The sale of a big chunk in Foskor is still in the offing, says IDC
The Industrial Development Corporation’s sale of Foskor, SA’s leading supplier of granular fertiliser, collapsed due to the market uncertainty and volatility caused by Russia’s invasion of Ukraine. But it is still intent on selling a big chunk of the company.
The Industrial Development Corporation (IDC) says selling a significant stake in its long-troubled subsidiary, Foskor, is still on the table despite the state-owned development financier experiencing problems previously with reducing its exposure to the company.
By 2021, the IDC had identified an unnamed international investor that had tabled a cash offer to buy a significant equity stake in Foskor, which is the only vertically integrated producer of phosphate ore, phosphoric acid and granular fertiliser in SA. Prominent businessman Bobby Godsell is on the board of Foskor and has also taken up a position on the IDC board.
The potential deal had progressed to the point of the IDC entering into a period of exclusivity with the identified investor, and with it tabling an offer for Foskor. But the deal collapsed by mid-2022, with the investor walking away from it, blaming the market uncertainty and volatility caused by Russia’s invasion of Ukraine.
In an interview with Daily Maverick on Tuesday, IDC CEO Tshokolo Petrus “TP” Nchocho said the development financier’s principle position still involved “selling down” its stake in Foskor.
“The IDC has accepted that it does not want to continue as a majority shareholder in this business [Foskor]. Firstly, the business is best in the hands of an industrial parent. Secondly, the company requires capital on an ongoing basis, like any capital-intensive business,” Nchocho said.
This can be read as the IDC no longer being prepared to pour more money into a company that has been in a perennially loss-making position due to operational-specific problems, but also market-related ones.
The IDC’s legal ownership of Foskor amounts to 59% through the ordinary shares it holds in the company. But the IDC also holds preference shares in Foskor on behalf of Broad-Based Black Economic Empowerment beneficiaries, whose shares in the latter company were largely acquired with money borrowed from the former company. For accounting purposes, the IDC effectively has custodianship of 85% of Foskor shares.
The plan always entailed a potential investor or investors acquiring a majority shareholding in Foskor, with the IDC retaining a minority stake in Foskor, which it considers a strategic asset to SA. To lessen its shareholding exposure to Foskor, the IDC was also considering listing the company on the JSE, which would pave the way for the participation of other investors in Foskor’s shareholding.
“But no definitive decision has been made yet,” Nchocho hastened to add.
Since Russia invaded Ukraine, he believes that the market is still not conducive for any transaction involving Foskor. Nchocho said another six or 12 months were required to pass “for the dust to settle in various quarters including geopolitics”, and then the IDC could be open to restarting talks with potential investors over the sale of Foskor.
“I don’t think we want to run to the market now. Hopefully at that time [in the next six to 12 months], Foskor would have demonstrated a better performance trajectory — production-wise, cost management, capital expenditure, profitability and cash generation.”
Foskor has started to show a positive turnaround during the IDC’s financial year ending 31 March 2023. Foskor’s revenue increased by 64.8% during the period due to increased sales volumes and commodity prices, and an overall improved operating environment. The company also returned to profitability, recording a profit after tax of R2.8-billion.
Foskor was founded by the IDC in 1951 to produce phosphates for SA’s agricultural sector. To do so, the IDC provided Foskor with a loan worth £1-million. Foskor’s core operations include opencast mines in Phalaborwa in Limpopo, which produce phosphate rock. This rock is then transported to its acid division in Richards Bay, on the north coast of KwaZulu-Natal, which produces sulphuric acid, phosphoric acid and granular fertiliser for export and local sale.
Foskor has struggled in recent years, delivering operating losses of R542-million in the year ending March 2022, preceded by a loss of R2.2-billion in 2021 on top of a R1.63-billion loss in 2020. The IDC has also been forced to take several impairments on loans granted to Foskor over the years.
But the IDC has pushed for a new management team to be appointed at Foskor, which Nchocho said had “driven the turnaround effort at the company substantially and invested heavily in its plant modernisation and equipment upgrades to move in the right direction”.
The IDC’s fortunes have improved. At a group level, its profit increased by 70% to R10.7-billion compared to R6.3-billion in 2021/22 on the back of fewer companies defaulting on loan repayments. DM