Thursday, 08 December 2016 05:45

Acquisition of a new a grade retial shopping centre anchored by multi-national tenants with US dollar underpined leases

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Acquisition of a new a grade retial shopping centre anchored by multi-national tenants with US dollar underpined leases.

Mall_de_Tete

Shareholders are advised that on 6 December 2016, Mara Delta, through its wholly-owned subsidiary Delta International Mauritius Limited, entered into a share sale and purchase agreement (“Acquisition Agreement”) with, inter alia, Sericea Holdings Limited (“Sericea”) and Transformers Investment Limited (“Transformers”) (collectively referred to as “the Sellers”), in terms of which Mara Delta will purchase 100% of the issued share capital of Gerania Limited (“Gerania”) (“Sale Shares”) held by the Sellers (“Acquisition”). 

Gerania holds 99.9% of the issued ordinary share capital of Mall de Tete Limitada (“Propco”), which, in turn, has the right of use and development of a property in Tete, Mozambique (“Land”) on which the retail shopping centre, known as Mall de Tete (“Mall de Tete”), is located (collectively referred to as “the Property”).  

Mall de Tete, which has been developed by McCormick Property Development (“McCormick Property”) officially opened on 1 December 2016. McCormick Property has pioneered the development of retail centres within the “emerging market” of South Africa since its inception in 1983 and more recently in Southern Africa. Mall de Tete is its 59th successfully completed development.

The remaining 0.1% of the issued ordinary share capital of Propco is owned by local minority shareholders who will dispose of their shareholding to Commotor Limitada, an indirectly whollyowned subsidiary of Mara Delta (“Commotor”), at a nominal price, upon conclusion of the Acquisition. 

Commotor has advanced a loan in the amount of USD 575,300 to Propco on 4 August 2016, which loan plus accrued interest thereon is refundable or convertible upon conclusion of the Acquisition (“Commotor Loan”). 

RATIONALE  

The Property is in line with Mara Delta’s investment strategy to acquire rural retail centres in under-serviced markets which meet the rigid investment criteria of strong counterparties, underpinned by long-term dollar-based leases. 

The following salient points should be highlighted: a three year net rental income guarantee is in place from the Sellers for 100% of the gross lettable area (“GLA”);  the Property will be the dominant retail offering in Tete and the surrounding region; 95% (by rental) of secured leases are indexed to the USD;  the tax incentives associated with the investment enhance the dividend yield accretion in Mauritius; and 

Mall de Tete will be managed by McCormick Property’s management division for an initial three year contract period. McCormick Property, who have significant insourcing experience, currently manage 27 shopping malls and centres within SADC totalling over 500,000 square meters of GLA and are well placed to provide a quality service to the Property and valuable support to the Mara Delta management team.

Tete is considered as a major hub for economic growth in Mozambique. The region is currently experiencing a significant economic boost after major international mining companies (including global giants Vale and Rio Tinto) have injected billions of USD into developing one of the world’s largest unexploited coking coal basins. The Japanese group Mitsui & Co. recently announced that it will contribute up to USD 450 million for 15% of Vale’s 95% stake in its Tete coal mine.  

It has also been announced that Mitsui & Co. will also contribute USD 348 million for 50% of Vale's 70% stake in the Nacala Logistics Corridor and provide the Nacala Logistics Corridor project with a USD 165 million long-term loan. The project involves the construction and rehabilitation of 912km of railway from the Moatize coal mines in Tete province to the new coal terminal and deep-water port in Nacala. 

In addition to the above, the Beira Rail Corridor freight route, which links Tete province to Beira Port is also currently being upgraded to accommodate increased coal production capacity. 

Vale and Mitsui & Co. also have a minority investment in a power station project that will produce 300 MW of electricity using thermal coal from Vale’s Moatize mine in Tete. ACWA Power of Saudi Arabia is the majority shareholder with a 56.5% investment in the project. Construction is set to commence in the first half of 2017. 

A major steel plant is planned for Tete province that will cost approximately USD 50 million and will produce 1.5 million tonnes of steel a year. Due to the enormous potential of this project and the large number of business opportunities that will follow, the government recently approved the creation of the Rovubue Industrial Free Zone in the Moatize and Chiuta districts. In addition to steel production, the project includes construction of a coal fired power station capable of generating 250 MW of electricity. 

With the significant investments and expansion that are currently taking place, and future expected projects, economic growth prospects are robust for the province as a whole, but with specific benefits for Tete city as the hub. 

EFFECTIVE DATE 

Subject to the Conditions Precedent (as defined in paragraph 6 below) being fulfilled, the effective date of the Acquisition will be 1 December 2016 (“Effective Date”). 

