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  • GAUTENG PARTNERSHIP FUND:

    Presented by Boni MuveviChief Executive Officer

    PRESENTATION SAIBPP ANNUAL CONVENTION

  • PRESENTATION CONTENT

    GAUTENG PROVINCE HOUSING CHALLENGES STRATEGIC RATIONAL FOR HOUSING GPF BACKGROUND GPF MANDATE, PURPOSE & ROLE MARKET INTERVENTIONS INVESTMENT PROCESS & CRITERIA TYPICAL PROJECT STRUCTURE PROPERTY EMPOWERMENT FUND EEPF FUNDED PROJECTS GPF PERFORMANCE STRATEGIC PARTNERS PRIVATE EQUITY FUND

  • SOUTH AFRICA

  • GAUTENG PROVINCE HOUSING CHALLENGEApprox. 900 000 LOW INCOME

    HOUSING BACKLOG

  • WHY AFFORDABLE HOUSING?

    CONTRIBUTION TO ADDRESSING NATIONAL ISSUES!

    Historical housing backlog

    Redressing the Legacy of living apart Apartheid

    Capital redistribution and empowerment

    Property ownership, as an asset and a means for creation of wealth

    Reducing unemployment /job creation

    The constitutional right to housing for all SA citizens

    Demand by people for better infrastructure and services (housing)

    Is this government responsibility only ?

  • GAUTENG PARTNERSHIP FUND

    WHY PARTNERSHIP?

    AFRICAN PROVERB:

    IF YOU WANT TO GO FAST, GO ALONE. IF YOU WANT TO GO FAR, GO TOGETHER.

  • STRATEGIC RATIONALE FOR HOUSING?

    Government

    -Resources

    -Control/ Standards

    - Power / influence

    - Concern for Constituency

    Private Sector

    - Products

    - Processes

    - Solutions

    - Expertise

    Working

    together

    WIN-WIN

    Relationship

    Community

    -Housing

    - Dignity

    -Family life

    -QOL

    SOCIAL RESPONSIBILITY AND BUSINESS OPPORTUNITY

    Based on C.K Prahalad: The fortune at the

    bottom of the Pyramid: Eradicating poverty

    through profits: 2005; Dr Llewellyn 2011 presentation.

    Contribution to SA Economy

    Construction & Property jobs, tax revenue

    Mining sector cement, stones etc.

    Manufacturing doors, lintels etc.

    Small business plumbers, elect etc.

    Finance industry mortgage, microfinance

    Social investment sustainable society

    Realities of limitations and

    challenges:

    Not enough capital available in govt treasury.

    Pace of delivery needs to be improved.

    Insufficient skilled human capital in govt.

    Limited innovation. Driven by FSC, Property

    charter than opportunities

    Gate keeper in companies Decisions on perception

    rather than facts.

    Lack of investment in under -developed areas.

    Limited investment in skills and enterprise development.

  • GPF BACKGROUND

    GPF: A Schedule 3C Provincial Public Entity (PPE) that was founded in 2002 as aBenevolent Trust under the Trust Properties Control Act 57 (1988).

    Shareholder/ Executive Authority: Gauteng Department of Human Settlements(GDHS).

    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).

    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.

    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.

    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.

  • GPF BACKGROUND

    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.

    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.

    Government

    GPF

    Finance Institutions/

    Private sector

    DLGHMunicipalitiesAgencies/ public

    institutions

    Facilitation / PackagingMobilizing Funding Funding

    BanksDFIs Developers contractors,

    professionals etc.

    GPF ROLE

  • GPF BACKGROUND

    GPF Mandate Evolution Timeline:2

    00

    2 M

    an

    da

    te

    Social Housing

    20

    08

    Ma

    nd

    ate

    Affordable Housing

    20

    16

    Ma

    nd

    ate

    All Human Settlements

  • GPF MANDATE & 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).

