What's up with Labat Africa's share price?

For years, Labat-Africa’s listed stock price bumped along at about 10 cents per share (cps) – until, a year ago, it started issuing one of many cautionary notices to investors of its intention to make an acquisition.

Set up with funds by US black controlled consultancy Labat-Anderson Inc, Labat-Africa once had dreams (all unrealised) of making semiconductors, and of being a bigwig in rail and pharmaceuticals. It also hoped to win the tender for Limpopo’s multi-billion-rand pension payouts contract, but lost to what it alleged were corrupt competitors (see noses50,53&60). For a long while it has essentially been a dormant cash shell.

Suddenly, on 27 April this year, Labat’s stock price started running. Really running. Within a month, it was up at 85 cps (levels last seen five years ago) and on 12 June, it was changing hands at around 123 cps.

Within two months, the stock price had increased more than 1,000%! It was also on 12 June that Labat announced the proposed acquisition of the  Reinhardt Transport Group (RTG), to be funded by R325 million in debt, and R360m in cash, raised by a fresh issue of shares. In investment parlance, this “reverse listing” is where a languishing entity, such as Labat, is used as a vehicle to list a new asset.

Questions that hinge around Labat’s soaring stock price just weeks ahead of a major announcement are: Who knew what? How many millions were made? As to the future, if the new Labat phenomenon continues, no doubt in a few years, Labat will have taken over anything that moves.

Stock exchanges – in this case, the JSE (on behalf of the FSB) – notoriously ignore these situations. Stock markets are ultimate gambling dens, adorned with veneers of respectability and class.

But securities markets do have some traditions. In “normalised” capital-raising exercises, listed companies normally offer fresh share issues at a discount to recently-prevailing prices. In Labat’s case, new shares are being offered at 150cps –  a massive 1,500% premium.

Brian van Rooyen, Labat CEO (and one-time president of the SA Rugby Football Union where he was accused of “corrupt practices” (see nose71), is not keen to discuss any of these issues.

Labat’s Annual Report to 28 February 2014 informed that “GEM, an alternative US$3.4bn investment group…  has confirmed that equity funding of up to $100m for suitable investments is still available to Labat in order to fund future acquisitions and suitable transactions”.

This facility was recently “extended” – again. It’s no secret that private equity funds employ the nimblest and sharpest brains. But no private equity fund offers open-ended carte blanche tickets, especially not to the likes of Labat, whose operations lost R8.6m during the 2014 financial year.

What is GEM, really? Does it have an address, number, and why are there no quotes from its principal investment manager? The US$100m apparently available from GEM is now worth more than R1bn. If such a significant amount of cash/capital was made available to Labat so long ago, why was Van Rooyen in Cape Town in mid-July this year, selling the RTG acquisition to South African fund managers, in his wish for Labat to issue 250 million new shares? Why is RTG being listed, if it is so valuable?

One thing is for sure: investors and speculators  who bought Labat shares at 10cps have made a killing. It could be, who knows, that the new Labat has managed to secure transport contracts from the non-private sector. If so, this could be another version of tenderpreneurship. 

Labat Africa
Brian Van Rooyen
Share Price
Reinhardt Transport Group
Barry Sergeant
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