V&A Waterfront deal - BEE

Posted On Wednesday, 27 September 2006 02:00 Published by
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The V&A Waterfront is sold by Transnet to the L&R Consortium for R7-billion. Classic Business Day gets Decorum spokesperson David Johnson on the line to find out about the black economic empowerment aspects of the deal.

The V&A Waterfront is sold by Transnet to the L&R Consortium for R7-billion. Classic Business Day gets Decorum spokesperson David Johnson on the line to find out about the black economic empowerment aspects of the deal.

LINDSAY WILLIAMS: David, maybe we could take a step back or two - can you tell us about Decorum Investment Holdings’ involvement from the start in this whole process?

DAVID JOHNSON: The process has been won by international developers - but it really started back here in Cape Town where the consortium formed itself, and then approached Decorum Investment Holdings in Johannesburg to manage the process. They got in touch with London & Regional, and after a process of engagement we were taken on board as their empowerment partners - which has been a fantastic process for us over the last two months.

LINDSAY WILLIAMS: Can you give us the mechanics of the BEE aspect of the deal?

DAVID JOHNSON: The BEE transaction as you know is 25.05% and 2% as mentioned in your previous interview has been taken up by a black employee staff trust. The current black shareholders will be acquiring their equity for cash at full value - it’s nominal equity. Then there’s an option-based structure on top of that. The option-based structure has been designed with I think very generous assistance from both L&R and from Dubai World - to ensure that there’s real value in this BEE transaction.

LINDSAY WILLIAMS: Real value for both partners?

DAVID JOHNSON: Exactly. In terms of BEE the option is clearly in the money in the beginning, and stays in the money for a certain period of time. The BEE beneficiaries are incentivised to take up that option and raise funds in the open market. Clearly there is some cash going in on day one, but there will be further cash coming in over the life of the project over the next few years. It’s a huge project - to tap the market for an enormous sum of money for BEE upfront is quite challenging. This is something that needs to be managed quite carefully in the market going forward.

LINDSAY WILLIAMS: What is the money that’s going to change hands upfront?

DAVID JOHNSON: If you look at 25% of the company over five years you’re looking at a number just slightly north of R500-million for the BEE consortium.

LINDSAY WILLIAMS: The rest of the funding?

DAVID JOHNSON: The rest of the funding of the equity is provided by London & Regional and Dubai World…

LINDSAY WILLIAMS: Why was this particular partner chosen, and why does the BEE partner itself want it? Where are the synergies?

DAVID JOHNSON: If you look at the BEE consortium in greater detail it’s actually quite interesting - in the individual components are everybody has a role to play. If you look at Hassen Adams for example - his particular consortium is Cape Town professional quantity surveyors, project managers and structural engineers. Part of the Waterfront is a development - 45% is undeveloped, and this is a massive opportunity for procurement-based BEE. It’s very difficult to get this in shareholding-based BEE. You can deliver real value to your BEE shareholders and participants by creating opportunities for economic growth. If you look at Luyanda Mpahlwa - his architectural firm has just won its second award from the institute, a prestigious architect by any measure. I’m delighted to have him and his firm involved in our consortium. Vincent Maphai brings a wealth in corporate governance. The background to this - with two foreign entrants into South Africa, there has to be a South African component to this consortium. This is what the BEE consortium delivered. If you look at Jabu Mabuza he’s coming in as chairman of SA Tourism - the V&A is the premier tourism asset in the country with 22-million visitors a year. They spend an average of two days in the V&A Waterfront.

LINDSAY WILLIAMS: It’s tremendous. The creativity of the people who created The Palm project off the coast of Dubai - is that the sort of thing that’s going to happen? It’s going along nicely now at the V&A - it’s a shopping mall with fantastic shops and restaurants, and it’s in an unparalleled location anywhere in the world - but there could be something more. Is that one of the reasons this consortium was chosen - to give it that extra edge?

DAVID JOHNSON: I think there are two reasons. There are two assets here - there’s the stable rental asset, and there’s the development option. The real value in the V&A Waterfront lies in the development option. Together with the folks from Dubai and from London & Regional it’s that development option that we want to take a very serious look at. There is a chance to let the V&A Waterfront take a huge step upwards into an international resort-type destination. You want take people from staying two days here to staying seven days in the Western Cape - spending in the local economy, and creating jobs through the multipliers in the tourism industry. That’s the best way to deliver wealth to this economy, and that’s by turning the V&A Waterfront from an excellent development into an outstanding development.

Publisher: Business Day
Source: Business Day

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