OMSFIN is a wholly owned subsidiary of Old Mutual (SA) (OML) which specialises in providing innovative financing and risk management solutions. The funding accessed by Growthpoint comprises a flexible 500 million rand term loan, with interest linked to the 3-month JIBAR rate (Johannesburg Inter Bank Agreed Rate). Including the costs associated with the transaction, the 'all-in' interest margin payable by Growthpoint will be reduced by between 80 - 90 basis points.
The seven year loan facility attracts interest payments only, with the capital repayment due at the end of the loan term.
"These funding terms are much more attractive than that achievable from traditional banking channels as OMSFIN is able to fund at rates which reflect the appropriate level of economic capital at risk," explains Norbert Sasse, CEO of Growthpoint Properties, who describes this as a "win-win" deal for both Growthpoint and OMSFIN.
The deal is secured by mortgages over three Growthpoint properties, being Waterfall Mall, Constantia Office Park and River Square, valued in excess of 1-billion rand.
The funds raised will be used to settle some of Growthpoint's higher margin fixed debt.
In addition to achieving the reduced interest margin, Growthpoint will also refinance the fixed interest rate contracts pertaining to the original higher margin fixed debt, resulting in an annual interest saving of more than 10 million rand. For Growthpoint linked unitholders these savings will translate into growing distributions. Further benefits include the lower average cost of borrowings and diversification of borrowing sources.
Traditionally Growthpoint, like other property companies, was restricted to financing through mortgage loans from the five major banks. However Growthpoint, managed by Investec Property Group, has proactively sought other options as debt funding has become increasingly important to delivering growing returns to investors.
In this regard, Growthpoint launched its uniquely structured 5 billion rand commercial mortgage backed securitisation (CMBS) programme in November 2005, with the initial issue on the Bond Exchange of South Africa of 5-year floating-rate notes of 805 million rand with more to come later this year following the recent announcement of the acquisition of a 1.6 billion rand portfolio from Tresso. The refinancing of the securitised portion of Growthpoint's debt has consequently reduced the interest margin and therefore the overall funding rate by over 1.15% per annum.
"While this new financing option offers slightly lower savings than those achieved through securitisation, it requires limited administration and offers greater savings when compared to other methods of funding such as conduit finance," explains Sasse.
"Growthpoint, will continue to actively seek more-affordable sources of finance and develop innovative structures in order to reduce its overall cost of borrowing," concludes Sasse.
I-Net Bridge
Publisher: I-Net Bridge
Source: I-Net Bridge
