‘Indigenisation needs clarification’

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Brett Childs

Zimbabwean-founded Brainworks Capital — a private equity, investment holding and advisory firm with controlling stakes in Zimbabwe’s premier property asset Dawn Properties and hotel management concern African Sun Ltd — has approached the Johan

Brett Childs

CM: Your company, Brainworks, is looking at a listing on the JSE. What inspired this move?

BC: As Brainworks moved from start-up to an institutionalised conglomerate with an excellent asset base, listing on an international stock exchange is the next step in our strategy. Furthermore, with the government’s investment in infrastructure and efforts to open the economy to international investors we believe that investor interest in Zimbabwe is starting to pick up.

Listing on an international exchange will allow international investors to gain entry at an early stage of this journey while the government resolves the country’s currency challenge, which is a material concern to international investors.

Investors who follow the JSE are familiar with investing in Africa and regularly assess macro risk issues when investing, so we believe that by listing on the JSE, we would be better placed to attract international investors in Brainworks, by offering an international, liquid, tradable instrument.

A listing on the JSE and the consequent capital raise will:

Provide access to funding from the capital markets which will facilitate and accelerate the group’s organic and acquisitive growth;

Enable the group reduce interest bearing debt, thereby strengthening the company’s balance sheet for future acquisitions and expansion of current investments;

Raise the group’s profile with lending institutions and allow access to more beneficial financing terms available to listed entities; and

Create awareness with prospective institutional and retail investors about the merits of investing in the company, giving them an opportunity to invest, and participate in, the future growth of Brainworks.

CM: How much are you looking to raise on the JSE?

BC: We would like to raise up to US$25 million but the important thing for us is to list our shares so whether or not we raise any capital, we will still list our shares on the JSE by introduction.

CM: What do you intend to do with these funds?

BC: Restructure our balance sheet and invest in our existing hospitality assets.

CM: What other assets or sectors are you looking at in the future? With the funds raised via the JSE initial public offer, are we likely going to see acquisition on the Zimbabwe Stock Exchange (ZSE)?

BC: As explained earlier, we will use the funds raised from the listing to invest in our current hospitality portfolio. Going forward, we will continue to expand our hospitality footprint and develop our real estate portfolio as we feel that these are resilient bellwether assets. Other sectors that interest us are fast-moving consumer goods (FMCG) and education.

CM: Do you think there are good assets lying around on the ZSE? What is your investment model? Are you a value investor?

BC: Yes, we are invested in ZSE-listed assets — African Sun, Dawn Properties and GetBucks. We will explore other opportunities related to ZSE-listed assets when the time arises.

We are a permanent capital private equity company and only look at investments where we believe we can make a difference to the value model. The company applies a private equity model to investing, focussing on active shareholder participation in our investee companies.

Our ethos is to seek opportunities, primarily in Zimbabwe, which show strong and sustainable cash generation potential. We also look to attract or work with reputable partners who will invest alongside or partner with Brainworks to facilitate the unlocking of shareholder value.

CM: What do you see as an attractive asset on the ZSE which you think Brainworks can add to its portfolio?

BC: As mentioned earlier, we are looking to increase our footprint in hospitality and build our exposure to this sector and while we are opportunistic, we will focus on hospitality, FMCG and education.

CM: With all the problems in the Zimbabwean economy relating to the creation of electronic money through the Real-Time Gross Settlement system and the discounting of such currencies in the market and resultant inflation that comes with increased money supply, do you think this is a good time to be investing in Zimbabwe?

BC: It is an undeniable fact that the Zimbabwean economy continues to be buffeted by our currency crisis, but despite some market negativity, the Zimbabwean government is pushing transformative economic reforms through parliament that seek to improve the operating environment in accordance with the World Bank’s ease of doing business indices. Also, Zimbabwe’s Treasury expects economic growth to rise in 2017 on the back of improved agricultural production and higher commodity prices.

The agricultural sector also remains promising as the sector is projected to grow by 12% in 2016 alone, as a result of the newly introduced 5% export incentive scheme.

Concerning the industries in which we operate, the tourism industry is envisaged to grow by 0.8% in 2017 with tourism receipts expected to total US$3 billion by 2020, given government interventions to remove barriers to the free movement of tourists into and within the country.

The currency issue will need to be resolved in the short term and, when it is, it will have a major positive impact on the economy hence why we believe the time is now for investors to access a recovering emerging market.

Brainworks offers investors ground floor access to a recovering emerging market and the holding company structure allows a single entry point on an international exchange, giving investors exposure to Zimbabwe-based assets without the perceived risks associated with direct investment.

CM: If you just found yourself with US$100 million, what would you invest it in?

BC: Brainworks Limited — the company’s potential is gargantuan. We have a fantastic ecosystem with Dawn Properties and African Sun — with hotels in operating in all major tourist destinations in Zimbabwe, including at the iconic Victoria Falls.

Within Dawn, we have a huge opportunity utilising our large land bank. We are also realising synergies from our financial services sector across the group maximising ROE. These are just some examples of why Brainworks is a fantastic investment opportunity.

We would ensure that we become a major player in the hospitality space through key acquisitions.

CM: You are listing a Zimbabwean-founded business on the JSE. What is the appetite like for Zimbabwe risk on the JSE, judging by the roadshows you have done?

BC: Potential investors have been positive on Zimbabwe, more so in South Africa than in the UK. In London, we found that we really had to push the investment case for Zimbabwe, demonstrate the steps being taken to open up the economy, explain enabling regulatory reforms and so forth.

Investors in South Africa, many of whom were more familiar with the region and the assets, had a keener appetite for the country. However, there is significant confusion around indigenisation and major concerns around the currency issue, but we think that there is an appetite to invest in Zimbabwe despite these issues. If we could at least clarify indigenisation, there would be a material uplift in foreign direct investment.

CM: Given that you are running a company founded by Zimbabweans, what is your opinion in terms of entrepreneurial development and intellectual capital as a country and for the founders of Brainworks? In other words, is this testament to the fact that Zimbabwe has intellectual capital and is now a force to reckon with continentally and internationally?

BC: I am Zimbabwean and I know that we have an entrepreneurial and “just do it” attitude, along with fantastic intellectual capital. These are USPs known to the investment community and this is what makes Zimbabwe an attractive investment opportunity in spite of other challenges.

CM: There has never been a listing of Zimbabwe-founded business on the JSE. Are investors buying your pitch of Zim assets?

BC: As mentioned earlier, the reception has been very positive. Many potential investors in South Africa are familiar with our assets and understand the value story as the economy opens and our government corrects the imbalances and challenges our economy is facing. We also found that many of their funds had mandates for ex-SA and already had exposure to Zimbabwe.

CM: Are you (as Brainworks) looking at JSE only for raising capital or you are looking at further offshore markets (UK and other markets) for growth?

BC: In the medium-term, Johannesburg will remain our primary listing and we will be doing a secondary listing on the ZSE. The only constant in our world is change and, of course, we will continue to scan the landscape.

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