    Revised Role Project funding packaging, through the development of bankable feasibility studies

    and innovative funding interventions as a mechanism to entice capital market investment;

    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;

    Project financing, through an equitable risk sharing model. Serving as a catalyst to ensure that other funding sources are enticed to participate in funding;

    Project Management, to provide an oversight and monitoring role for mega projects. This is to ensure delivery of housing units in an integrated approach;

  • GAUTENG PARTNERSHIP FUND ROLE

    Government

    GPF

    Finance Institutions/

    Private sector

    DLGH Municipalities Agencies/ public

    institutions

    Facilitation / Packaging Mobilizing Funding Funding

    Banks DFIs Developers contractors,

    professionals etc.

  • GPF MARKET INTERVENTIONSFinancial product Purpose

    Rental Housing Fund To enhance the viability of investment into affordable

    housing by rental developers/ entrepreneurs.

    Entrepreneur

    Empowerment Property

    Fund Programme

    This is an incubator programme designed to enable

    sustainable entrance of HDI owned companies in the

    affordable rental property market. (The programme is limited

    to prospective participants invited on public tender annually).

    Social Housing Fund To enhance the viability of investment into affordable

    housing by Social Housing Institutions. This is linked to

    government institutional subsidy funding.

    Student Housing Fund To enhance the viability of investment into affordable

    housing for students by rental developers/ entrepreneurs.

    Facilitation of Mixed

    Income Housing

    Developments

    (opportunity)

    To develop optimal funding structure and raise

    appropriate funding for human settlements projects.

    Stra

    teg

    ic pa

    rtne

    rship

    s with

    fina

    nce

    institu

    tion

    s

    Affo

    rda

    ble

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    usin

    g R

    en

    tal A

    ccom

    od

    atio

    nM

    ixed

    Ho

    usin

    g

    14

  • GPF INVESTMENT PROCESS

    Project Investment Process

    Deal origination

    -New business development

    -Client relationship management

    -Deal flow management

    Project Assessment

    -Investment evaluation

    - Viability & Feasibility analysis

    -Technical assessment

    -Investment criteria

    -Credit analysis

    Risk Management

    & Controls-Credit risk pricing

    -Liquidity risk

    -Concentration risk

    Other risks

    Investment Administration

    -Reporting on Investments

    -Investment monitoring

    -Contract monitoring

    Board Investment Committee meets every fortnight or adhocBoard of Trustees meets every 6 weeks

  • GPF INVESTMENT CRITERIAMandate fit the affordable housing project should cater for households with income

  • TYPICAL PROJECT FUNDING STRUCTURE EXAMPLE

    Project located in Kempton park Erf 223, land zoned residential 4 and can yield 35 housing units.

    Project Cost Funding Structure

    Item Rand

    Land 1,000,000.00

    Construction Cost 10,000,000.00

    Professional Fees 1,500,000.00

    Contingencies 500,000.00

    Other 1,000,000.00

    Sub-total 14,000,000.00

    VAT 1,960,000.00

    Total Project Cost 15,960,000.00

    Item Rand

    %

    Funding

    Equity Contribution 1,596,000.00 10%

    GPF Debt 3,192,000.00 20%

    Senior Debt 11,172,000.00 70%

    Total 15,960,000.00 100%

    Financial RatiosIRR on Cash flow after tax for 20 years 9%

    NPV on Cash flow after tax at WACC of: 5% R 19,000,000

    ROI on Op's surplus ROI on EAIT

    Return on Total investment year 3 10% 7%

    Return on Total investment year 5 13% 8%

    Debt Cover ratio year 3 1.3

    Debt Cover ratio year 5 1.4

    Debt equity ratio 90%

    Loan to value ratio 80%

    Cost : income ratio 25%

  • WHY EMPOWERMENT FUND?

    Constraints to entrance by BEE entities: Understanding opportunities in the sector careers, business and job

    creation opportunities in the property sector are not well understoo

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