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Barloworld launches Khula Sizwe public BEE offer

Investors urged to adopt 15-year investment horizon to fully benefit from deal.

Barloworld, a leading distributor of global brands providing rental, logistics and fleet management solutions, has announced a public offer to establish a black-owned and managed property company with assets of R2.9 billion.

Some if Barloworld’s well-known brands include Caterpillar, Avis, BMW, Mercedes Benz, Toyota and Ford. Barloworld was established 117 years ago in Durban by Major Billy Barlow and now has operations in 16 countries, 17 400 employees and a JSE market capitalisation of R29 billion.

Transaction terms

Barloworld will dispose of its properties at a 5% discount to Khula Sizwe for R2.7 billion, which implies a 9% yield. The transaction is structured as a sale and leaseback as Barloworld operates from these premises. This acquisition will be 80% (R2.2 billion) funded by external loans and 20% (R544 million) by equity. Of the 20% equity component, R163 million will be raised from the black qualifying public via 16.3 million shares at R10 each and the balance by management and Barloworld’s Employees Trust. As a result the shareholding and debt: equity component will be as follows:

The properties will be leased to Barloworld for 10 years escalating at 8% per annum on a triple net lease. This means all expenses for the property shall be borne by Barloworld, the lessee. Approximately 95% of the portfolio is motor retail and industrial properties across South Africa. Thereafter the intention is to list on a trading platform. The table below sets out a comparison of the key metrics to selected JSE listed property companies:

While the initial yield is in line with other much larger property counters, Khula Sizwe has a trading restriction for the next five years and is available at a smaller discount to the other counters. Furthermore as the initial property yield of 9% approximates, the debt finance rate and expenses the escalations will mainly be used to reduce the outstanding debt. Hence investors have been are urged to adopt a 15-year investment horizon to fully benefit from the deal.

Conclusion

Buying into a ‘dealership’ property portfolio backed by an A-grade listed tenant with a 10-year lease, 8% escalations and minimum five-year lock-in needs to be compared to other listed counters to match the investor’s risk appetite and investment criteria. This could suit a retail investor who has a long-term horizon, is adverse to share price volatility and requires slow and steady growth. A classic case of the hare and the tortoise.

Online applications are open to the public from April 10 to May 31, 2019 at barloworldkhulasizwe.com with the minimum investment amount of R2 500 and no maximum limit.

Riaz Gardee is a mergers and acquisitions specialist and financial writer. 

Riaz is on Twitter as @RiazGardee 

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I wonder when Whites who have only known and experienced vicious ANC anti-White discrimination in their lives can expect to catch a deal? I believe that after 25 years anything and everything race-based must be banned, think Black Business Council, Black Lawyers Association, Black Accountants etc. Amazing that the most advantaged race group in this country still feels the needs to segregate themselves into exclusive organisations.

This my friend will never ever go away.

Agreed but it still means those perpetrating it are racists i.e. no better than the system that came before them.

It will go away one day…
As soon as black people realise that these BEE scheme have not produced any mass millionaires but enriched a few connected individuals and they stopped funding these scams, they will truly but surely go away. Which BEE investment has made the black masses better off? Why is the money locked in?
I prefer to invest directly in the market… That’s the reason Solidarity abandoned it’s fight for SASOL so-called empowered shares.

Colson:

Investors might not be getting such a sweet deal. 9% yield is pretty aggressive for valuation, though one needs a lot more info on the tripple net lease terms.

One puzzle is how this helps Barlows BEE? They sell assets to an empowered entity that is legally remote except to extent they then spend money with empowered suppliers.

The losers in this (assuming there are none) are the estate agents that would have swallowed fhe 5%. The likely winners are management. Basically, they run a fully let property group where the tenants do everything. Until Barlows closes dealerships…

Not related to this specifically, but how does one nowadays legally determine which applicants tick the “black” box?

We have no race register.

If Paul applies and ticks the race question Black : who can legally challenge him and on what basis? Name sounds wrong? Pencil test from the apartheid regime? Similarly, if this company claims it has X% black shareholders, what is its legal basis for that claim if challenged?

I wish our country could get over this race thing sometime soon, for all our sakes.

Sure : make a discounted share offer open to all persons with an income below R300,000 or all persons with a disability, or whatever.

Ah, you would be surprised at the effort that has gone into AA and BEE gatekeeping. Mostly a sham of course as it is really only the ANC connected that benefit through the subversion of an already corrupt practice. But the way definition is framed is around not being able to vote before 1994, being a citizen of SA and with a penalty for false declaration. All relatively easily subverted by the dishonest schemer as many BEE “deals” have shown since Mzi Khumalo.

My daughters could not vote in 1994.

Weren’t born yet

Is “black” seriously defined by where one was allowed to vote in 1993? Can you point me toward the regulation or act plse?

While BEE is actually just theft, please correct me if Im wrong here, but is “maneeegment” getting more than the workers? Utterly disgusting. Barloworld is filth. CEO mr Sewela is filth.

What is mindblowing is that it is generally one group that demands continuous reparations and handouts.

Folks, this will never end and continuous handouts breeds a culture of entitlement and laziness.

How many Asians do you see begging on the street corners these days?

Thanks for a great article. Will there be any cash flows to the shareholders in the form of dividends over the first 5 years.

As a South African professional property investor I find this article very informative and this opportunity is definitely something I will take up! Many more such opportunities should be made available as we still have a long way to go in redressing the economic imbalances that the previous regime brought about over 40+ years, especially in provinces such as the Western Cape.

Rubbish like this just makes me want to work harder.

What Barloworld with this scheme does that it cleverly passes the risk of holding property including any vacant land to black shareholders , knowing full well that expropriation without compensation is on the horizon . What a masterly stroke!

now will have to change my new car choice as I want nothing associated with barlowworld !

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