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Ok, so here goes, going to try and be as fair as possible in this thread to all sides. But have my own view and everyone I& #39;ve spoken to worries about the massive red flags with this deal while WP say it is the deal of the century. You decide.
Ok firstly WP entered into heads of agreement with Investec. They had owed Remgro R40m (the equity was turned into a loan when WPRFU went bankrupt a few years ago). That loan was never serviced, and grew to R58m.
Investec said they would Redevelop Newlands in a partnership with WPRFU. They would give R50m upfront cash, and pay off Remgro& #39;s loan at R58m. They would take all risk and costs of redevelopment. Demolition costs being around R50m and development costs of R1b.
WP would have no risk in the Investec deal. The R50m would not have to be repaid if the deal went through. WP would received 5% of INCOME and not profit. (massive difference) and 3.5% of all units sold. WP would keep ownership of Newlands land.
At the last minute WP reneged on the deal. Seems Zelt Marais wanted guaranteed future income, and investec could only supply projections. He refused to sign and deadlines lapsed. According to Marais, this meant deal was off. Investec, through their lawyers, strongly disagree
Enter Flyte, or Anyside Investments. A company that has done around 10 developments. Nowhere near in the league of Investec and never done a development on the scale of Newlands. They were introduced as the "saviours" by Marais and offered a 50-50 deal in a new Devco.
Flyte - or Dreamworld - as a new company estalished to deal with the WP deal - would settle the R58m of Remgro and repay Investec R50m. This would be done through a loan of R112m at prime rate. Investec& #39;s repayments were below prime, just btw.
Further they would redevelop Newlands in a 50-50 venture, which Marais says "is a much better deal for WPRFU". But 50-50 means 50% of risks and possible losses. And WPRFU shares in profits only. Dreamworld will manage new Devco in full.
WPRFU bonded 11 properties (said to be worth R450) for a mortgage of R250 to cover the R112m loan. This, according to Property developers is madness. It meant that if they can& #39;t service the loan of R112m and miss a payment, their properties are all at risk.
Dreamworld would control the Devco in totality. Flyte would charge it management fees. So whether it makes a profit or not, Flyte will get money out of the deal anyway. Profit is relative, and devco could make a loss, but WP banking on a profit share as income.
Property developers say that it is a minimum of 3 years to get rezoning done - in a best case scenario - and likely development will only see income in 5-7 years if that soon. But loan is repaid in 4 years according to agreement, so how will WP repay it?
It seems the interest (around R8.5m a year) will simply be added onto the loan account and WP believe when the development is done, the income will pay off the amount. But 7 years means around R60m interest added, bringing the amount to closer to R200m owing.
In the meantime WP can& #39;t use other properties to develop for an income, and they move to CT Stadium, and thereby lose their rental income from WP company of approx R14m a year as well.
So here WP have bonded all their properties in a deal with a relatively unknown property company and doubled their liability from R58m to R112m. They& #39;ve put all their eggs in one basket. And they& #39;ve pushed through a deal they started negotiating on 3 June (ie last month)
WPRFU believe once development is done, the millions will roll in and they say all due dilligence has been done. How, if Investec took months to complete, was due dilligence done in three weeks?
By the time the development is due to be completed, they would have paid Flyte/Dreamworld around R60m interest alone, and Flyte/Dreamworld would have collected management fees as well. If there is a profit, developers take 50% as well. Sounds like a dream deal for them.
Remember in Investec deal there was no risk for WP. Here they have bonded all their properties and all for a 50% share in profits (if any) when the development is done.
Red flags everywhere, not the least how they will repay a R112m loan when they couldnt service a R40m one?
Red flags everywhere, not the least how they will repay a R112m loan when they couldnt service a R40m one?
Add to this the uncertainty around COVID and no gate takings this year, and no test match for Newlands and it is uncertain where WP income will come from?
Brookside will bring in R40m upfront from a development in a similar 50-50 deal with Flyte as well.
Brookside will bring in R40m upfront from a development in a similar 50-50 deal with Flyte as well.
To be fair flyte and WP both say there will be a yearly valuation and properties can be released from security after that, but no guarantee on that.
Another question is why - when Remgro gave them an extra month to pay - is the deal being pushed through at such a pace?
Another question is why - when Remgro gave them an extra month to pay - is the deal being pushed through at such a pace?
The silence of WP& #39;s Exco members is also concerning. Is it fair then to say they are all behind this deal?
In a depressed economic environment, with uncertainty ahead with COVID seems awfully risky to do a deal like this right now.
But tomorrow WP will ratify it and carry on
In a depressed economic environment, with uncertainty ahead with COVID seems awfully risky to do a deal like this right now.
But tomorrow WP will ratify it and carry on
If it falls apart it will do so in a few years time and not immediately.
And all this is if, and this is a big if, investec don& #39;t stop the whole thing in its tracks with legal action.
So many questions...let me know what you think?
And all this is if, and this is a big if, investec don& #39;t stop the whole thing in its tracks with legal action.
So many questions...let me know what you think?
