Metair Investments’ disposal of its division in Turkey – hit by economic and geopolitical turbulence over the past few years – for R2.95 billion to Quexco, a US investment holding company, adds to a growing list of South African companies that are finding the going tough offshore.
The Turkish economy has struggled against inflation and an implosion in its lira currency that according to S&P forecasts is likely to weaken further this year. Metair expanded to Türkiye in 2013, seeking to diversify its operations.
Yesterday, the company announced that it had entered into a sale and purchase agreement with Quexco Incorporated for the disposal of its entire shareholding in Metair Türkiye. The disposal will be for a cash consideration of R1.95bn based on the rand/dollar exchange rate of R17.76/$1, with shares in Metair surging 9.26% to R16.40 in afternoon trade on the JSE yesterday.
“The political and economic scene in Turkey has dramatically change in the last years … there is uncertainty regarding Turkish economic policy and inflation has gone through the roof. The Turkish lira has completely collapsed,” Anthony Clark of Smalltalkdaily Research told Business Report in an interview.
Metair admitted as much, saying yesterday that the Mutlu Group was operating under “challenging macroeconomic conditions that, together with the current hyperinflationary environment in Türkiye” had introduced “significant complexity and risk” for the company.
“The Mutlu Group faced a number of additional challenges, including a shortage of contract workers and the loss of material export volumes, resulting in a drop in profitability, along with higher debt levels and increased working capital,” said Metair.
The uncertainty dogging Türkiye had forced Metair to dispose of its interests in its division in the country. Metair’s significant interests in Türkiye were centred on the Mutlu Group, which manufactures and trades energy storage products and solutions, including lead acid and lithium-ion batteries for use in mobility applications as well as in the telecoms, utility, mining and retail sectors among others.
Automotive batteries manufactured by the Mutlu Group are supplied to major automotive original equipment manufacturers for installations in new vehicles in Türkiye, while its batteries are also sold into the automotive aftermarket through Metair’s energy storage vertical’s aftermarket distribution channels and franchised retail networks.
Metair Türkiye’s net assets had a value of R2.9bn as at the end of December 2023, said the company, while its attributable loss for the same year amounted to R70.6 million.
Clark said Metair’s exit from Türkiye was the latest in a series of South African corporates that are expanding globally without adequate market knowledge and preparation. Other South African corporates that have been closing their global businesses include Woolworths, which exited its investments in David Jones in Australia, and Netcare, which had disposed of its division in the UK, among others.
“The exit of Metair from Turkey once again shows that South African companies who want to expand internationally to get hedge earnings and hedge revenue and profits have got a dire track record of investing in offshore jurisdictions, thinking they can take their management expertise, yet these are all new geographies,” said Clark.
He added: “The cultures and styles are completely different and these are geographies which perhaps they have never operated in before.”
From a rand perspective, Metair had incurred narrow losses after acquiring and disposing of the Turkish operations. However, added Clark, the company had notched up a huge loss in US dollar terms after paying $220m for the Turkish business back in 2013 and selling it off for less in dollar terms at $110m this year.
Proceeds from the disposal will “enable Metair to deleverage its balance sheet” by recapitalising Hesto and contributing to the settlement of current debt and enabling the refinancing of the Metair Group debt.
BUSINESS REPORT