Q3 2022 - (released November 2022)
SA's quarterly Private Equity & Venture Capital magazine
Oceana’s troubled waters provide fertile fishing for AIIM
by Michael Avery
Oceana, the owner of heritage fishing brand Lucky Star, has had to deal with a fishy smell hanging over the company ever since accounting concerns were raised over its treatment of US Subsidiary, Daybreak.
Earlier this year, it revealed that it had been awarded lucrative fishing rights in five key species for the next 15 years. It seems odd that the fishing allocation rights were awarded to the company while in the middle of a forensic investigation and battling to produce audited financial results for the year to September 2021. After the JSE insisted that the company play open cards, providing details of the ENSafrica forensic investigation and committing to a date for the release of the financials, company secretary, Adela Fortune resigned. This is the third sudden departure of a top management official from the company.
The smell has weighed on the share price and forced the company to dispose of certain assets to support the balance sheet, providing an opportunity to turn snoek into abalone for a private equity consortium led by African Infrastructure Investment Managers (AIIM) to acquire Oceana’s CCS Logistics in a R760m deal announced in early October.
AIIM and its investment partners, Bauta Logistics and Mokobela-Shataki Consortium, have a clear strategic intent via the establishment of a US$150m pan-African cold chain logistics platform, Commercial Cold Holdings (CCH), to ensure food security in the region. Funds managed by AIIM intend to invest up to $150m in the platform, inclusive of the initial CCS acquisitions and a pipeline of further acquisitions and greenfield development projects.
The transaction was financed by a mix of equity and debt financing. AIIM, through its flagship South African IDEAS Fund and pan-African AIIF4 Fund, will have a controlling 59.2 percent stake in CCH. CCS has been operational for over 50 years and is an established leader in South Africa’s temperature-controlled logistics (TCL) market. CCS currently operates about 100,000 pallets of storage across six facilities in Johannesburg, Cape Town and Walvis Bay, Namibia.
As the global population grows and demand for food supply chains increase, demand for temperature-controlled logistics is also on the rise. This transaction, therefore, signifies AIIM’s entry into the cold storage sector, which seeks to establish a pan-African cold storage platform.
Speaking to Musteq Brey – the CEO of Brimstone, a 25.04 percent shareholder in Oceana – about the fishing firm’s governance travails, he is confident that the ENSafrica forensic audit and leadership changes will steer the company into calmer, more productive waters.
Fishing firms have been particularly hard hit by rising diesel costs, and while cold storage is a key part of the value chain, one doesn’t have to own the asset outright, so clearly
the need for liquidity in the medium-term trumped continued ownership.
There has been a raft of changes at Oceana in recent months, with the departures of
the CEO, CFO and its auditors, PwC. This would certainly be cause for concern for any shareholders and business partners, but their internal replacements are all recognisable and reputable names.
PwC was replaced by the South African office of the highly respected international French firm, Mazars.
Before that, Oceana replaced Imraan Soomra in February with Neville Donovan Brink, a fishing industry veteran of 30 years, and also replaced CFO, Hajra Karrim, with former Cell C CFO Zafar Mahomed, who left Cell C in August as the mobile operator neared the conclusion of its much-needed recapitalisation.
Investors will be hoping that these changes and a slimmed down focus will help to restore some battered confidence.
For the AIIM consortium, it is an opportunity to acquire an anchor asset in its plan to build out a cold storage chain of regional significance.
AIIM Investment Director, Damilola Agbaje says that the cold chain logistical infrastructure sector across sub-Saharan Africa is underdeveloped and, in places, non- existent. This investment diversifies AIIM’s current portfolio into a high growth and high impact area.
“South Africa, which possesses the continent’s most advanced temperature- controlled logistics (TCL) infrastructure at 13m3 of cold storage per 1,000 residents, lags comparable economies such as Egypt and Brazil, which have 105m3 and 83m3 respectively, our research has indicated,” said Agbaje.
“TCL infrastructure is critical for both improving sub-Saharan Africa’s food security; allowing domestic producers to meet the standards required to participate in global trade; and creating higher value jobs through more formal food retail and wholesale models.”
He noted that with current population growth rates, mixed with the rapid rate of urbanisation, the regional deficit in temperature-controlled logistics was expected to worsen. CCH would focus on acquiring and developing facilities with strategic physical locations and, potentially, integration with market-leading food producers, wholesalers,
“Anchoring CCH’s strategy with such an established player is crucial for the platform’s regional expansion. New market entries will leverage CCS’s technical expertise and operational track record to secure strategic customer relationships,” he said.
The Environmental and Social Management Plan (ESMP) will be augmented to meet applicable environmental health and safety guidelines. An additional environmental and social governance (ESG) hire will be made as the CCS business is being carved out from Oceana to become a standalone business.
Agbaje said that AIIM recognised that cold stores were energy intensive, and would leverage its extensive track record in energy investment across the continent to drive efficiency and improve the CCS generation mix.
“Recently, in South Africa, the power grid has experienced reliability issues. Any worsening of the current supply situation poses a risk and constraint to the TCL sector. By deploying captive renewable energy generation and battery storage with AIIM partner companies, CCH expects to reduce the risk of grid reliability constraints and drive growth,” Agbaje said.
Taking pressure off the grid will improve supply to more vulnerable users. Furthermore, renewable generation capacity and improved cooling efficiency will reduce the carbon footprint of CCH toward a neutral position.
He said that up to 70 percent of CCS throughput will come from staple foods that were critical for domestic food security, maintaining a national network of state- of-the-art facilities to ensure a continuous supply of staple foods.
“This marks the third investment signed by AIIM’s fourth generation pan-African infrastructure fund, AIIF4, a thematic investor with a strategic focus on the mobility and logistics, energy transition and digital infrastructure sectors. AIIF4 is delivering on its mandate to construct a diversified portfolio of highly impactful, attractive, growth-oriented platforms across our themes. Food security in the current global and African context is a topic of increasing importance, and we believe the CCH platform will play a role in addressing these critical matters. We look forward to further announcements as AIIF4 continues to expand its portfolio” said Olusola Lawson, Managing Director and co-Head of AIIM.
“Bauta is pleased to be partnering with AIIM and Mokobela-Shataki in establishing this Pan-African cold storage platform. As we build out a network of temperature- controlled warehouses in key demand hubs and food production regions on the continent, we are excited about the role that CCH will play in facilitating intracontinental trade. With the investment announced today, we hope to establish CCH as the pan- African TCL partner of choice” said Michael Osekereh, the Managing Director of Bauta Logistics.
“The acquisition of CCS is a natural extension of our developing partnership with AIIM to create an infrastructure-based platform underpinned by integrated logistics, ports services and cold storage. The acquisition enhances the solid base we have already established and provides us with the cornerstone required to realise our vision to play a meaningful role in key sectors of our economy,” said Moss Ngoasheng, founding director of the Mokobela-Shataki consortium.
ENSafrica were the legal advisors, PwC were the financial advisors on CCS, and Frost & Sullivan were the commercial advisors.