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| Waterfront Sale - What Comes Next? |
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The sale of Cape Town Waterfront to a foreign group raises interesting questions about the issue of foreign property ownership
The V&A Waterfront Holdings linked unitholders – namely Transnet and its pension funds Transnet Second Defined Benefit Fund, the Transnet Pension Fund and the Transnet Retirement Fund (TRF) – have wholly sold The Victoria & Alfred (V&A) Waterfront to the L&R Consortium for a cash price of R7,04 billion.
More than 60 South African and international companies took part in the bidding process.
The consortium, which was selected from nine short-listed bidders based on the evaluation criteria published in May 2006, is a South African company made up of a broad spread of local and international shareholders led by the UK-based London & Regional Group Holdings Limited (L&R Group).
Apart from the L&R Group, the consortium comprises international property investors Istithmar PJSC (Istithmar) and BEE investors. The total interests of BEE shareholders is 23,1%, with another 2,0% ownership in the consortium to be set aside in a trust for V&A Waterfront's black employees.
"This is a balanced deal. The V&A linked unitholders are satisfied that the L&R Consortium has successfully fulfilled the stated evaluation criteria with maximum value being realised for the linked unitholders' stakeholders, 74% of whom are pension fund members, while leveraging meaningful BEE participation and retaining jobs of all V&A employees. Based on the price offered,the linked unitholders are satisfied that an appropriate value has been achieved from the Trade Sale Process and consequently a possible listing of the V&A Waterfront in terms of the Dual Track Process was not pursued," says Maria Ramos, Group CE of Transnet and the V&A linked unitholders' spokesperson.
L&R Group is one of the largest private property companies in Europe with investments, developments and business interests exceeding €7 billion (approximately R65,3 billion) in over seven countries. Istithmar is a Dubai-based investment house that forms part of Dubai World, which in turn is held by the Dubai Government.
Property commentators expected a foreign consortium to win the bid for the V&A Waterfront because local companies cannot be expected to compete with international companies because international banks are more competitive than South African banks and because international companies have access to cheaper capital.
For example, the local Cavaleros Group in conjunction with empowerment group Nozala and Worldwide Capital, which formed one of the consortiums that was short-listed during the bidding process, bid at R6,3 billion in comparison to the winning cash price of R7,04 billion. And noteworthy is that the Cavaleros Group sought funding offshore from Credit Suisse as opposed to locally.
When asked what he thought about the sale price of the V&A Waterfront, Financial Mail editor Ian Fife responded that if you have $225 billion lying around, the cost of equity is extremely low, and so it's a good deal. "If you're South African though and the opportunity cost is 25%, it's very expensive.
"So I think the winning bidder is the right buyer for that hideous Disneyland.
"I grew up in Cape Town and would go to Harbour Café and watch the fishermen arrive in boats when it was still a real harbour."
Some property commentators feel that the sale is likely to act as a further catalyst for foreign investment in South Africa, while others are not quite as certain, like Adrian Saville, chief investment officer at Cannon Asset Managers.
Property economist Francois Viruly of Viruly Consulting thinks the sale sets the platform for further investment and developments by foreigners in South Africa.
"The V&A Waterfront is a unique property and should be seen in that context," says Old Mutual's Colin Young. "Foreign investors are looking for opportunities worldwide and the V&A constitutes a world-class asset that is big enough, ie foreign investors are not interested in bringing small amounts into the county.
"This will also result in more direct investment further a field because if one foreigner comes in, the others feel more confident."
Dubai-based Istithmar and UK-based London & Regional Properties have plans to transform the V&A Waterfront into an "African Riviera" by building 10 more hotels on the precinct and bringing in top fashion brands like Versace and Dolce & Gabanna.
"There's a huge upside in Granger Bay," says Young. "The ruler of Dubai is developing The Palms in Dubai, which is a land reclaim project. He has access to a network of wealthy clients who are buying into the scheme.
"A similar process is expected for Granger Bay, where much of the new marina will be built into the sea protected by a new breakwater. My only concern would be that this is not Dubai with its still waters but the Cape of storms, which adds increased complexity in fully realising an 'African Riviera' in Granger Bay."
Fife is of the opinion that the new developments will "plasticise" the V&A Waterfront. "However, it should be kept in mind that very few tourists want the genuine thing, particularly tourists from the Middle East. So even though it's phony, it works. No one ever lost money underestimating the intelligence of the public.
"The V&A Waterfront will be promoted alongside The Palms, which will see a lot more foreign investment in it."
According to Wolf Cesman, executive director of Madison Property Fund Managers, the V&A Waterfront is a "bloody great development" and constitutes the best harbour development in the world because its harbour is still operational. "And what has been spent on the V&A Waterfront is just the beginning – a lot more is to come."
The V&A was established by Transnet in 1988 and now attracts more than 22-million visitors a year, effectively making it South Africa's most visited property and leisure development.
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