Investment group African Rainbow Capital has published its interim financial results for the six months ended December 2021, showing strong growth in its portfolio.
While many of the group’s investments were hit by the ongoing Covid-19 pandemic over the period, the biggest items in its portfolio – specifically in the telecoms sector – weathered the storm.
ARC Investments’ portfolio is diversified, covering financial services, telecoms, mining, construction, energy, property and agriculture.
“The operating environment for most of the companies in the ARC Fund portfolio remained largely challenging in the period under review. The operating environment was mainly characterised by an already poorly performing economy exacerbated by the ongoing impact of the Covid-19 pandemic,” it said.
“The South African operating environment is expected to be in a protracted period of uncertainty. This is likely to continue to impact the economy adversely at least over the short to medium term.”
Financial highlights for the period include:
- Intrinsic Portfolio Value increased by 14.1% to R14 billion (30 June 2021: R12.28 billion)
- Intrinsic Net Asset Value (INAV) per share increase of 16.8% (31 December 2020: decrease of 7.6%)
- Cash in the ARC Fund of R538 million (30 June 2021: R239 million)
- The debt in the fund increased by 8.6% to R944 million (30 June 2021: R869 million)
The 16.8% increase in ARC Investments’ share in the INAV of the ARC Fund was largely as a result of the company’s effective share in the net fair value gains of R2.022 billion, it said.
Digital bank TymeBank now represents 10.1% of ARC’s Fund Value, up from 9.6% in June 2021.
ARC Financial Services Holdings injected an additional R257 million into TymeBank and TymeGlobal during the period as part of the scheduled capital requirements for the bank.
At 31 December 2021, the ARC had an effective interest of 25% in TymeBank, being its 49.9% of the 50.1% interest held by ARC FSH in TymeBank.
The bank has been in operation for 36 months, having launched publicly in February 2019. The Covid-19 pandemic and the various levels of the National Lockdown since March 2020 with resultant economic pressure on the consumer adversely impacted a number of the bank’s projects, ARC said.
“Despite these challenges, TymeBank has demonstrated resilience as it maintains momentum in the number of bank accounts being opened, active accounts and launching new products,” it said.
The fair value of the TymeBank investment was adjusted to reflect the post-money value of the recently closed capital raising during which Tencent and the CDC invested into TymeBank and TymeGlobal.
TymeBank received $150 million as part of the capital raised while TymeGlobal received $30 million. The value of ARC FSH’s investment in TymeBank increased to R2.83 billion net of deferred tax as a result, representing a 20% valuation uplift. The company’s effective interest increased from R1.17 billion at 30 June 2021 to R1.41 billion at 31 December 2021.
Mobile data network Rain represents 24.1% of ARC’s Fund Value, down from 27% in June 2021.
ARC said that Rain is on track to exceed its budgeted R1 billion EBITDA for the year ended February 2022.
“This achievement is viewed as exemplary considering that Rain achieved breakeven only in the last 12 months,” it said.
“The company is likely to continue to benefit from developments in its operating environment. Demand for its products remains strong, even as Covid-19 restrictions are relaxed and employees return to the office. The rollout of 5G coverage progresses well to include more towns across the country as well as expanding coverage in metros.”
The reported valuation for Rain at 31 December 2021 remained largely unchanged as the much-anticipated spectrum auction had not yet taken place, and uncertainty persisted regarding the timing, cost and size of the additional spectrum being allocated to Rain.
The spectrum auction finally commenced on 8 March 2022, where Rain participated. The group successfully secured two allocations of 10MHz of the spectrum in the 700 MHz band and for 10 MHz of the 2.6GHz band, respectively, for R1.15 billion during the Opt-In round of the auction.
“Following the finalisation of the Opt-In round, Icasa has commenced the main-stage spectrum auction, and the outcome hereof was unknown at the time of finalising this report. The spectrum allocated to Rain will significantly enhance the company’s competitiveness,” ARC said.
Over the period ARC increased its effective investment in fibre provider, MetroFibre, from R268 million at 30 June 2021 to R275 million at 31 December 2021, as a result of a fair value gain of R7 million.
MetroFibre makes up 2.0% of ARC’s Fund Value, down from 2.2% in June 2021. The group is looking to dispose of its entire investment in the group.
“MetroFibre delivered a satisfactory performance in the period under review, notwithstanding some challenges in its infrastructure rollout as a result of Covid-19. The ARC Fund has reached an agreement to dispose of its entire investment in MetroFibre, pending regulatory approval.
“The fair value recognised was calculated as the net present value of the expected proceeds to be received from the disposal.”