19 July 2007   |  Download: FinweekArticle.pdf

Finance Week
Gugulakhe Masango

Ethan Dube is very tactful when he explains who the driving force behind Vunani Capital Holdings is. Yet simplicity comes naturally to Dube, South Africa's future financial services mogul who has contributed immensely to the creation of value for shareholders of Vunani Capital Holdings. 
Dube knows only too well that successful businesses aren't run as personal 
fiefdoms. You see, he believes in working in an environment where people are happy and can deliver. He regards it as his responsibility to make life pleasurable at Vunani. 
"To a large extent I'm the main driver of this business, with the support of our (Vunani Capital Holdings) board and Absa Capital," says Vunani CEO Dube.

The company's credited with setting new standards for black-owned financial services groups. 
The other key principals of Vunani are Butana Khoza, chairman and MD of Vunani Securities, Mark Anderson, MD of Vunani Investments, and Chris Nissen, group chairman. Evelyn Chimombe-Munyoro, who was a non-executive director, joined the group more recently as a full-time executive and also sits on the Vunani board. 
The three partners - Anderson, Dube and Khoza - are founding fathers of Vunani Capital Holdings, which now boasts a balance sheet of more than R1bn. They have played a central role, and continue to do so, in the building of a sizeable portfolio of investments.

The group is also receiving support from non-executive directors Willy Ross, a former Nedbank executive director responsible for infrastructure, project and structured finance, private equity and risk and legal, André Pieterse, head of private equity at Absa Capital, and Bongani Finca, the provincial electoral officer of IEC, Eastern Cape. 
The three partners are really impressive men who can list stints with the Central Bank of Botswana, Standard Chartered Merchant Bank, Infinity Asset Management, KPMG Canada, Futuregrowth and PricewaterhouseCoopers on their CVs. 
Says Dube: "What drives us (the three partners) is being able to build something that will exist beyond the three of us. If we're able to do that we would have achieved a goal we set ourselves the day we started this business. Our primary business is to build Vunani Capital Holdings as an operating company to become a dominant player in its areas of operation." 
What Finweek finds really fascinating is that, as a private company, Vunani is off to a really good start. The financial services group recently established Vunani Portfolio Solutions, an operation that provides specialised investment consulting services to pension fund clients and already has more than R9bn in assets under its management. 
Who are those clients? Dube chuckles. "We have excellent clients," he says, without disclosing the names of the stars on Vunani's balance sheet. 
Vunani Portfolio Solutions MD Alf McKnight is glowing about the relationship: "Vunani brings a strong set of skills to our business and we see empowerment as a great bonus." 
Another recent addition is Vunani Treasury Solutions, which provides a treasury management service to Vunani's corporate clients. 
Clearly, things are moving in the right direction for the company. Asked whether management is planning to float Vunani in light of the current listings boom on the JSE, Dube says: "At some stage... but a listing isn't really something we're thinking about now. In order to unlock value for shareholders, listing might be an option. If at some stage we can achieve what we want through listing, we'll consider it. But we aren't growing the business with a view to listing." 
Anderson, Dube and Khoza - once described as representing the "restlessness of entrepreneurs" - are currently concentrating on building a business that's growing in size and stature.

The group continuously seeks growth opportunities in listed and unlisted entities. 
SA's Government is on an infrastructure spending spree. State-owned entity Transnet is expected to spend billions on its railway and harbour infrastructures, which is expected to contribute to effective and efficient transport of goods in a growing economy. 
And Vunani is also eyeing opportunities triggered by Transnet's infrastructure spend and could play a role in raising capital for the public corporation in the capital markets. Says Dube: "We're currently doing a bond issue with Absa at Transnet." 
He's too modest to be caught gloating about the group's success. Therefore, as expected, he didn't disclose the size of the Transnet bond issue. However, there's no doubt that it will be billions of rand. 
In May this year Vunani signed an agreement with PSV Holdings, an AltX-listed industrial engineering firm, to acquire a 25,67% interest or 55m shares. Vunani Capital Holdings has a right to appoint a chairman and a non-executive director to the board of PSV Holdings.

