund, meaning that investors in ARCI are not receiving the true value of their investment.
The shares of investment holding companies, locally and internationally, typically trade at a substantial discount to net asset value.
Some of the prized assets in ARCI’s portfolio include Rain, TymeBank and a large stake in Alexforbes.
The company is offering R9.75 per share to minority shareholders — with those who opt not to sell expecting to be part of the company when it goes private.
ARCI, which has battled to close the discount to net-asset value since being listed, in a circular to shareholders said it would derive more value in the unlisted space.
In addition, changes to tax legislation since the ARCI listing have resulted in tax inefficiency for SA resident ARCI shareholders vis-à-vis the underlying SA investments.
— African Rainbow Capital Investments
“At the time of listing ARCI, the rationale for incorporating ARCI in Mauritius was its business-friendly environment, the tax treaties which Mauritius has in place, and not only to attract capital from investors outside SA (and the Common Monetary Area) but also to facilitate investments outside SA, if required by international investors,” the company said.
“This strategy has not materialised to the extent expected. ARCI attracted very limited international funding, and no funding due to the Mauritian structure. Also, ARCI is mainly invested in SA companies,” it said.
“The cost to operate and oversee the affairs and operations of ARCI in Mauritius has become increasingly expensive. In addition, changes to tax legislation since the ARCI listing have resulted in tax inefficiency for SA resident ARCI shareholders vis-à-vis the underlying SA investments.”
The company’s shareholders will meet next month to vote on the delisting and moving its headquarters to SA.
Professional services firm BDO, hired by the board to reflect on the fairness of the offer price, said the offered price was fair.
“In undertaking the valuation exercise above, we have determined a valuation range of R9.30-R10.03 per share, with a most likely value of R9.79 per share on a control basis.
“Based upon, and subject to the conditions set out herein, BDO Corporate Finance is of the opinion that the offer and the offer consideration are fair to shareholders,” BDO said.
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