PRESENTATION SAIBPP ANNUAL microfinance • Social investment – sustainable society Realities of limitations and challenges: • Not enough capital available

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<ul><li><p>GAUTENG PARTNERSHIP FUND:</p><p>Presented by Boni MuveviChief Executive Officer</p><p>PRESENTATION SAIBPP ANNUAL CONVENTION</p></li><li><p>PRESENTATION CONTENT</p><p> GAUTENG PROVINCE HOUSING CHALLENGES STRATEGIC RATIONAL FOR HOUSING GPF BACKGROUND GPF MANDATE, PURPOSE &amp; ROLE MARKET INTERVENTIONS INVESTMENT PROCESS &amp; CRITERIA TYPICAL PROJECT STRUCTURE PROPERTY EMPOWERMENT FUND EEPF FUNDED PROJECTS GPF PERFORMANCE STRATEGIC PARTNERS PRIVATE EQUITY FUND</p></li><li><p>SOUTH AFRICA</p></li><li><p>GAUTENG PROVINCE HOUSING CHALLENGEApprox. 900 000 LOW INCOME </p><p>HOUSING BACKLOG</p></li><li><p>WHY AFFORDABLE HOUSING?</p><p>CONTRIBUTION TO ADDRESSING NATIONAL ISSUES!</p><p> Historical housing backlog </p><p> Redressing the Legacy of living apart Apartheid</p><p> Capital redistribution and empowerment</p><p> Property ownership, as an asset and a means for creation of wealth</p><p> Reducing unemployment /job creation</p><p> The constitutional right to housing for all SA citizens</p><p> Demand by people for better infrastructure and services (housing)</p><p> Is this government responsibility only ?</p></li><li><p>GAUTENG PARTNERSHIP FUND </p><p>WHY PARTNERSHIP?</p><p>AFRICAN PROVERB:</p><p>IF YOU WANT TO GO FAST, GO ALONE. IF YOU WANT TO GO FAR, GO TOGETHER.</p></li><li><p>STRATEGIC RATIONALE FOR HOUSING?</p><p>Government</p><p>-Resources</p><p>-Control/ Standards</p><p>- Power / influence</p><p>- Concern for Constituency</p><p>Private Sector</p><p>- Products</p><p>- Processes</p><p>- Solutions</p><p>- Expertise</p><p>Working </p><p>together</p><p>WIN-WIN</p><p>Relationship</p><p>Community</p><p>-Housing</p><p>- Dignity</p><p>-Family life</p><p>-QOL</p><p>SOCIAL RESPONSIBILITY AND BUSINESS OPPORTUNITY</p><p>Based on C.K Prahalad: The fortune at the </p><p>bottom of the Pyramid: Eradicating poverty </p><p>through profits: 2005; Dr Llewellyn 2011 presentation.</p><p>Contribution to SA Economy</p><p> Construction &amp; Property jobs, tax revenue</p><p> Mining sector cement, stones etc.</p><p> Manufacturing doors, lintels etc.</p><p> Small business plumbers, elect etc.</p><p> Finance industry mortgage, microfinance</p><p> Social investment sustainable society</p><p>Realities of limitations and </p><p>challenges:</p><p> Not enough capital available in govt treasury.</p><p> Pace of delivery needs to be improved.</p><p> Insufficient skilled human capital in govt.</p><p> Limited innovation. Driven by FSC, Property </p><p>charter than opportunities</p><p> Gate keeper in companies Decisions on perception </p><p>rather than facts.</p><p> Lack of investment in under -developed areas.</p><p> Limited investment in skills and enterprise development.</p></li><li><p>GPF BACKGROUND</p><p> GPF: A Schedule 3C Provincial Public Entity (PPE) that was founded in 2002 as aBenevolent Trust under the Trust Properties Control Act 57 (1988).</p><p> Shareholder/ Executive Authority: Gauteng Department of Human Settlements(GDHS).</p><p> Independent and diverse Board of Trustees whose non-executive members areappointed by the Executive Authority; striving at all times to comply with the principlescontained in the King Code on Corporate Governance in South Africa (King 3, 2009).</p><p> The Board is the Accounting Authority in terms of the PFMA and providesstrategic direction and leadership to enhance shareholder value and ensure the GPFslong-term sustainable development and growth.</p><p> In fulfilling its responsibilities, the Board is supported by the Chief ExecutiveOfficer and Executive Management Team in implementing the approved strategicand corporate plans and policies.</p><p> At the time of its establishment the GPF was given the specific mandate tonormalise the social housing market in Gauteng through innovative fundinginterventions that would provide better gearing for private commercial funding, thusattracting private bank capital into this market.</p></li><li><p>GPF BACKGROUND</p><p> The fundamental business of theGPF is to leverage funding fromexternal senior funders. Thistranslates into a value propositionthat has and continues to seek to offerthe market innovative funding productsdesigned to provide the first layer ofcapital, very favourably priced relativeto market, to enable senior funders,particularly commercial banks andDevelopment Finance Institutions(DFIs), to mitigate their financing risk.