By: Brindaveni Naidoo
20th September 2011

JSE-listed Grindrod plans to sell a 22% stake to investment holding firm Remgro for R2-billion to help fund its Southern Africa expansion plan, the shipping and freight services group announced on Tuesday.

CEO Alan Olivier said the transaction enabled Grindrod to have the necessary capacity to follow through with its growth strategy and develop projects.

He told Engineering News Online that there could also be other spinoffs from relationships that Remgro has with various institutions in the market. "This may well assist with debt financing of certain structures through relationships that Remgro has in the market."

Remgro would also benefit as Grindrod will give it exposure to industries with strong growth prospects and good "through the cycle" returns.

Grindrod plans to spend R10-billion over the next five years on expanding its ports and terminals capacity.

While the R10-billion capital expenditure (capex) figure was a long-term estimate which could change, Olivier said major capex would be incurred in 2013/14, followed by debt funding and then equity investing.

This expansion included the development of Phase 4 of the Maputo coal terminal.

Grindrod intends to lift the coal terminal's capacity from six-million tons of coal and magnetite to 20-million tons of coal and ten-million tons of magnetite. The feasibility study for this expansion would be completed before the end of the year.

While there is no definitive cost available, Olivier said the development was likely to cost between $30/t to $40/t.

Further, Olivier said the company remained focused on capitilising on opportunities to grow its shipping business, which remained strategic to the group.

"We want the flexibility to further grow our shipping offering in the niche markets we operate in," he said.

Olivier said that the demand outlook for ferrochrome, chrome, iron-one and coal remained strong.

"Clearly there is volatility in these markets, but demand will continue. Southern Africa has so many resources, but does not have developed infrastructure to capitalise on that growing demand and that's where we really see our opportunities in our rail, port and terminal offerings," he said.

The proposed transaction would be implemented by way of a specific issue of new Grindrod ordinary shares for cash.

Remgro would subscribe for 133 333 334 new Grindrod ordinary shares at R15 a share.
The transaction remains subject to the fulfilment or waiver of a number of conditions precedent, including approval by a 75% majority vote of Grindrod shareholders.

"We are delighted that Remgro is supporting the transaction, which we see as a strong vote of confidence in Grindrod and our stated strategy.

"The weight of Remgro's strategic insight and financial resources is extremely positive for Grindrod, as we contemplate the next phase of the group's development," Olivier said.

He added that the company would, for now, not be looking to add any further strategic partners, but said opportunities could always arise in future.

Grindrod's revenue declined 19% to R17.77-billion for the six months ended June 30, compared with the corresponding period in 2010, with net profit down 36% to R277-million.

Shares in Grindrod closed 4% higher at R15.58 a share on Tuesday.

Edited by: Mariaan Webb

Source: Engineering News (http://www.engineeringnews.co.za/article/grindrod-sells-r2bn-stake-to-remgro-to-help-fund-expansion-plans-2011-09-20)