Nick Wilson

WITH the first draft of the property industry empowerment charter completed, listed property companies now face the task of placing 25% of the sector in black hands over five years.

But while some companies are only now preparing to do empowerment deals, two of the three transactions concluded to date are running into difficulties.

Six months ago there were three listed property funds that had done empowerment deals: ApexHi Properties, Spearhead Property Holdings and Capital Property Trust.

Now there is speculation that Cyril Ramaphosa’s Shanduka Properties — which owns 5% of Capital Property Fund and 50,4% of Property Fund Managers, the asset-management company of Capital — may sell its 5% interest in the fund.

Although Shanduka has made it clear it will still hold on to its 50,4% interest in Property Fund Managers, if it sells its interest in Capital Property Fund, Capital will lose the empowerment credentials it obtained from having an empowerment partner owning a portion of the listed entity.

Meanwhile, ApexHi’s deal with Mvelaphanda, which owned a 25% interest in its asset management company, has been terminated by both parties because neither felt it was getting much out of it.

"It was a relationship which wasn’t doing much for either party. By agreement ApexHi’s management company bought Mvelaphanda’s shares back," says ApexHi chairman Marc Wainer.

This leaves just Spearhead with a black empowerment partner owning an interest in the listed entity.

Capital’s potential problem will serve as a lesson to other funds that may seek to set time constraints on the sale of units by future empowerment partners so that they can retain their empowerment credentials. However, Shanduka is an established player that raised its own finance to buy into Capital Property Fund at market value, and has the right to sell its units to realise a profit.

Thando Sishuba, MD of Shanduka Properties and executive director of Capital, says Shanduka has had long deliberations with its strategic partners over whether to sell the 5% interest in Capital Property Fund. But he says he cannot confirm the final decision.

Sishuba says Shanduka needs to make sure that if interest rates rise it has protection as its funding comes from commercial banks.

"The consensus is that (listed property) shares are at their peak. For an empowerment entity, you have to be mindful that if there is a pullback in price, you will breach your loan to value and income cover, especially given the fact that the empowerment partner has to provide its own corporate guarantee to underpin its investment," he says.

But Sishuba says Shanduka remains "fully committed" to its interest in Property Fund Managers.

Capital MD Barry Stuhler says Shanduka is entitled to sell, but it is disappointing as Shanduka’s Capital stake aligned the interests of Capital unitholders with management company shareholders.

"If you are well represented in both entities, conflicts are rare," he says.

Stuhler says one problem for Capital is that if Shanduka sells its interest in Capital to unempowered parties, it would be difficult for Capital to issue more units to do another empowerment deal.