</p><p> The GPFs targeted gearing ratio is30: 70 (GPF Funding: LeveragedFunding), although this ratio isextended to 40% GPF funding forcertain products and up to 100%funding for projects of R10 million orless.</p><p>Government </p><p>GPF</p><p>Finance Institutions/ </p><p>Private sector</p><p>DLGHMunicipalitiesAgencies/ public </p><p>institutions</p><p>Facilitation / PackagingMobilizing Funding Funding </p><p>BanksDFIs Developers contractors, </p><p>professionals etc.</p><p>GPF ROLE </p></li><li><p>GPF BACKGROUND</p><p>GPF Mandate Evolution Timeline:2</p><p>00</p><p>2 M</p><p>an</p><p>da</p><p>te</p><p>Social Housing</p><p>20</p><p>08</p><p> Ma</p><p>nd</p><p>ate</p><p>Affordable Housing</p><p>20</p><p>16</p><p> Ma</p><p>nd</p><p>ate</p><p>All Human Settlements</p></li><li><p>GPF MANDATE &amp; ROLERevised MandateThe GPF is to serve as the financing vehicle of the GDHS to leverage additional revenue for all human settlement developments (not just social and affordable housing).</p><p>Revised Role Project funding packaging, through the development of bankable feasibility studies </p><p>and innovative funding interventions as a mechanism to entice capital market investment;</p><p> Fund raising and Investment facilitation, through the formation of partnerships with local and international donors and development finance institutions to address funding shortfalls for the massification of the sustainable humans settlements development programme;</p><p> Project financing, through an equitable risk sharing model. Serving as a catalyst to ensure that other funding sources are enticed to participate in funding;</p><p> Project Management, to provide an oversight and monitoring role for mega projects. This is to ensure delivery of housing units in an integrated approach;</p></li><li><p>GAUTENG PARTNERSHIP FUND ROLE </p><p>Government </p><p>GPF</p><p>Finance Institutions/ </p><p>Private sector</p><p> DLGH Municipalities Agencies/ public </p><p>institutions</p><p> Facilitation / Packaging Mobilizing Funding Funding </p><p> Banks DFIs Developers contractors, </p><p>professionals etc.</p></li><li><p>GPF MARKET INTERVENTIONSFinancial product Purpose</p><p>Rental Housing Fund To enhance the viability of investment into affordable </p><p>housing by rental developers/ entrepreneurs.</p><p>Entrepreneur </p><p>Empowerment Property </p><p>Fund Programme </p><p>This is an incubator programme designed to enable </p><p>sustainable entrance of HDI owned companies in the </p><p>affordable rental property market. (The programme is limited </p><p>to prospective participants invited on public tender annually).</p><p>Social Housing Fund To enhance the viability of investment into affordable </p><p>housing by Social Housing Institutions. This is linked to </p><p>government institutional subsidy funding.</p><p>Student Housing Fund To enhance the viability of investment into affordable </p><p>housing for students by rental developers/ entrepreneurs.</p><p>Facilitation of Mixed</p><p>Income Housing </p><p>Developments </p><p>(opportunity)</p><p>To develop optimal funding structure and raise </p><p>appropriate funding for human settlements projects. </p><p>Stra</p><p>teg</p><p>ic pa</p><p>rtne</p><p>rship</p><p>s with</p><p> fina</p><p>nce</p><p> institu</p><p>tion</p><p>s</p><p>Affo</p><p>rda</p><p>ble</p><p> Ho</p><p>usin</p><p>g R</p><p>en</p><p>tal A</p><p>ccom</p><p>od</p><p>atio</p><p>nM</p><p>ixed</p><p>Ho</p><p>usin</p><p>g</p><p>14</p></li><li><p>GPF INVESTMENT PROCESS</p><p>Project Investment Process</p><p>Deal origination</p><p>-New business development</p><p>-Client relationship management</p><p>-Deal flow management</p><p>Project Assessment </p><p>-Investment evaluation</p><p>- Viability &amp; Feasibility analysis</p><p>-Technical assessment</p><p>-Investment criteria</p><p>-Credit analysis</p><p>Risk Management </p><p>&amp; Controls-Credit risk pricing</p><p>-Liquidity risk</p><p>-Concentration risk</p><p>Other risks</p><p>Investment Administration</p><p>-Reporting on Investments</p><p>-Investment monitoring</p><p>-Contract monitoring</p><p>Board Investment Committee meets every fortnight or adhocBoard