Abu Dhabi, UAEMonday 16 September 2019

Billionaire dermatologists secure $600m in debt financing

In our latest update on the world's wealthy, former medical students Katie Rodan and Kathy Fields expand their empire further and a young crypto mining king mulls an IPO

Katy Rodan, cofounder of Rodan & Fields. The company generates about $1.7 billion in revenue a year, according to Moody’s Investors Service. Owen Kolasinski/ BFA/REX/Shutterstock ) 
Katy Rodan, cofounder of Rodan & Fields. The company generates about $1.7 billion in revenue a year, according to Moody’s Investors Service. Owen Kolasinski/ BFA/REX/Shutterstock ) 

Katie Rodan and Kathy Fields

Dermatologists Katie Rodan and Kathy Fields first made a fortune with acne products endorsed by celebrities like Justin Bieber.

Now the two billionaires will be $600 million richer thanks to the leveraged loan market, of all things.

The payday stems from a one-time, debt-financed dividend that the two stand to collect after their company, Rodan & Fields, sold new debt in the loan market. It’s the latest example of how investors’ insatiable appetite for high-yielding loans has allowed newer, smaller companies to raise eye-popping amounts of money, despite the risks sometimes associated with fledgling businesses.

To close the deal, Rodan & Fields boosted the yield it offered on the loan to 4 percentage points above the London interbank offered rate, from 2.75 percentage points earlier, according to a person with knowledge of the sale. It also tweaked documentation to add investor-friendly provisions like a requirement for quarterly calls with lender.

Among the risks for lenders to Rodan & Fields, it only sells one type of product, and pushes it mainly through regular people like stay-at-home parents who sell the skin-care regimens on the side, similar to Amway or Mary Kay. These kinds of businesses, known as multilevel marketing firms, can attract regulatory scrutiny and lawsuits if they start to look like pyramid schemes, where revenues depend heavily on recruiting new salespeople and pushing them to buy products instead of selling to actual consumers.

For Rodan & Fields, the company discourages sellers from holding inventory. But almost 90 per cent of their paid sales staff of 222,000 made less than $5,000 before expenses last year. Competition in the skincare industry is fierce, and the company’s outsized revenue growth is expected to slow in the coming years, according to S&P Global Ratings, which grades the company at BB-, or three steps into junk.

The company is now seeking financing weeks after TPG purchased a 25 per cent stake for $1bn, the people said. The debt includes a $200m revolving credit line and a $600m term loan, according to S&P. Representatives for Rodan & Fields and TPG declined to comment.

Katie Rodan and Kathy Fields met as medical residents at Stanford University. They made their first fortune with their blockbuster acne line Proactiv, which became a sales juggernaut last decade thanks to celebrity endorsers like Jessica Simpson and Sean “Diddy” Combs. The doctors licensed their product to an infomercial company in the mid-1990s, and sold off their royalty rights to the brand entirely in 2016.

Their second act, the eponymous skincare company, started in 2002. They sold it last decade to Estee Lauder, which offered the products through department stores. The doctors feared that the higher-end brand was languishing beneath beauty counters without bring properly pitched.

In 2007, Fields and Rodan bought back the company and moved it to selling through multilevel marketing. Two-month packages of products that treat acne, wrinkles or skin discoloration can be purchased online for close to $200, or through a network of distributors the company calls consultants, many of whom market the products on social media. The company’s $150 eyelash enhancing serum has been hashtagged more than 400,000 times on Instagram. The company generates about $1.7bn in revenue a year, according to Moody’s Investors Service.

Wu Jihan is the co-founder of Bitmain Technologies - one of the leading producers of bitcoin-mining equipment. Qilai Shen/Bloomberg
Wu Jihan is the co-founder of Bitmain Technologies - one of the leading producers of bitcoin-mining equipment. Qilai Shen/Bloomberg

Jihan Wu

With his baby face, eyeglasses and go-to outfit of T-shirt, jeans and sneakers, Jihan Wu looks more like a geeky teenager than a self-made billionaire. But thanks to an early foray into cryptocurrencies, the softly spoken 32-year-old is sitting on what may be one of the industry’s largest fortunes.

Mr Wu runs Bitmain Technologies, the world’s dominant producer of cryptocurrency mining chips. The Chinese company has been shrouded in secrecy since its founding five years ago, but Mr Wu is gradually lifting the veil - and revealing clues about his personal wealth - as he pursues an expansion beyond the crypto-sphere that may eventually lead to an initial public offering.

Mr Wu told Bloomberg that Bitmain booked $2.5 billion of revenue last year and that he and co-founder Micree Zhan together own about 60 per cent of the business. While Bitmain has few direct comparables, applying a multiple similar to that of publicly traded chipmakers such as Nvidia and MediaTek would give the company a valuation of about $8.8bn. That would make the co-founders’ holdings worth a combined $5.3bn, according to the Bloomberg Billionaires Index.

Mr Wu, who says he has a smaller stake than Mr Zhan, declined to share details of his net worth, his cryptocurrency holdings and his other personal investments. He has previously said Bitmain is worth $12bn. Mr Zhan declined to comment.

Given the uncertainty surrounding digital assets and the limited public information about Bitmain, any estimate of the Beijing-based company’s value - and its owners’ wealth - inevitably involves a lot of guesswork.

