JSE-listed Growthpoint Properties hopes to save nearly a percentage point on the cost of its borrowings – R8m a year - with a commercial, mortgage-backed securitisation announced yesterday.
The Growthpoint Securitisation Warehouse Trust could grow over time to R5bn, and assuming constant interest rates, save up to R100m in interest a year.
The first step will be to sell a portfolio of Growthpoint’s own properties to the trust for R442m.
The trust, which will be ring-fenced from Growthpoint’s creditors, already owns properties worth R842,6m, making total assets R1 286m. The trust intends to issue bonds to major institutions at keener rates than Growthpoint currently receives from banks.
Some 70% of the bonds will be rated by Fitch as Triple A and the rest at AA or BBB. Growthpoint will have to sell the bonds to institutions at upcoming road shows but is confident the Triple A rated bonds will be issued at Johannesburg Interbank Acceptance Rate (JIBAR) plus a few points.
Its weighted average cost of borrowing is likely to be JIBOR plus 50, compared to the banks’ rate of effectively JIBOR plus 200 – a saving of120 (1,2 percentage points).
The interest saving is largely the result of the Trust’s being ring fenced. Its properties are mortgage backed.
The Trust will be consolidated into Growthpoint’s annual accounts. The group’s assets and liabilities will not be affected. Nor will group earnings.
“Setting up the trust was legally complex and took nearly a year”, says Norbert Sasse, Growthpoint CEO.
“But it is very much a left-pocket, right pocket transaction”.
He says the initial issue by Growthpoint Note Issuer Company of about R805m of bonds is expected to be listed on the Bond Exchange South Africa before the end of November.
He adds that the trust, which was registered for holding properties in order to facilitate Growthpoint’s securitisation programme, currently owns 23 properties valued at R842m.
Sasse pointed out that the benefits of the securitisation programme do not stop at lower borrowing costs. It should facilitate future property purchases and enable more generous distributions to Growthpoint unit holders. It also diversified the group’s borrowers.
“Interest rate savings will flow straight to the group’s unitholders.”
“The Trust also provides Growthpoint with transparency for tax purposes, as all amounts accruing to the trust are deemed to accrue to Growthpoint as the sole vested income and capital beneficiary,” said Sasse.
“Simultaneously the properties held by the Trust are ring-fenced and shielded from any Growthpoint insolvency, which is a necessary requirement for successful securitisation.”
Sasse disclosed that Investec Treasury and Specialised Finance was the lead arranger and manager for Growthpoint’s securitisation programme.