Stellar Capital is an investment company focused on investing primarily in unlisted assets, working with management teams to create market leading businesses and ultimately realising and delivering value to its shareholders. Stellar Capital believes that it has a competitive advantage through the strength of its network providing access to proprietary deal flow, coupled with a management and investment team with demonstrable track record in building value in businesses and generating exceptional shareholder return.
The investment strategy of the Company will entail the following:
- to grow a portfolio of equity, debt and hybrid securities, unconstrained by any particular market or sector, in listed and unlisted businesses, that will generate above average returns on capital for the Company’s shareholders;
- to apply a hands-on investment approach, in order to assist management teams and to provide strategic input, without assuming direct operational responsibility;
- to apply a flexible investment approach relating to the timing and duration of investments;
- to actively engage with investee companies in relation to their corporate activity and other strategic initiatives; and
- to leverage the existing network of Manco to create a unique, well-diversified investment vehicle which will be an attractive proposition for institutional investors.
Stellar Capital has been established to:
- hold a combination of strategic equity instrument investments as its primary objective and, as secondary objective and usually for limited periods, controlling equity investments under circumstances where the Company has obtained approval from the JSE to hold such controlling equity instrument investments;
- earn high levels of current income from dividends and a credit investment portfolio comprising debt and hybrid securities which supports sustainable free cash flow and dividend yield; and
- opportunistically utilise the Company’s balance sheet to generate fees for shareholders through corporate finance strategies in support of investee companies or on a standalone basis.
Sectors and geographies
Stellar Capital will hold investments in three core areas:
- Industrials and Support Services;
- Financials; and
- Disruptive opportunities across all markets. This may comprise an investment in any business (typically technology related) in the process of creating a new market or value network with the potential to displace established market leaders.
Stellar Capital will initially invest in South African based investments with focused international operations, whilst retaining the ability to over time invest in foreign based investments which may or may not have established operations within South Africa.
Stellar Capital will:
- seek to invest in growth and early-maturity stage businesses in which management teams remain equity incentivised throughout the investment life cycle;
- establish primarily large minority equity holdings, but retain the ability to hold majority holdings, particularly during the initial stage of the investment;
- not retain operational management of its investees for prolonged periods, but will hold the ability do so during the initial stage of the investment or as is deemed necessary from time to time;
- seek board representation within its investees’ reporting structures without establishing board control for prolonged periods of the investment cycle;
- hold investments without pre-determined realisation periods; and
- exit investments in the event of:
- protracted periods of under-performance relative to criteria set by management depending on the nature, sector and stage of the investments;
- receipt of unsolicited offers at materially higher values than attributed by Stellar Capital; or
- availability of alternative investments with substantially superior returns.
Stellar Capital will seek to deliver total shareholder return in the form of NAV growth and shareholder distributions (where applicable) of at least 15% and more per annum over each rolling 3 year period target.
Stellar Capital will retain a discretionary dividend policy until it has reached sufficient maturity and stability in earnings from underlying investments. Cash will be retained for growth in the initial stages of development.
The Board may amend the growth targets from time to time, subject to shareholder approval of material changes as required by section 15.7 of the JSE Listings Requirements.
Categorisation of Transactions
Investment Transactions undertaken by Stellar Capital will be categorised relative to the Company’s size (either market capitalisation or issued share capital as appropriate) as required by section 9 of the JSE Listings Requirements.
For purposes of applying the JSE Listing Requirements and as approved by the JSE, the following investment activities are considered to be conducted in the ordinary course of business as contemplated in the JSE Listings Requirements:
- the acquisition and disposal of listed and unlisted equity and hybrid instruments;
- the acquisition and disposal of credit instruments, including loan notes, listed and unlisted bonds and redeemable preference shares;
- the advance of (and repayment of) loans and advances to investees and third-parties; and
- the underwriting of committed transactions where such underwriting commitment does not result in the acquisition or disposal of an asset.
Shareholder approval by way of ordinary resolution will be required for all Category 1 Transactions entered into with non- related parties to the extent that the Transactions fall out of the provisions of this Investment Policy.
In respect of Transactions with related parties, shareholder approval will be obtained in accordance with the thresholds for such approvals contained in the JSE Listings Requirements.
Shareholder approval will not be required for non-related party Transactions of any size to the extent such Transactions fall within the approved Investment Policy.
Shareholder approval will not be required for Transactions triggered by the enforcement of provisions in sale and/or shareholders agreements entered into between Stellar Capital and other investee shareholders:
- where such Transactions are pre-approved by Stellar Capital shareholders upon initial acquisition of such investments; or
- where no shareholder approval is required in respect of the Transactions in accordance with paragraph 3 of Shareholder approvals, but where the terms of such shareholder’s agreements have been advised to Stellar Capital shareholders despite shareholder approval not being required
It is intended that this pre-approval will relate to come along, go along, pre-emptive, put and call provisions that may be contained in agreements between Stellar Capital and other investors in investee companies.
The approvals may be obtained at the time of the original Transactions or subsequently.
Notwithstanding the aforementioned, the JSE Listings Requirements for shareholder approvals and communications will apply if any Transaction is categorised as a reverse take-over in terms of the JSE Listings Requirements.
Communication of Investment Transactions
All Transactions concluded in accordance with this Investment Policy will be regarded as being in the ordinary course of business unless circumstances dictate otherwise.
Communications with shareholders will be made in accordance with the JSE Listings Requirements in respect of all related party Transactions (including small related party Transactions), except that to the extent pre-approval (as described in paragraph 4 of Shareholder approvals) has been obtained from the shareholders of the Company in respect of the terms of shareholder’s agreements:
- no circulars will be required for any size Transactions triggered by the enforcement provisions in relation thereto, unless the Transaction is categorised as a reverse take-over in terms of the JSE Listings Requirements; and
- only a SENS announcement (and no press announcement) will be made in respect of any size Transactions triggered by the enforcement provisions in relation thereto.
Communications with shareholders will be made in accordance with the JSE Listings Requirements in respect of all non- related party Transactions, except that:
- no circulars will be required for any size Transaction as long as the requirements of paragraphs 3 and 4 of Shareholder approvals are met, unless the Transaction is categorised as a reverse take-over in terms of the JSE Listings Requirements; and
- while SENS announcements will be made for Category 1 and Category 2 Transactions, no press announcements will be required for Category 2 Transactions or in respect of any size Transaction triggered by the enforcement provisions of shareholder’s agreements as long as the requirements of paragraph four of Shareholder approvals are met.
Notwithstanding the provisions above, the information required to be disclosed for a prelisting statement must be provided if required by the JSE Listings Requirements.
All Transactions will be summarised for shareholders in the interim and final results announcements and in the integrated annual report.
- “Category 1” bears the same meaning as defined in the JSE Listings Requirements;
- “Category 2” bears the same meaning as defined in the JSE Listings Requirements; and
- “Transaction” bears the same meaning as defined in section 9 of the JSE Listings Requirements. For the avoidance of doubt, to the extent a transaction with a non-related party is concluded in the ordinary course of business and constitutes less than 10% of the market capitalisation of the Company, such transaction will not be categorised in accordance with the JSE Listings Requirements.