Around 25 years ago, HCI’s share price ranged between 150c and 950c, and now sits north of R140

In 2001, Sactwu held a commanding 48.7% in HCI. As an anchor shareholder, Sactwu — to the casual observer — might seem to have a slight strategic disconnect with HCI. Apparently, it was less than enthusiastic about the group’s investment in Montauk, a US-based renewable energy business. Montauk was duly separated from HCI, and the group executives who were more enthusiastic about its prospects were richly rewarded (even with the share price now cooling markedly). Sactwu, on the other hand, missed out on a game-changing investment.

It also took up HCI’s interests in some of the clothing and textile manufacturing businesses that formed the backbone of the old Seardel group (which HCI rescued by supporting a rights issue about 11 years ago). The long-term viability of the old Seardel businesses was questionable — even before HCI stepped in — with cheaper imports ripping the margins out of local manufacturers. Just how these operations have performed under Sactwu’s stewardship is not clear (being unlisted). But, understandably, market wags suggest Sactwu’s regular offloading of HCI shares is generating the fresh capital needed to sustain its threadbare manufacturing operations.

So it should not have been surprising last week when HCI announced it would buy back almost 5.3-million shares from Sactwu at an effective price of R131 a share. This chunky repurchase — at a huge discount to the group’s last stated NAV — will reduce Sactwu’s holding to 18.4%.

Essentially, Sactwu will raise R144m through a share sale to HCI, and then settle the balance by taking several HCI properties worth about R549m. Presumably, the property/share swap is to ensure it secures income-earning assets that could grease the wheels of capital-hungry manufacturing businesses. More importantly, from an HCI perspective, it hopefully precludes (or at least limits) further sales of HCI shares. Removing the Sactwu overhang has already sparked HCI’s shares, with the price running from about R127 to R144 at the time of writing.

From Sactwu’s perspective, a steadier rental flow from properties — in the short term — will trump the low dividend yield on HCI’s shares. With HCI still harbouring ambitious energy plans in Namibia and South Africa — and possibly further funding its fledgling platinum interests — there is not much scope for ratcheting up the dividend.

But with several HCI subsidiaries (Frontier Transport, eMedia, Tsogo Sun and Southern Sun) pumping some serious dividends, the debt at the centre is unlikely to be a long-term headache. And if some of the growth ventures hit pay dirt down the line — particularly the Namibian oil interests — Sactwu could be seriously ruing its curtailed participation at HCI.

I’m sure there would not be too many (if any) HCI shareholders who would have accepted the terms of the offer to Sactwu. There have been suggestions that perhaps Sactwu’s need for strong dividend flows might have been solved by switching a portion of its HCI holding into a higher-yield group subsidiary such as Frontier Transport or Tsogo.

With HCI’s true value clouded by the difficulty in accurately assessing the worth of its unlisted oil and gas interests, such a swap might have been tricky to table to other shareholders. I suppose investors might want to look ahead on this one — weighing up the chances of Sactwu getting a premium-priced offer on its remaining 18% stake. That could make things interesting if an activist shareholder were to sneak in — though I’m sure Copelyn and his fellow executives have mulled and planned for this scenario long ago.