But that could be about to change. An IPO would not only open Bitmain’s books to the world, it would also allow the stock market to assign the company a value in real time. While Mr Wu says he has no specific plans at the moment, he’s open to a listing in Hong Kong - or in an overseas market with US dollar-denominated shares - because it would give early investors including Sequoia Capital and IDG Capital a chance to cash out.

A public share sale would be a landmark event for both Bitmain and the broader crypto industry, which is slowly emerging from the shadows. Miners, developers and venture capitalists are opting for more transparency as they try to placate wary regulators and prove that last year’s boom in digital assets was more than just a flash in the pan.

An IPO would also help boost Bitmain’s profile as the company branches out into areas including artificial intelligence, a field that enjoys the full-throated backing of Chinese authorities, unlike cryptocurrencies.

One of Bitmain’s biggest competitors, Canaan, has already filed for a Hong Kong IPO that people with knowledge of the matter said could raise about $1bn. Bitmain’s 2017 revenue was about 12 times that of Canaan’s.

Stiff competition would be just one of several risks for investors in a potential Bitmain IPO. This year’s tumble in cryptocurrency prices - Bitcoin trades at about $6,487, down from a December peak near $20,000 - has squeezed mining-industry profits, while the number of mine-able Bitcoins is creeping ever closer to its 21 million limit. Bitmain may be diversifying into AI, but a successful push is far from guaranteed, according to Mark Li, a senior analyst at Bernstein who says Bitmain is likely worth less than $10bn.

South African billionaire Johann Rupert. Chris Ratcliffe/Bloomberg 
South African billionaire Johann Rupert. Chris Ratcliffe/Bloomberg 

Johann Rupert

A unit of Remgro bought part of fibre provider Vumatel as South Africa’s richest man seeks a greater share of the country’s expanding broadband network.

Community Investment Ventures Holdings, in which Johann Rupert’s investment vehicle is the biggest shareholder, took a 35 per cent stake in the fibre provider and has agreed to take full ownership at a later date, it said in an emailed statement Friday. The company did not say how much it will pay. Bloomberg News first reported the deal in March.

CIVH already owns Dark Fibre Africa, which has a network of about 10,000 kilometres of fibre, director Peter Uys said by phone. While the new entity could consider a stockmarket listing if it needs to raise funds, there are no plans at this point, he said.

“We have been very successful in building an extensive fibre network and by buying Vumatel we will accelerate our fibre-to-the-home business,” he says.

Vumatel, which helped to pioneer the fibre-to-home industry in South Africa after entering the market in 2015, has enough fibre to connect 350,000 houses, said Uys. Households in cities including Johannesburg, Cape Town and Durban are increasingly seeking higher speeds and more capacity to handle rising consumption of data for services including video streaming.

Dark Fibre trails Econet Wireless Global unit Liquid Telecom in terms of network size. The company has raised 1.25bn rand ($96m) in debt funding and extended a revolving credit facility to 1.1bn rand to fund expansion, according to its website.

Mr Rupert has a net worth of $7.9bn, according to Bloomberg Billionaires Index.

David Koch is stepping down from the Koch brothers network of business and political activities due to health issues. Phelan M. Ebenhack / Associated Press
David Koch is stepping down from the Koch brothers network of business and political activities due to health issues. Phelan M. Ebenhack / Associated Press

David Koch

Billionaire David Koch is stepping down from leadership positions in his family’s business and conservative political empire because of deteriorating health, his older brother told company employees in a letter earlier this month.

"We are deeply saddened by this, and will miss David’s insightful questions and his many contributions to Koch Industries," Charles Koch wrote about his 78-year-old brother.

Charles Koch, 82, has been the primary leader in recent years for the Koch political operation, a vast network of organisations that is rivaled by only the Republican Party in terms of influence in conservative politics and policy.

David Koch had served as an executive vice president and a board member of Koch Industries, a Wichita, Kansas-based conglomerate with interests ranging from oil and ranching to farming and the manufacturing of electrical components that is the nation’s second-largest privately held company.

A resident of New York’s Upper East Side, David Koch also has been chairman and chief executive of Koch Chemical Technology Group, a wholly owned subsidiary of Koch Industries. The elder brother will remain chairman and chief executive of the conglomerate.

“After 48 years at Koch Industries, Mr. Koch has retired due to declining health to enjoy time with his family and the many cultural and arts institutions he has so generously supported over the years," David Koch’s personal spokeswoman, Cristyne Nicholas, said in a statement. "His retirement will go into effect on July 1, when he will become director emeritus of Koch Industries.”

The letter from Charles Koch did not provide details about David Koch’s medical issues. The elder brother noted that David Koch announced in October 2016 that he’d been hospitalised the previous summer.

"Unfortunately, these issues have not been resolved and his health has continued to deteriorate," the letter says. "As a result, he is unable to be involved in business and other organisational activities."

David Koch was diagnosed with prostate cancer more than two decades ago and he’s given major donations to cancer research since then.

Through personal donations and contributions from the David H. Koch Foundation, he has pledged or contributed more than $1.3bn to cancer research, medical centres, educational institutions, arts and cultural institutions, and to assist public policy organisations, his official biography says.

Democrats have vilified the Koch brothers for their massive role in national politics, which has helped shape state and federal policy over the past decade. Born and raised in Wichita, David Koch received his bachelor’s and master’s degrees in chemical engineering from the Massachusetts Institute of Technology, according to his official biography. He and his wife have been married more than 20 years and they have three children.

Updated: June 16, 2018 04:41 PM