South African companies’ overseas forays have destroyed more than R300 billion in value, according to asset management firm Anchor Capital.
Peter Armitage, CEO of Anchor Capital, said South African companies are having a horrific time in 2020, with the impacts of a struggling economy and COVID-19 taking their toll.
“However, for many of these businesses it started a long time ago as corporate SA went on a global diversification spending spree over the past decade with mainly very poor, and often disastrous, outcomes,” Armitage said.
“It is impossible to quantify exactly, but we estimate that corporate SA has destroyed over R300bn of value over the past decade through these offshore forays, with the biggest culprits being Sasol, Woolworths and Brait.”
Sasol spent $13bn on its US Lake Charles Chemicals Project, after an initial budget of roughly half of that amount.
“We estimate that the Sasol share price would be over R400 a share today if it had never entered the US. Instead, Sasol’s share price is currently trading at around R135,” Armitage said.
Armitage also pointed to offshore deals that went pear-shaped like the ones undertaken by Famous Brands, Mediclinic and Truworths.
South Africa’s blue-chip companies have often been criticized for not investing in the domestic economy.
Armitage said there are great lessons to be learnt and many of the businesses he pointed to still have great South African franchises and cash-generative models.
“We are hopeful that SA can improve its attractiveness as an investment destination so that domestic companies can confidently deploy their capital locally at rates of return in-line with traditional returns. Even lower returns, that still beat the cost of capital, must surely in many instances be more attractive than the clearly massive risks in deploying capital offshore.”
