The effect of the deal will be to establish a strategic relationship with Absa, as well as significantly improve Paraprop's capital structure. The deal will leave Absa with a 34% stake in the listed property fund, and will see the establishment of a new asset management company in which Absa will hold a 50% share. The transaction improves Paraprop's capital structure, as it increases the listed fund's market capitalisation, decreases the ratio of B-debentures to total units in issue, and improves the company's gearing ratio.

The managing director of Paraprop, Rodney Squire-How, says the partnership will have real financial benefits to shareholders. "The issue of 17 million linked units will significantly increase the fund's market cap, making it more attractive to a broader investor base, and further improving the liquidity of the fund. Also the additional units in issue will immediately reduce the ratio of B-debentures as a percentage of total capital from the current 45% down to 35%, reducing the possible negative impact of these debentures in the future.

This ratio will be further decreased in future through the acquisition of properties for cash and linked units." Squire-Howe noted that Absa would settle the purchase price through a combination of cash and the injection of units in Growthpoint Properties Limited, also a listed property loan stock company on the JSE. He noted that it was not Paraprop's intention to become a "hybrid" fund, but that the injection of the units was a convenient means of settling the purchase price. It was Paraprop's intention to use the cash to take advantage of investment opportunities in the market. "This capital injection will also result in an improvement in our debt ratio, as it will result in the reduction of our gearing from the current 64% to less than 58%. It is our aim to further lower the gearing to closer to 50% over time."