Vunani will assist in value creation for PSV Holdings, which couldn't secure supply and refurbishment contracts from SA mining companies without an empowerment partner. 
Clearly, corporate SA has few empowerment company stories similar to that of Vunani Capital Holdings. It's interesting, as each staff member is a shareholder in the empowerment group - ensuring excellent service and success as staff members anticipate a fat dividend. It employs 50 people, with offices in Cape Town and Johannesburg. 
Vunani Capital Holdings provides services and products for corporate restructuring, capital raising, privatisation of State-owned entities, and advises on empowerment deals, listings and mergers and acquisitions. 
It has also identified the resources sector as a growth area. It operates in that sector through Vunani Resources, which owns 7% of JSE-listed platinum junior Wesizwe and is keen to increase that shareholding. 
"We took a view that there's quite a lot going on in the resources sector," Dube says. "Our aims have been to create platforms and work with that. We've identified platinum as a play and the Wesizwe group is a platform to participate in that sector. We won't look at other platinum players. If opportunities avail themselves, we'll take them to Wesizwe." 
Dube adds: "We made it clear that we'll get to a 15% stake or more if we're serious about using Wesizwe as a platform to participate in the platinum industry. We need to be a significant shareholder in Wesizwe." 
Furthermore, Vunani's wholly owned energy 
division - Vunani Energy, established last year - is seeking growth opportunities in SA and in the SADC region.

Jeff Mahon, who worked for many years at Chevron and with Trafigura (a London-based commodities trading firm) heads the energy division. 
The group also established Vunani Bunkers, which is 51% held by Vunani Energy and 49% owned by its management. Vunani Bunkers works as a representative in SA of a number of overseas companies, including the US-based Bunker International Group. It plans to invest further in SA's oil industry in order to grow its bunkering business. 
It would make sense for Vunani Bunkers to acquire tank storage facilities at SA's harbours to meet growing demand at Angolan and Namibian ports. More activity is expected acquiring tank storage facilities. Dube says: "That business (Vunani Bunkers) is doing well." 
Vunani Capital Holdings is also a major player in property development through its wholly owned subsidiary, Vunani Properties. In March last year the group established a joint venture with listed property loan stock Hyprop Investments to form a black empowerment property fund known as Vunani Property Investment Fund. Vunani Properties owns 51% of the fund and Hyprop the remaining 49%. 
Vunani Property Management Trust is the asset manager of the fund, which has a current portfolio worth R550m. Vunani Properties is currently involved in residential developments in Cape Town and Johannesburg valued at more than R600m. The property division also holds 20% of JHI Properties. 
The Vunani group is chaired by Chris Nissen and continues to acquire investments in both listed and unlisted companies. Vunani Capital Holdings recently bought 47m shares in InterWaste Holdings, a waste management company listed on the JSE's AltX on 14 June. 
"We're looking for businesses with real earnings growth; businesses that are generating cash," says Dube, as those sorts of investments in companies with growth potential go a long way in creating shareholder value. "We're trying to grow our balance sheet." 
With a passion for finance, Anderson, Dube and Khoza have been able to increasingly grow Vunani Capital Holdings' balance sheet and double its value. Vunani Capital is 80% held by management and staff, with Absa Capital owning the rest. "We became a proper black-owned, controlled and run financial services entity in 2004," says Dube. 
Concerning the involvement of Absa Capital in the group, Dube says: "It's been a good thing. It (Absa Capital) gave us credibility and a balance sheet. It also enabled us to have capacity without going out to employ more people. If we came across a big deal, we'd invite Absa Capital to work with us." 
It isn't surprising that Vunani Capital Holdings' bread and butter is drawn from its corporate finance operations. The group assists companies with new listings, valuations, empowerment transactions, investor relations and roadshows, capital raising, delistings, rights offers, share buybacks and unbundlings. 
It has raised more than R7bn on the bond market for the City of Johannesburg, the Development Bank of Southern Africa, Absa and DaimlerChrysler. 
What makes Vunani Capital Holdings different from other empowerment financial services companies? Capability. Dube says: "I can't think of any company of our size that has the kind of deals we've done in terms of debt origination." 
Vunani Capital Holdings has handled the listing of Telkom, securitisation of a R2,5bn pool of assets owned by Eskom, the valuation of SA Airways' subsidiaries, the buyback of interest in SAA from SwissAir in 2002, advised the board of the Airports Company SA (Acsa) on the sale by ADR of its 20% interest in Acsa to PIC. "We know how to do good deals," says Dube. 
Concerning its operating side, Vunani Capital Holdings has Vunani Securities, a stockbroking firm that trades predominantly with the larger fund managers and also provides research. Nick Brummer (head of equities) and Campbell Parry (previously a top-rated analyst who recently returned from Canada) are building a research base that already comprises 10 analysts. 
Brummer emphasises that the group provides a critical professional support base that enables Vunani Securities to position itself as a future leading broking firm. "We're beginning to add value to institutions. That business is profitable for us," says Dube. 
To bolster its securities division, in February last year Vunani Capital Holdings acquired a 100% interest in Cape Town-based Vector Securities, which gave it a foothold in the fixed interest rate market. It also added the services of Johan Rossouw, a rated economist, to Vunani's research skills pool. 
That acquisition is part of Vunani Capital Holdings' strategy to be an operational company rather than an investment holding business. Dube believes the group is adding value in all the businesses it's invested in. 

