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Barloworld Khula Sizwe offers a stake in R2.9 billion property scheme, writes Mapalo Makhu.
On April 10, Barloworld launched its broad-based BEE share scheme. Barloworld was established in 1902 in South Africa, making it one of the country’s oldest companies. It is the distributor of leading global brands, including Caterpillar, Ford, BMW, Avis, Mercedes-Benz and Toyota.
With the broad-based BEE share scheme, Barloworld offers all black South Africans an opportunity to own their share of R2.9 billion in commercial property through Khula Sizwe.
The purchase of Barloworld’s properties by Khula Sizwe is funded 80% through debt (R2.2 billion), and 20% (R544 million) will be funded by equity.
The equity portion that will be raised from the public offer (the BEE scheme) is R163 million, with the balance of the funding coming from a management trust (R207 million) and the Barloworld Employees Trust (R174 million).
Although the public offering might be on the small side, Craig Gradidge, a director at Gradidge-Mahura Investments, a private wealth management company, says the scheme provides investors with good value, with the initial yield at 9.7% and a total return of between 14% and 15% a year.
“Barloworld is not only guaranteeing an 8% annual rental escalation for 10 years and a triple net lease, but Khula Sizwe is also not prohibited from acquiring other properties from third parties,” says Gradidge, who explains that, when you take all these factors into consideration, it means there will be consistent cash flow, thereby reducing the risk of a default on the debt-funded portion of the scheme.
HOW IT WORKS
Barloworld is selling a portfolio of its properties to black-owned Khula Sizwe, from which it will lease back the properties for a period of 10 years with a built-in annual increase of 8%. As the tenant, Barloworld will be responsible for all the upkeep costs of the properties.
This guarantees tenant occupation for at least 10 years, which makes the income stable and predictable.
Unlike many BEE schemes where value is determined by volatile share movements, the Barloworld Khula Sizwe scheme is not based on share price movements, but on the underlying properties.
IMPORTANT INFORMATION
. A minimum investment of R2 500 is required, or 250 shares at R10 per share;
. You must hold the shares for at least five years, but are encouraged to hold them for 15 years or more to really unlock their value;
. There are 16.3 million ordinary shares that have been made available for the scheme; and
. Applications close on May 31.
WHAT YOU NEED
. A copy of your South African ID;
. Proof of physical address; and
. Proof of banking details (bank statement or confirmation letter on a bank letterhead).
If you have children who are younger than 18 and you would like to invest on their behalf, you will need:
. A copy of their birth certificate or South African ID;
. Proof of physical address (or an affidavit declaring that the minor shares the same address as the guardian);
. Proof of banking details in the minor’s name;
. A copy of the guardian’s South African ID; and
. The guardian’s proof of address.
INVESTMENT CLUBS OR STOKVELS
. South African IDs for all the members of the group;
. Proof of banking details;
. Proof of address of authorised representative; and
. BEE ownership certificate; or
. An affidavit confirming the black ownership percentage of the group and supporting documents for the black ownership.
If you are looking for a long-term investment with stable returns, the scheme could be a good option, although it is unlikely that the company will be paying dividends soon.
The dividends paid from these shares are taxed at 15%, and the capital gains you make on the shares when you get full ownership (after the five-year period) and sell them are taxed as capital gains.
Source: Barloworld Khula Sizwe prospectus
Makhu is a personal finance coach