of Trustees meets every 6 weeks </p></li><li><p>GPF INVESTMENT CRITERIAMandate fit the affordable housing project should cater for households with income </p></li><li><p>TYPICAL PROJECT FUNDING STRUCTURE EXAMPLE</p><p>Project located in Kempton park Erf 223, land zoned residential 4 and can yield 35 housing units. </p><p>Project Cost Funding Structure</p><p>Item Rand </p><p>Land 1,000,000.00 </p><p>Construction Cost 10,000,000.00 </p><p>Professional Fees 1,500,000.00 </p><p>Contingencies 500,000.00 </p><p>Other 1,000,000.00 </p><p>Sub-total 14,000,000.00 </p><p>VAT 1,960,000.00 </p><p>Total Project Cost 15,960,000.00 </p><p>Item Rand</p><p>% </p><p>Funding</p><p>Equity Contribution 1,596,000.00 10%</p><p>GPF Debt 3,192,000.00 20%</p><p>Senior Debt 11,172,000.00 70%</p><p>Total 15,960,000.00 100%</p><p>Financial RatiosIRR on Cash flow after tax for 20 years 9%</p><p>NPV on Cash flow after tax at WACC of: 5% R 19,000,000</p><p>ROI on Op's surplus ROI on EAIT</p><p>Return on Total investment year 3 10% 7%</p><p>Return on Total investment year 5 13% 8%</p><p>Debt Cover ratio year 3 1.3</p><p>Debt Cover ratio year 5 1.4</p><p>Debt equity ratio 90%</p><p>Loan to value ratio 80%</p><p>Cost : income ratio 25%</p></li><li><p>WHY EMPOWERMENT FUND?</p><p> Constraints to entrance by BEE entities: Understanding opportunities in the sector careers, business and job </p><p>creation opportunities in the property sector are not well understood by HDIs. Most HDIs are passive investors as individuals or BEE companies.</p><p> Exposure a few people are in the property or building industry that are willing to take the risk in the affordable rental market.</p><p> Equity - Lack of equity to contribute towards a project or assets as security of loan</p><p> Competition for stock they cannot compete for buildings as they have no capital (equity for deposit) and are outside the network</p><p> Capacity to negotiate price, evaluate (feasibility), packaging projects for financing</p><p> Financing banks are wary of first time property developers Commitment it takes a long time to prepare and tie up required project </p><p>finance and realise returns. 94 companies under the incubation programme. 43% are owned by </p><p>women and youth. Over R552 million funding committed.</p></li><li><p>EMPOWERMENT PROPERTY FUND</p><p> GPF has established an Entrepreneur Empowerment Property Fund that will focus exclusively on promoting BEE developer participation in the rental property market.</p><p> The Fund seeks to promote BEE entrepreneurship through the medium of ownership of a residential rental portfolio. </p><p> Why an Entrepreneur Empowerment Property Fund?</p></li><li><p>WHY EMPOWERMENT FUND?</p><p> GPF had committed approx. 2.5% funding to BEE companies in 2009, which was insignificant in our view. </p><p> GPF considers BEE driven affordable housing projects with more flexibilityin comparison to established companies but with limited success.</p><p> Although the property charter has been enacted transformation of the industry is extremely slow.</p><p> In general, affordable housing developers (especially for rental) are few and mostly white owned companies. </p><p> Black applicants face a myriad of challenges or constraints. Therefore we have adopted a holistic approach to promoting BEE participation.</p></li><li><p>WHY EMPOWERMENT FUND?</p><p> BEE entities constraints in entering residential property market:</p><p> Understanding opportunities in the sector careers, business and job creation opportunities in the property sector are not well understood by HDIs. Most HDIs are passive investors as individuals or BEE companies.</p><p> Exposure a few people are in the property or building industry that are willing to take the risk in the affordable rental market.</p><p> Equity - Lack of equity to contribute towards a project or assets as security of loan</p><p> Competition for stock they cannot compete for buildings as they have no capital (equity for deposit) and are outside the network</p><p> Capacity to negotiate price, evaluate (feasibility), packaging projects for financing</p><p> Financing banks are wary of first time property developers Commitment it takes a long time to prepare and tie up required project </p><p>finance and realise returns.</p></li><li><p>EMPOWERMENT PROPERTY FUND</p><p> GPF has identified 100 HDI participants for the fund as per selection criteria above.