Asked what was the biggest risk he had personally taken in his career, Dube replied: "I could be working for any investment bank. But I've chosen to be involved in this business. That's a risk - because if it doesn't work out, there will be a reputational risk. We've been successful in running the business. The risk of failing has decreased." 
Since 2002 Vunani Capital Holdings has managed to transform the company from being a small one, limited to advisory services to a bigger business. Du
be attributes that transformation to the group's experience and expertise in clinching deals. 
Asked whether management is building an investment empire, Dube says: "We'd like to build a financial services group without a banking licence. In other words, in four years' time Vunani Capital Holdings should have fund management, investment banking, property, private equity and other financial services related businesses. In order to do that we need a balance sheet." 
History of Vunani Capital Holdings 
ETHAN DUBE founded African Harvest Capital in April 1998 as a subsidiary of JSE-listed African Harvest Group. Within a few years African Harvest Capital was at its peak, with a balance sheet topping R400m against its initial R100m. 
But in September 2002, Dube saw a possible management buyout of the entire asset. African Harvest seemed to have been trading at a discount to its net asset value and that created the opportunity. "At least I believed that African Harvest Group was trading at a discount," says Dube. 
Businessmen Mzi Khumalo, who was the controlling shareholder at the Metallon Group, funded the management buyout of African Harvest Group. Why? "I thought he (Khumalo) had bought into the vision of building a financial services group," says Dube. However, after a year Dube went back to Khumalo and suggested a buyout of African Harvest Capital, which he had started and understood well. The deal was concluded towards end-2003.


Khumalo decided to keep African Harvest Fund Managers at his group's Metallon Capital and, to avoid confusion with African Harvest Capital (which was then owned 100% by management), Dube and his management started operating the business in 2004 as Vunani Capital Holdings. Meaning "harvest" in isiZulu, Vunani was formed with the vision of wanting to build a business with growth potential. 
To ensure its growth was sustainable, the group mapped its way forward by reorganising its shareholder structure. "We decided to invite Absa Capital to take equity in the group," says Dube. In 2004, Absa Capital acquired 20% of Vunani Capital Holdings. 


Vunani Group adopted a two-pronged strategy to strengthen its operational businesses and to build a balance sheet through investments. The decision was to focus on both equities and property as areas to strengthen its balance sheet. 


Listed:

• InterWaste Holdings, an AltX-listed waste management company.
• Iliad Africa, a JSE-listed building materials supplier. 

• Esor group, an AltX-listed construction company. 

• Workforce Group, an AltX-listed staff placement company. 

• JSE Ltd, SA's listed stock exchange. 
* Peregrine Holdings, a JSE-listed financial services group. 

• Wesizwe, a JSE-listed platinum exploration company. 

• Alert Steel. 

  

• Papillon Foods, supplier of food products to retail chains, including Pick 'n Pay and Spar.
• Glenhove Fund Managers, a private equity fund management company.
  
• Edge Capital, hedge fund manager. 

• Sponges Carwash and Valet Centres.
  
• Peregrine Quant, a fund management business.
  
• V Correspond, a web-based solutions company.
  
• Q Photo, photographic and printing group with retail outlets.
  
• Wisdom of Africa Cosmetics, cosmetics and spa group.
  
• Intelleca Voice & Mobile, contact centre technologies group.
  
• JHI, the property management group.
  
• Vunani Property Investment Fund, a portfolio of properties.