DEBT is a terrible thing, and sometimes the burden of lugging around big bor-rowings makes companies do crazy things.

Take Cape Empowerment Trust, for example. After four years of vigorous re-building – which turned the empowerment business around from near disaster to JSE darling – CET now finds itself in the invidious position of selling off assets again in a bid to curb rampant debt levels. And so far the debt culling exercise has been most confusing.

In August last year CET proposed selling off its significant minority stake in gaming group Grand Parade Investments – a curious decision on two fronts.
Firstly, GPI’s value had seen a steady decline (along with poor investment sentiment across the JSE since its listing), and secondly, CET had expended much time and effort to secure one of the biggest individual shareholding positions in GPI.

CET, at the time, reckoned that the decision to sell the GPI stake stemmed from an inability to grow into a shareholder of influence at GPI (remembering that CET – via subsidiary Dynamic – had unsuccessfully tilted at taking control at GPI ahead of the JSE listing).
Scarcely a few weeks after making known its intentions to sell-off its GPI stake, CET did an abrupt about turn and announced an intention to sell-off its stake in Ambit Properties.

What prompted this change of mind is not clear, but one has to assume it was either that the GPI shares could not be offloaded in bulk and at a good price; or that CET realised that the dividend flows from GPI could really be useful in years to come.

Officially CET said “the board has reviewed its strategy (of selling GPI) and has resolved that, given the board’s view of the underlying value of the investment compared to current market pricing, it is not in the company’s interests to proceed with such a disposal.”
In any event CET still needed to cull debt and it consequently turned its attention to Ambit, where it successfully sold its 110 million linked units near the end of 2008.

Once again the Ambit share sale is curious as CET had swopped its African Alliance properties – which included some valuable central Cape Town properties – into Ambit as a way to build a major property presence.

But now the property decks have been comprehensively cleared. In December CET sold its 22% stake in Ambit Management Services (AMS) to Absa Bank for R22 million as well as its 51% interest in CII to CII Holdings for R37 million. The CII sale might be perceived as a tad disappointing as CII was intent on developing a luxury hotel in Cape Town to be operated by Coral International.

The Ambit deals and CII transaction does relieve much of CET’s debt pressure and probably gives the group a small war chest. But the question now is whether the empowerment company has enough remaining investments to spin the cash flows required to make new investments.

Aside from GPI, CET also holds a controlling stake in Cape based security specialist Command Holdings and 10% stake in financial services company Purple Capital.
Maybe – considering that GPI’s share price continues to fall in line with poorer sentiment for gaming shares – it’s time for CET to place its pocketful of cash back into the casino business.