The much-anticipated Reinet Investments AGM last week was, by all accounts, a lively and engaging affair. I believe I was namechecked by chair Johann Rupert …which is nice (I think). The media were disappointingly barred from attending, with the group indicating that the electronic access arrangements for the AGM were available only to shareholders who had completed the required registration and verification procedures.
As someone who has been allowed to attend every Remgro AGM over the past three-and-a-half decades, I was a little taken aback by this cold-shouldering. I’ve felt warmer welcomes coming home slightly sozzled from the tennis club at 11.30pm on a week night.
Obviously, an intrepid journalist does not give up that easily. Last week Ann Crotty (see AGM article) and I managed to sneak into the Pick n Pay AGM despite a similar restriction on media access. At worst, I could always get a recording of the Reinet AGM or have managed to get myself invited to the office of a properly registered shareholder to eavesdrop on proceedings.
Reinet, though, was prepared. Before the AGM started, CEO Wilhelm van Zyl decreed that “the use of any recording devices, audio or visual, is not permitted by any participant … whether in the room or online.” He also reminded us all that attendance was restricted to shareholders or duly appointed proxy holders. He added: “With regard to the virtual streaming of the meeting, which is offered as a courtesy, any person who is not a shareholder or a validly appointed proxy holder (and so verified by Computershare or ING to receive a private link) is not entitled to watch the virtual streaming and should leave the Lumi platform now.”
So, if I had stayed online and watched, would I be in terrible breach? If I was sent a recording, should I delete the file immediately? I suppose we’ll find out.
Without admitting to any nefarious means of access, I have managed to patch together some of the key points of the Reinet AGM. Secondhand accounts of AGMs are not first prize. But what can I do?
The quick summary is that Reinet is quite content to preserve its enormous cash pile. A Sens announcement on the same day as the AGM reinforced the idea that the short-term plan is to continue buying back shares. Few can argue that this is prudent capital allocation, considering the attractive discount Reinet’s shares offer on its cash-laden portfolio.
But what I believe was raised at the AGM was why Reinet did not simply put out an open tender to mop up its own shares, which does seem more expedient than sporadically snapping up parcels of shares on the open market. Apparently, the tender process was given due consideration, but there were complications that precluded initiating such an effort.
Then there is also the case of holding a tender price offer in the market if the equity markets see a marked correction — which is hardly far-fetched. Rupert apparently indicated that Reinet’s directors had debated the option of a tender offer before the AGM.
The bottom line is that the cash pile will remain for the foreseeable future. From what I understand, Reinet’s directors indicated they are comfortable with having more than 80% of the portfolio value sitting in cash, arguing that preserving capital means preserving flexibility.
Without prejudicing my preference for at least some form of special payout, I tend to agree that a heap of cash could come in very useful if international equity markets suffer a sudden and sharp correction. Rupert, I understand, reminded the meeting that cash has never been a problem compared with a lack of cash — intimating that liquidity could become even more valuable in the months ahead. Hmmm …
Another interesting reminder aired at the AGM was that Reinet was essentially a function of the Rupert family wanting to secure a hedge for luxury brand conglomerate Richemont against market volatility, following the market ructions in 2007/2008. If we look at Reinet on that basis, the low-risk pedestrian returns since formation in late 2008 might — at a stretch — support a claim for a successful hedge in terms of capital preservation.
For those hanging on to Reinet shares, the question is what the next two decades might bring. The long-term view is important. I hear that the AGM narrative suggested that more than a few of the shareholders who were carping about Reinet’s decision to cling to the cash earned from the sale of stakes in British American Tobacco and Pension Insurance Corp, might not be defined as longer-term shareholders.
Not that I think you should ever distinguish between long-term shareholders and special situation traders. Both groups are part and parcel of the market. That said, the derisive discount applied by the market to Reinet’s cash-saturated portfolio, on paper, would suggest some doubt about capital allocation decisions in the future.
Apparently Reinet’s nonexecutive director Dillie Malherbe argued that the current level of discount was not rational, suggesting arbitrageurs might be better placed to explain this. I’m no arbitrageur, but unless a severe market correction offers up standout value for a couple of meaningful new investments there will be continued fretting about how Reinet’s capital will eventually be deployed outside the current share buyback plan.
I don’t think any shareholder wants to see more investments into other investment funds. Hopefully Reinet harbours no ambitions of becoming a fund-of-fund vehicle. In the prevailing market mood, it might be best — for the long-term investor — to revisit Reinet’s initial aim of hedging against market ructions. Anything else, treat as a bonus.