</p><p> Each company will have access to an interest free loan funding to a max of R2million. This will cover project technical support ie. NHBRC and professional fees, mentorship programme, training etc.</p><p> The Fund assists companies to fund the property acquisition renovation or conversion or greenfield housing projects in Gauteng.</p><p> GPF has a dedicated programme manager for the Fund. We have also established a help desk that provides support with deeds search, GIS info type of requirements.</p><p> External resources are also be sourced for due diligence ie. Valuer, QS, structural engineer etc.</p></li><li><p>WHO ARE WE TARGETING?</p><p> Companies with 100% HDI/BEE ownership</p><p> Unencumbered and available equity of a minimum of R450 000</p><p> At least one shareholder that is full time on the business venture</p><p> Individual/s with business acumen and entrepreneurial flair withexposure to the property market</p><p> Able to demonstrate practical skills of developing a business casefor a rental housing project</p></li><li><p>EEPF TRAINING PLAN</p><p>Year 1 Induction program </p><p> Property investment 101 Feedback / Workshop </p><p> Town planning, design etc. Workshop /Training </p><p> Social Responsible Investment etc.Year 2 Training program </p><p> Project management Feedback / Workshop</p><p> Property management Workshop /Training </p><p> Small Business administration</p><p>We allocate dedicated Mentors to each company for 24months !</p><p>http://www.google.co.za/url?sa=i&amp;rct=j&amp;q=&amp;esrc=s&amp;source=images&amp;cd=&amp;cad=rja&amp;uact=8&amp;ved=0CAcQjRw&amp;url=http://www.smallbusinessconnect.co.za/feature/new-growth-plans-economic-zones.html&amp;ei=3UQRVdipK-HR7QbpuYDwBA&amp;bvm=bv.89184060,d.d24&amp;psig=AFQjCNHY3nCEFlazOyv3gLFjCPcZdSqmLQ&amp;ust=1427281507991819http://www.google.co.za/url?sa=i&amp;rct=j&amp;q=&amp;esrc=s&amp;source=images&amp;cd=&amp;cad=rja&amp;uact=8&amp;ved=0CAcQjRw&amp;url=http://www.smallbusinessconnect.co.za/feature/new-growth-plans-economic-zones.html&amp;ei=3UQRVdipK-HR7QbpuYDwBA&amp;bvm=bv.89184060,d.d24&amp;psig=AFQjCNHY3nCEFlazOyv3gLFjCPcZdSqmLQ&amp;ust=1427281507991819</p></li><li><p>EVALUATION CRITERIA</p><p>Item Activities Weight</p><p>1 BEE 20%</p><p>2 Equity contribution 20%</p><p>3 Institution / Company information 2.5%</p><p>4 Market analysis 7.5%</p><p>5 Risk Analysis 7.5%</p><p>6 Project analysis 20%</p><p>7 Management 7.5%</p><p>8 Property Management 5%</p><p>9 Project Location (outside Johannesburg metro) 10%</p><p>Total 100%</p></li><li><p>INVESTMENT GUIDELINES</p><p> Project must be located in a precinct or suburb identified by Metro /Council for rehabilitation.</p><p> Projects with 15 units and more with a min of 80% of the units as residential. No student accommodation will be undertaken initially.</p><p> Project should cater for household with income below R18 000. Rentals charged must be comparable to market related or at least 10% below market related.</p><p> The project must be located within 10km of the CBD and be close to amenities i.e.. SOWETO Jabulani CBD. </p></li><li><p>INVESTMENT GUIDELINES</p><p> The project must be self sustaining from cash flows post construction.</p><p> Loan to value cannot exceed 100%</p><p> Interest rate min JIBAR +50 basis </p><p> Moratorium on interest payment over construction period Loan term 15 20years</p><p> Exposure 100% acquisition of property, converted to 30% of long term debt.</p><p> Capacity funding - Interest free loan to a maximum of R2million per company</p></li><li><p>EEPF PROGRAMME - PROJECTS</p><p>Eagle Valley Properties (Pty) LtdBronkhorstspruitUnits: 40GPF funding: R15 millionTotal cost: R15 million</p><p>Lukataedi (Pty) LtdPretoria NorthUnits: 38GPF funding: R9,9 millionTotal cost: R10,5 million</p><p>Brickfields - Newtown</p><p>Mixed use commercial &amp; Housing 809 units: </p><p>GPF Funding: R24million</p><p>Total cost: R120million</p></li><li><p>EEPF PROGRAMME - PROJECTS</p><p>Castle Crest Properties 80 (Pty) LtdKempton Park26 UnitsGPF Funding: R9,millionTotal Cost: R10,4 million</p><p>Cape Gannet Properties (Pty) LtdKempton Park24 UnitsGPF Funding: R3,7 millionTotal Cost:R9 million</p></li><li><p>EEPF PROGRAMME - PROJECTS</p><p>MUMA...</p></li></ul>

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