Bloomberg News

Drugs to Cars Lead Imperial to Debt Markets: South Africa Credit

March 05, 2013

Imperial Holdings Ltd. (IPL), a South African industrial group with interests from drug distribution to car dealers, plans to increase borrowing to fund acquisitions on the continent and to repay bonds maturing next month.

The Johannesburg-based company wants to spend as much as 4 billion rand ($442 million) in Europe and Africa to bolster its presence in consumer goods and pharmaceutical logistics to offset slower industrial growth, Chief Executive Officer Hubert Brody said last week. Imperial is prepared to increase debt to pay for acquisitions with its net debt to equity ratio at 52 percent at the end of December 2012, less than the company’s target range of 60 percent to 80 percent.

Yields on Imperial’s 9.04 percent rand bonds due March 2014 have risen 10 basis points this year, compared with a 9 basis- point increase in dollar bonds in JPMorgan Chase & Co.’s CEMBI Transport Blended Yield Index. The rand securities, sold in March 2007, reached a record low of 5.86 percent last July. Imperial must repay about 237 million euros ($309 million) of bonds by April 19, while 500 million rand of bonds reach maturity in September 2015 and 1.5 billion rand two years later.

“Funding acquisitions at this stage should not be a problem,” Anashrin Pillay, an analyst at Stanlib Asset Management, which manages the equivalent of $50 billion in Johannesburg, said in an e-mailed response to questions yesterday. “Debt financing at the moment is relatively cheap so that would probably be the way to go.”

Bond Market

Imperial has 3.5 billion rand in unused debt facilities, according to Pillay. Returning to the bond market is another option, although the premium it would probably pay on borrowings may be slightly higher, he said.

The repayment of the 4.75 percent Eurobond debt next month won’t hamper Imperial’s ability to make purchases, Mark Hodgson, an analyst at Cape Town-based Avior Research (Pty) Ltd., said by phone yesterday. “They have managed the currency risk. They have a good hand on the debt.”

The rand rose for the first time in four days against the dollar, advancing 0.3 percent to 9.0528 by 5:48 p.m. in Johannesburg yesterday. The currency is the third-worst performer this year against the dollar of 16 major currencies tracked by Bloomberg. Yields on the nation’s 10.5 percent bonds due December 2026 fell 6 basis points, or 0.06 percentage point, to 7.32 percent, from a record low of 7.11 percent on Jan 10.

‘Nearly Doubled’

Imperial acquired a health-care supply business from Johannesburg-based RTT Group Pty Ltd. in January, the company said in a statement on Feb. 27. The unit, now trading as Imperial Health Sciences, is expected to contribute to growth outside Africa, which “nearly doubled” in terms of operating profit over two years to 183 million rand, it said.

The “biggest challenge is finding larger acquisitions that move the needle in the desired geography,” said Stanlib’s Pillay. A “large logistics acquisition in Africa is difficult to find.”

Companies valued at about 500 million rand will be probable targets for Imperial, according to Avior’s Hodgson. The company may be “reluctant” to take on bigger deals, he said.

Bidvest Ltd. (BVT), an industrial conglomerate with a market capitalization of 78.6 billion rand and which also owns car dealerships and distribution companies, is also considering acquisitions. Purchases worth about 10 billion rand are “easily achievable,” Chief Executive Officer Brian Joffe said March 4.

Profit Rising

Imperial shares fell for the third day, dropping 0.5 percent to 200.60 rand, giving the company a market value of 42 billion rand. The stock has gained 35 percent over the past 12 months, compared with a 19 percent increase in the FTSE/JSE Africa All Share Index. (JALSH)

Imperial’s fiscal first-half adjusted earnings per share excluding some items, which the company calls core earnings, increased 15 percent to 8.72 rand in the six months through December. Revenue rose 18 percent to 45.3 billion rand while the dividend was raised 27 percent to 3.80 rand. Trading conditions in South Africa will remain challenging, while the international business may be hurt by a slowing German economy, the company said Feb. 27

“There is money waiting on the side for such opportunities,” Abri du Plessis, chief investment officer of Cape Town-based Gryphon Asset Management, said by phone about Imperial’s possible debt sales. “Because of the tough environment, the spreads might tick up a bit. I don’t think by much. It will be fractionally higher.”

To contact the reporter on this story: Kamlesh Bhuckory in Johannesburg at

To contact the editor responsible for this story: Antony Sguazzin at

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