What motivated Barloworld to issue an IPO to black people?
The Barloworld deal is generally not a bad one, though not a good one either, considering that there will be an anchor tenant — Barloworld — for the next 10 years
Listed distribution group Barloworld launched Khula Sizwe broad-based BEE to black South Africans to buy shares in Khula Sizwe Property Holdings, a new black-owned commercial property company, with a minimum R2,500 investment, or 250 shares at R10 per share. The share scheme involves the sale of R2.9bn of its properties to Khula Sizwe
Khula Sizwe’s properties include motor retail properties with a market value of R1.68bn, industrial properties worth R914m, commercial properties worth R95m, mixed commercial and industrial properties worth R13m, residential properties worth R29m and development properties worth R130m.
This is being funded 80% through an external loan and subscriptions for Khula Sizwe shares via the public offer, as well as from separate management and employee share trusts. Barloworld shareholders approved the empowerment scheme, which will lift Barloworld overall black empowerment to 48 percent, at a general meeting on February 15.
According to the prospectus published on the Barloworld Khula Sizwe website, shareholders in the new company will be unable to sell their shares for five years.
However, the new company is expected to use the proceeds of rentals from the properties, which are mostly tenanted by Barloworld companies and which are expected to increase 8% a year, to fund the operational costs of Khula Sizwe, as well as to reduce its debt over a 10-year period.
Khula Sizwe will also be able to acquire other properties from third parties and it will be able to dispose of properties it acquired from Barloworld after three years, although Barloworld will have the right of first refusal to purchase the property.
The property industry in SA is worth almost R7-trillion and like all other sectors, it is 90% white owned. Therefore property patterns must change definitively. The best way of effecting meaningful change is the real, impactful and well thought-out strategy of packaging black/African persons to target property ownership in all these sectors.
The government has to play a significant role. The Property Charter Council, an organisation tasked with managing and tracking property, says the SA property sector is making reasonable efforts towards transformation, but it needs to pick up pace. Data plays a pivotal role as well, as it gives us information based on the transformation charter and statistics.
The Barloworld deal is generally not a bad one (though I wouldn’t say good either) considering that there will be an anchor tenant that is Barloworld for the next 10 years.
The main question is, what motivated Barloworld to issue an initial public offering to black people? Is it wanting to see black South Africans participating in the property sector, or is it wanting to raise money through black people for furtherance of their business objectives?
Barloworld should give at least a 20-year lease in order to secure black peoples' investment, considering the picture painted above. Looked at otherwise, these are 16.3-million shares x R10 a share multiplied by an 8% annual increase x 10 — this should give a clear picture of how much the interest will be over time.
But imagine that R10 contributions by black people towards their own 100%-owned properties with government guaranteeing a rental fee for 10 years.
Barloworld management have hedged against the possibility of a R120m subscription not being taken up by public investors — the management trust will subscribe for the entire R163.4m of equities if this happens.
Barloworld’s management will likely hold a minimum of 38% of the Khula Sizwe shares through the Management Trust, while Barloworld employees will hold 32% of Khula Sizwe after the public offer. The Khula Sizwe board comprises only three nonexecutive directors — Tantaswa Fubu, Rebecca Pole and Gugu Sepamla
• Magida is a reputational management specialist