Cape Town’s V&A Waterfront is back in local hands for a cool R9,7-billion, but exactly whose hands? Some of the country’s most prominent and controversial businesspeople, through their empowerment stake in Growthpoint and the Public Investment Corporation (PIC), the government’s pension-fund manager, are participants in the deal.
The Gupta family, who are close to President Jacob Zuma and are in business with his son, Duduzane Zuma, will now indirectly own about 0,3% of the country’s most valuable piece of commercial real estate. That alone is worth R30-million in terms of the valuation put on the Waterfront deal.
Lazarus Zim, who was appointed chairperson of Telkom on Thursday, has a smaller slice — roughly R15-million. Zim is linked to the Guptas in a network of cross-shareholdings and directorships, including a stake in their IT company Sahara and their avowedly pro-government newspaper The New Age. He sat alongside Gupta brothers, Atul and Ajay, in the president’s box at the opening of Parliament.
He was chairperson of mining giant Kumba Iron Ore but stepped down recently amid an ongoing battle between Kumba, ArcelorMittal SA and Imperial Crown Trading over a portion of the mineral rights to Kumba’s Sishen iron ore mine.
Ragavan Moonsamy, a Cape Town-based businessperson who moves in political circles but has generally avoided the limelight, has a stake roughly equivalent to Zim’s and the Guptas’ combined. He serves on the board of Growthpoint and served on the board of Sahara until last year.
This group is a participant in the Waterfront transaction through a complex series of investment holding companies. At the top of the structure is Afripalm holdings. Zim owns 15% of Afripalm, Moonsamy 55% and the Guptas’ Oakbay Trust 30%.
Afripalm in turn owns 30% of Unipalm, which owns 33% of the AMU Trust. AMU acquired 14.2% of Growthpoint in a 2005 empowerment deal worth R1-billion at the time. That share has since been diluted to just below 8%.
Sources briefed on the process told the M&G that Zim and Moonsamy both helped to move the sale forward, though they denied this.
“The deal was entirely driven by the PIC and Growthpoint’s management team,” Moonsamy said. He said that the investments held by both Oakbay and Zim were less than 1%, insignificant in the face of the deal, and were made five years ago, long before the V&A sale.
Zim said that to insinuate that a deal of this nature could not happen without “political facilitation” was demeaning to Growthpoint’s “top-class management team”.
Gary Naidoo, the spokesperson for the Gupta family, said: “As per our understanding, Oakbay is a minority shareholder, but this is still subject to confirmation from our auditors. This shareholding has been paid for in full and it is just that, a share in an investment which was done a long time ago.
“We don’t understand where you would see the family’s participation in this transaction and where this perception might arise from. This just seems like another mischievous attempt to report on issues without facts,” Naidoo said.
Norbert Sasse, Growthpoint chief executive, said the initial discussion began between the PIC and the sellers. Growthpoint was brought in around August last year.
About 250 individuals have a direct shareholding of 50% in Unipalm. Community trusts and union investment companies, including the Building Construction and Allied Workers’ Union and a group of SMME (small, medium and micro enterprises) traders make up the other 20%.
Unipalm disinvested from Sahara towards the end of last year.
The steps in a sale
On Monday Growthpoint and the PIC announced their intention to buy out the shareholders in Lexshell 44 General Trading, a consortium set up to buy the V&A from Transnet in 2006 for R7-billion.
In the consortium are Istithmar (a subsidiary of Dubai World, the investment house based in the United Arab Emirates), London & Regional Properties (based in the United Kingdom and headed by brothers Ian and Richard Livingstone) and several BEE groups. Once the deal was done, Dubai World owned just under 25%, L&R 50% and the BEE groups 25%.
The V&A sale has been a long time in the making. When the M&G first broke the news of the pending transaction in December last year, talks had already been going on for six months, if not more.
Arthur Moloto, the chairperson of the board of trustees for the Government Employment Pension Fund (GEPF), said the PIC had approached the board in June last year, seeking approval to do a due diligence on the V&A with the view to buying it.
At the time Brian Molefe was still chief executive of the PIC. His term had expired in April and he had had his contract extended until July 2010 while the government looked for someone to replace him.
Molefe was appointed chief executive of Transnet on Wednesday and will now head up the entity that sold the V&A in late 2006, at the height of the property boom, for nearly
R3-billion less than the PIC and Growthpoint have now paid for it.
So effectively Transnet pensioners sold the property for R7-billion and half of that has now been bought back by the broader pool of government pensioners for almost 50% more.
Moloto said that, regardless of how the deal came about, the investment was very sound and would benefit the funds’ members. A yield of 7%, the high volume of visitors and development opportunities made the purchase extremely attractive.
The deal was signed off on February 11. The PIC and Growthpoint will pay R4,9-billion each.
Sasse said Growthpoint would use long-term debt funding to finance the deal and would look to refinancing part of the initial funding by issuing corporate bonds and shares, where appropriate.
The deal is expected to take Growthpoint’s debt to equity gearing levels to about 40%, well above the sector average of 25%, according to Angelique de Rauville, the property portfolio manager at Investec Asset Management.
Ratings agency Moody’s placed Growthpoint’s credit rating on review for a possible downgrade on Wednesday. Lynn Valkenaar, a Moody’s lead analyst for Growthpoint, said this was owed to the enhanced liquidity risks that could be involved in an acquisition of this size and the uncertainty regarding the ultimate financing structure for the transaction.
Moloto said the GEPF was not concerned about this and was confident about the financing of the PIC’s portion of the deal.
The fate of the BEE shareholders who participated in the 2006 privatisation of the V&A is unclear.
In the announcement of the deal, Growthpoint said that provision had been made for the acquisition of the ordinary shares held by the Lexshell empowerment partners. The BEE shareholders were fully funded by Dubai World and L&R in the 2006 deal.
Hassen Adams, a Cape Town-based businessperson acting as spokesperson for the BEE partners, said that they were in negotiations with the buyers. “We are currently in discussions and the BEE shareholders will reserve their rights,” he said.
The V&A’s empowerment arm comprised more than 11 individuals and entities. They included companies such as Decorum Investment Holdings, TSA Rona Investments and an employees share trust. Individuals included people such as Adams, architect Luyanda Mpahlwa (brother of former minister of trade and industry Mandisi Mpahlwa) and a raft of other politically connected businesspeople.
One of the empowerment players told the M&G that a solution was likely to be reached. He said the investment was heavily indebted and has been under pressure — as had many deals struck in boom economic times.
It was also well known that the fragmented ownership embodied in Lexshell meant the BEE partners and management “did not get on well”.
Another source said that originally BEE shareholders had been brought on board in good faith but poor relations between the chief partners, Istithmar and London & Regional, led to a “state of paralysis” that saw development lag.
Dubai World’s management style was “spectacularly arrogant”, a poor fit with the “under the radar, sophisticated” approach of L&R’s Ian and Richard Livingstone, and the perfect recipe for a “clash of institutional cultures”. The BEE partners were sidelined in the running of the Waterfront, said the source.
L&R did not reply to requests for comment, and Istithmar said the information was confidential. But Moloto said a “drag clause” in the existing agreement between Lexshell’s principal partners and the BEE component ensured they would have to abide by the agreement between the PIC and Istithmar and L&R.