A thought just struck me this last weekend: if the unimaginable happens and Vunani's going-concern risk becomes a reality with the empowerment investment company failing, then suddenly its assets will get grabbed by its biggest creditors (Investec, Standard Bank and other banks) and the businesses it has BEE stakes in will lose their BEE credentials.

Vunani does currently have a D:E of over 8 times and, even if the rights issue works out to be a success for the listed company, the majority shareholder (that gives VUN its black-ownership rating) is under-writing the entire issue with capital that is (most probably) borrowed.  In other words, even if VUN doesn't fail, the majority shareholder might.  This would have exactly the same implications to the listed company's various BEE stakes, as suddenly VUN would no longer be a black-owned group.

Vunani's bigger investments include holdings in TWP, Peregrine, Wesizwe, PSV, Esor, BSI, Interwaste and the JSE.

Not only would each of these businesses suddenly find themselves short on the BEE credentials list, but suddenly the banks would have a signficant stake in them.

Along with the recent local SSF blowout that saw ABSA take stakes in a couple small caps, this event forcefully draws the local banks more actively into the small cap arena.  Ironically, while this implies that the bank are bringing more unsystematic risk into their balance sheets, it could well mean that each of these businesses then gains access to a shareholder with deeper pockets and more capital.

In the same way as ABSA is (questionably, for minorities) protecting its investment in Pinnacle Point, a blowout of Vunani might have an upside to counter its downside...

Just a very interesting line of thought that I thought I'd share with you guys.

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