Empowerment company Vunani's R58 million fair value loss due to recent interest rate hikes and a sharp decline in listed share prices on the JSE, exposed the vulnerability of vendor finances acquisitions in volatile times.
Speaking to Business Times after the release of its interim results yesterday for the six months to June, Vunani chief executive, Ethan Dube, said the group was forced to adjust fair value to R339 million from R397 million last year.
He said market volatility and high interest rates severely affected the value of the group's listed investments and consequently its investment services business.
Makwe Masilela, investment analyst and chief operations officer at Nehawu securities said the situation was not unique to Vunani because all vendor financed BEE investments suffer when share prices drop.
"In funded BEE acquisitions, high interest rates increase the cost of repayment the same way as when you take a mortgage or car loan. Things get even worse when share prices decline, because it reduces the value of the investment and the dividends used to repay the loan," said Masilela.
He said Vunani was not as vulnerable as traditional BEE companies as its core business was in financial services and not empowerment investments.
Dube concurred saying: "Vunani is a financial services enterprise with a balance sheet underpinned by various listed investments."
Vunani's revenue increased by 25,2 percent to R71,1 million from R56,8 million last year, with operating profit also up 9 percent to R25,4 million from R23,3 million.
In the past six months Vunani made a number of strategic acquisitions to enhance its financial services assets.
It bought an additional 35 percent shareholding in Edge Holding, increasing their stake from 10 percent to 45 percent. They also acquired 51 percent of Integrated Management Investments.
They also concluded the acquisition of a corporate finance and a treasury advisory business and rebranded them as Vunani Corporate Finance and Vunani Treasury Resources, respectively.
Dube said the company's expenses increased mainly as a result of the consolidation of new businesses and their associated costs.