PURCHASE CONSIDERATION  

The total purchase consideration due by Mara Delta to the Sellers in respect of the Acquisition amounts to USD 24,994,000 (“Purchase Consideration”), which shall be settled in the manner stated below –  the Commotor Loan (including interest accrued thereon as at the Effective Date) will be converted to share capital in Propco on the Effective Date; 

USD 12,497,000 will be settled in cash (“Cash Payment”), which will be applied as follows:  

USD 4,500,000 will be used to settle a loan between Gerania and Nedbank Limited (acting through its Corporate and Investment Banking division) (“Nedbank”) including any interest and fees outstanding thereon; and 

USD 7,997,000 will be used to settle loans to Sericea or a related entity of Sericea including any interest and fees outstanding thereon, the above Cash Payment will be settled from a new Bank of China debt facility entered into between Gerania and Bank of China, Johannesburg Branch with effect from the Effective Date, which has been facilitated by Mara Delta and secured through a Mara Delta guarantee; and 

the balance of the Purchase Consideration of USD 11,906,077 will be settled, subject to the necessary approval and compliance with the listing rules of the Stock Exchange of Mauritius 

Ltd (“SEM”) and the Listings Requirements of the JSE Limited (“JSE”), by the allotment and issue of 7,350,338 new Mara Delta ordinary shares (“Mara Delta Shares”) to the Sellers at an issue price of USD 1.6198 per Mara Delta Share (representing the current Mara Delta net asset value per share), in the following proportion: 788,683 Mara Delta Shares will be issued to Transformers; and 6,561,655 Mara Delta Shares will be issued to Sericea, with the Mara Delta Shares to be issued within 10 business days from the Effective Date, unless the parties agree otherwise.  

PURCHASE PRICE ADJUSTMENT

The Sellers have agreed to adjust the Purchase Consideration should the basic rental income payable in terms of the final lease agreement between Propco and Shoprite (“Shoprite Lease”) reduce to less than USD 19.0/m2  (“Shoprite Price Adjustment”). The Shoprite Price Adjustment will place Mara Delta in the same position it would have been in had the basic rental income payable in terms of the Shoprite Lease remained at USD 19.0/m2.

The Sellers shall be jointly and severally liable for payment of the Shoprite Price Adjustment within 30 days of finalisation thereof, in proportion to their shareholding in Gerania immediately prior to the Effective Date.

The John McCormick Family Trust shall secure payment of the Shoprite Price Adjustment by providing a guarantee in favour of Mara Delta or a nominee of Mara Delta. 

CONDITIONS PRECEDENT 

The Acquisition is subject to the fulfilment of the remaining conditions precedent (“Conditions Precedent”), that –  the Sellers providing the municipal tax certificate evidencing registration of the Property with the necessary tax department in Mozambique;  the Sellers providing an updated real estate registrar office certificate concerning the Property and describing the buildings and infrastructure erected thereon;  approval from the Central Bank of Mozambique to mortgage the Property in favour of a foreign lender; and 

Nedbank have released the Sellers unconditionally from the pledge and cession that Nedbank has over the Sale Shares. 

Unless the Conditions Precedent have been fulfilled or waived by not later than 15 December 2016 (or such later date as may be agreed in writing between the parties before the aforesaid date), then the Acquisition Agreement will cease to be of any further force.

WARRANTIES AND OTHER TERMS

The Acquisition Agreement contains representations and warranties by the Sellers in favour of Mara Delta that are standard for a transaction of this nature.

Mara Delta has granted the right to the Sellers to develop any future income-generating development on the Property, subject to a separate agreement being entered into by the parties and subject to certain conditions. 

In terms of the Acquisition Agreement, the Sellers have guaranteed the projected net operating income for 100% of the GLA of the Property for a period of 3 years from the Effective Date (“NOI”) in favour of Mara Delta. The Parties have agreed that in the event that there is a shortfall between the projected NOI and the actual NOI (“Shortfall”), the Sellers will be jointly and severally liable for payment thereof and such payment will be secured by the Sellers as follows: 

Sericea pledging and ceding 25% of its Mara Delta Shares; and Transformers pledging and ceding 100% of its Mara Delta Shares, in favour of Mara Delta in terms of a share pledge agreement to be concluded between the parties. 

THE PROPERTY

Details of the Property are as follows – 

Property Name and Address                                                                     Geographical Location                                  Sector                                  GLA (m2 )                          Weighted Average Gross Rental/m2 (USD)

Mall de Tete 

Plot no. 1.190B located in the second                                                       Tete City, Mozambique                                  Retail                                  11,571                             17.81 

phase plant, located at Bairro Chingodzi 

Secured leases at Effective Date only. 

Details regarding the Property, as at the anticipated Effective Date, are set out below – 

Property Acquisition     Yield                                  Dividend Yield Attributable to Shareholders                             Weighted Average Escalation               Weighted Average Lease Duration    (years)         Vacancy % by GLA

9.5%1                                                                7.8%1                                                                             3.7%2                                            7.72                                                             27.0%3 

Based on the guaranteed projected net operating income. 

Secured leases at Effective Date only. year net rental income guarantee in place on 100% of GLA. 

 

 

 

Last modified on Thursday, 08 December 2016 06:35

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