STATE PROPERTY STATE PROPERTY CONSOLIDATIONCONSOLIDATION

STRATEGY & UPDATESTRATEGY & UPDATE

• 2000 Introduction of Policy Framework to accelerate restructuring of S.O.E

• The Policy Framework contained the following statement w.r.t properties of S.O.E’s

  “S.O.E Property Portfolio: The property Portfolio of DENEL, ESKOM, PROPNET

are being studied with a view to identify restructuring options”

BACKGROUNDBACKGROUND

 INFORMATION ABOUT PROPERTY INFORMATION ABOUT PROPERTY PORTFOLIO OF S.O.EPORTFOLIO OF S.O.E

Telkom ± R4 billion

Eskom ± R1 billion

Denel ± R750m Commercial – more than a billion factories

SAPOS ± R750m

Transnet ± R7 billion total (non specialized or commercial ± R2 billion Propnet ± R600m)

  

 

• An estimated value of potential properties that may be included is ±R6.5 billion

• Note in all of the above the state is a 100% Shareholder excluding Denel if

the property were included in the sale of Denel

SHAREHOLDER’S INTENT WITH SHAREHOLDER’S INTENT WITH PROPERTY PORTFOLIO IN S.O.EPROPERTY PORTFOLIO IN S.O.E

• The shareholder’s intent seems to be clear

• The shareholder’s action seems to be coordinated or aimed at achieving the intended objectives/goals

• The Shareholder has publicly declared and promoted his intention or end state of the property portfolio of S.O.E except that

“The property portfolio of Denel, Eskom and Propnet are being studied with a view to identify restructuring options”

SHAREHOLDER OBJECTIVESSHAREHOLDER OBJECTIVES (as outlined by S.M & A.P)(as outlined by S.M & A.P)

The restructuring exercise is meant to achieve the following:-

• Realise value and optimize return from the S.O.E’s property portfolio.

• Achieve business efficiency and effectiveness by

- Eliminating duplication

- Take advantage of economies of scale and required mass for listing etc.

  - Eliminating undesired subsidies through properties

- Creating a property focus entity

Rejuvenating the inner city

• Address distortion and broaden BEE participation in both commercial property ownership and skills development

• Encourage the S.O.E’s to forecast and accelerate in their core business

• To create a State Property entity that provides business accommodation solution yet supporting the social objective of government

STRATEGIES TO ACHIEVE STRATEGIES TO ACHIEVE SHAREHOLDERS OBJECTIVESSHAREHOLDERS OBJECTIVES

• The Entity can evolve by merger of the portfolio and S.O.E become shareholders based on value of properties owned

• Shareholder establishes the entity and injects capital to acquire properties from participating entities. (Acquisition can

also happen outside S.O.E’s Properties)

The entity can also obtain funding from the market on the strength of the cash flow from the leases

• Provision of Property Business accommodation solution to the state organs and private sector

• Property holding and Asset Management

• Facilities and Property Management

• To provide social objective services

• Housing infrastructure

• Technical expertise

• Provide management & technical services to government reasonably

FUNCTION OF THE PROPERTY FUNCTION OF THE PROPERTY ENTITYENTITY

SHAREHOLDER OBJECTIVES THROUGH GOVERNMENT

BENEFITSCOMMERCIAL BENEFITS•Generate Revenue

•Saving government resources

•Provide quality services on time

•Provide Private sector services

POLITICAL/SOCIAL•Proper coordination with all stakeholders ( 3 Tiers of Government, S.O.E’s & Private Sector)

•Contribution to social development

•Community development support and initiatives

•Efficient utilization of Property Assets

•Providing conducive environment for residential communities (issues of Safety)

• Guard against tendency to saddle the property entity with non performing assets

• All properties excluding specialized properties should be included – commercial property

• Specialised property like armament & electricity generating property should be excluded

• SARCC properties should be included

KEY ISSUES FOR CONSIDERATIONKEY ISSUES FOR CONSIDERATION

SENSITIVE ISSUES FOR SENSITIVE ISSUES FOR CONSIDERATIONCONSIDERATION

• The ownership of land and fixed property by South African BEE entities will be an elusive dream

• Poverty will increase as land forms part of a basis for wealth creation

• Leverage property for wealth creation will disappear completely

 WAY FORWARDWAY FORWARD

• Detail study to be sanctioned, managed by shareholder needs to be undertaken

• Promotion of the consolidation or formation of the state property entity must be driven by shareholder with specific time frame

• A clear directive from the shareholder must be issued for alignment.

• Direct involvement, participation by S.O.E’s and their buy-in must be sort by shareholder

• Is this a dream or a nightmare?

NOTE A POLITICAL WILL SEEMS TO BE STRONG