By Nick Wilson
 
It was no real surprise to the market that a foreign consortium won the bid for the Victoria & Alfred (V&A) Waterfront.

A foreign consortium was expected to be able to outbid local consortiums because of its access to cheaper capital.

Penny Karpodinis, MD of the local Cavaleros Group - which together with empowerment group Nozala and Worldwide Capital formed one of the consortiums short-listed during the bidding process - says the winning bid of more than R7bn was "far in excess of ours" at R6,3bn.

"At the end of the day it went to an international company. To me it was a fair process and it went to the highest bidder with huge resources to turn the V&A into something spectacular," says Karpodinis.

"I think the local bidders would have been restricted in terms of developing it (V&A) to its full capacity because of the high cost of funding and limited cash reserves."

She says local companies cannot compete with international companies.

Another drawback for local companies is the fact that South African banks are not as competitive as international banks.

She says the Cavaleros Group did not use local funding and went offshore to Credit Suisse, and 'they were far more competitive and aggressive in their funding than local banks".

"From that point of view it's very healthy that our banks realise they have outside competition. The local banks couldn't compete in terms of funding and I don't think they are as bullish as overseas banks."

Karpodinis says one reason the group went offshore was that South African banks had already got behind other consortiums in the bidding process.

Marc Wainer, an executive director of Madison, the asset manager of Hyprop Investments, which pulled out of the bidding after deciding the acquisition would be dilutionary, says the foreign bidders were paying too much.

Wainer says it is interesting that other bidders such as SA's large institutions and pension funds, which do not need to borrow money from banks, made bids substantially lower than the winning bid.

"Local knowledge says there was not value at that price and so you have an international company that comes in and maybe they are happy with a lower return."

Wainer says that in order to make the V&A development work, the consortium needs another 100000m² of developable land.

Wainer says overseas banks are more competitive than local banks because of their lower interest rate environment. But he says if a company borrows money offshore, there is "currency risk".

Business Day

Publisher: I-Net Bridge
Source: I-Net Bridge