Phumelela is off to the races again
The majority of Phumelela’s creditors have voted in favour of the business practitioners' proposed rescue plan, which put to vote the option of Mary Oppenheimer and Daughters’ family office buying some assets now, or extending the deadline to explore more options. The decision to realise only the racing assets implicitly rejects any other offers and options, including that by British bookmaker group Betfred who wanted to buy it all, at twice the price.
Much to the relief of the local racing industry, the group known as Mary Oppenheimer Daughters (MOD) have won crucial creditor approval to take control of the racing assets of Phumelela Gaming and Leisure, including local and offshore Totes and broadcasting rights. The business rescue practitioner did not afford the offshore outfit Betfred an opportunity to broker a deal, which could have been preferential to not only creditors, but equity holders as well.
Phumelela, already in financial stress, decided against voluntary liquidation and submitted itself for business rescue proceedings in May, after MOD offered to provide the funding to pay for the proceedings.
MOD was an early backer of Phumelela as it offered the company a loan worth R100-million during its business rescue proceedings. The loan ensured that the operations of the company were kept going during the restructuring process.
It also offered a PCF loan of R550-million to guarantee payment to creditors via the plan fund.
Business rescue practitioner John Evans published a business rescue plan on 19 August, in which he proposed the sale of racing assets to pay Phumelela’s preferred debtors.
The MOD offer was endorsed by Evans and included in the rescue plan.
The family office tabled an offer worth R480-million to buy Phumelela’s horse racing assets, including the Turffontein Racecourse in Gauteng. The family’s offer excludes Phumelela’s betting houses and some property interests. The vote on 1 September by creditors sealed the deal and separately rejected the postponement of the vote to investigate other opportunities. Other interested parties, including Betfred, were not named in the plan.
MOD argued that Betfred had not tabled a firm offer – one that should be backed by legal agreements – but had merely stated its intention to buy Phumelela.
Creditors clearly agreed. The agreement means creditors will get at least 72 cents in the rand, with the balance topped up with proceeds from the sale of Phumelela’s racing assets.
The agreement furthermore gives the business rescue practitioner a year to find suitable buyers for the remaining assets.
For many years South Africa’s largest horse racing operator, Phumelela Gaming and Leisure, made good money. They were generating proper income from their racing assets and enjoyed the privilege of being the only online gambling permitted under the law. The group’s 50% share of the 6% levy on punters’ winnings on fixed-odds bets on horse racing was also kind to cash flow.
The company still turned a profit of R68-million for the six months to January 2019, despite the economy turning south and taking discretionary spend with it.
But it was in April of that year when Public Protector Busisiwe Mkhwebane ordered the Gauteng Gambling Board in May to stop the gambling levy paid to Phumelela by the government each year.
The group said in a trading update that the levy had been withheld from 1 April, depriving it of income of more than R6-million a month, on average.
The removal of the 3% levy due to Phumelela in terms of Regulation 276 was a devastating blow to the company. The payment of this levy forms part of the agreement between the Gauteng government and the racing industry and is intended to ensure the sustainability of horse racing. Phumelela must shoulder the costs in horse racing, but income from other sources “is insufficient to make up for the costs”, the group said.
Phumelela issued its unaudited condensed consolidated interim financial results for the six months ended 31 January 2020, reporting that local operations lost R115-million.
“The group has had its worst year since the business was first incorporated in 1997,” it said.
In terms of the plan, a minimum of R550-million will be paid to creditors, says Charles Savage, who represents MOD’s interests. He says that the business rescue practitioner’s job is to get the best price for assets to satisfy creditors in the shortest period of time:
“He has to do so at a time when covid dried up revenue streams that make valuations almost impossible.”
When the MOD deal is complete, and the transfer of the racecourses, offshore assets and the broadcast rights of Teletrack, the practitioner has a year to sell the remaining assets. This includes Superbet, Superworld, Betting World, some property and a security company, that is considered immaterial.
Whether prospective buyers will be interested in the assets alone or the company construct will determine whether the company remains listed on the JSE. The shares are suspended as business rescue proceedings are finalised.
Omri Thomas, portfolio manager at Abax Investments, says efforts do look like a bona fide attempt to save the horse racing industry in its current form of eternal doom.
Those that remained invested in the cause over the years, which includes Bernard Kantor from Investec, will not be rewarded for their loyalty. The largest shareholder, with 26%, is a company called Thoroughbred Horseracing Trust. The MOD is not a significant shareholder in the business, according to the shareholder register. DM/BM
- Daily Maverick apologises for the erroneous naming of Bernard Kantor as Brian and have updated this article to reflect same. (Ed)
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