Confused about their role, morally litigious, territorially monopolistic and competitive about their share of the retail market, this befuddled and perplexed, privately owned company; selected the absolute worse time to expand into the retail market, had to beg the bank for a credit extension and insisted on a billion dollar bailout from its shareholders in order to persuade the bank they were a wise investment.
The ‘Star’ recently commented that the listing of diamond mining giant De Beers would come as a surprise as the company was heavily indebted while the ‘Business Times’ reported on Sunday that the company planned to list as early as next year, by which time it would likely have a primary listing on the London Stock Exchange with secondary listings on the JSE and the Botswana Stock Exchange.
“The balance sheet is in a state of disrepair. Anglo American would probably like to distance itself from this underperformer,” said Chris Gilmour, an analyst from Absa Investments.
De Beers’ free cash flow slumped from $258 million in 2008 to $35 million last year, while net interest-bearing debt narrowed from $3.41 billion in 2008 to $3.09 billion last year. “Bank borrowings stood at more than $3 billion last year, which is still an enormous amount of debt,” Gilmour said.
James Allan, a former diamond sector analyst, now at corporate finance house ‘Allan Hochreiter’, said he could not see any rationale for the move other than Anglo wanting to sell some of its shares and use the cash to go into iron ore or copper.’ But that would change the underlying structure of Anglo’s business model,” he said. Both Allan and Gilmour contended that the company might want a primary listing on the LSE and secondary listings on the JSE and BSE. “Most operations are in Botswana and that government would want access to the listed entity,” Allan said. Gilmour said the company was already domiciled in London and needed to be listed on an international exchange to get the breath of international share ownership required for a company with De Beers’ profile. “They have been clever in keeping the market up to speed with developments, but I was not expecting this after only nine years,” he said. The company’s gross profit declined from $1.3 billion in the 12 months to December 2008 to $327 million last year. De Beers’ 2001 privatization left the Oppenheimer family and Anglo with equal stakes of 45 percent. The other 10 percent is held by the Botswana government’s Debswana.
Tom Tweedy, the spokesman for De Beers South Africa, said it was ‘a shareholder decision’ where to list. ‘This is all speculation as we have had no indication of any preparation in that respect,” he said. Anglodeclined to comment. The diamond industry was severely affected by the global economic downturn last year and De Beers has indicated that it will focus on lowering production levels in line with client demand. Anwaar Wagner, an analyst from Old Mutual Investment Group, said in theory a listing would provide the company with a tangible value in the market. “To see the value of De Beers in Anglo would allow any of the shareholders to either sell down or increase their stakes. “However, the company delisted because the market did not place a value on a significant portion of the business. As a result, the share was undervalued,” he said.