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STATE PROPERTY CONSOLIDATION STRATEGY & UPDATE

STATE PROPERTY CONSOLIDATION STRATEGY & UPDATE. BACKGROUND. 2000 Introduction of Policy Framework to accelerate restructuring of S.O.E The Policy Framework contained the following statement w.r.t properties of S.O.E’s

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STATE PROPERTY CONSOLIDATION STRATEGY & UPDATE

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  1. STATE PROPERTY CONSOLIDATION STRATEGY & UPDATE

  2. BACKGROUND • 2000 Introduction of Policy Framework to accelerate restructuring of S.O.E • The Policy Framework contained the following statement w.r.t properties of S.O.E’s • “S.O.E Property Portfolio: The property Portfolio of DENEL, ESKOM, PROPNET are being studied with a view to identify restructuring options”

  3. INFORMATION ABOUT PROPERTY PORTFOLIO OF S.O.E Telkom ± R4 billion Eskom ± R1 billion Denel ± R750m Commercial – more than a billion factories SAPOS ± R750m Transnet ± R7 billion total (non specialized or commercial ± R2 billion Propnet ± R600m)

  4. An estimated value of potential properties that may be included is ±R6.5 billion • Note in all of the above the state is a 100% Shareholder excluding Denel if the property were included in the sale of Denel

  5. SHAREHOLDER’S INTENT WITH PROPERTY PORTFOLIO IN S.O.E • The shareholder’s intent seems to be clear • The shareholder’s action seems to be coordinated or aimed at achieving the intended objectives/goals • The Shareholder has publicly declared and promoted his intention or end state of the property portfolio of S.O.E except that “The property portfolio of Denel, Eskom and Propnet are being studied with a view to identify restructuring options”

  6. SHAREHOLDER OBJECTIVES (as outlined by S.M & A.P) The restructuring exercise is meant to achieve the following:- • Realise value and optimize return from the S.O.E’s property portfolio. • Achieve business efficiency and effectiveness by • - Eliminating duplication • - Take advantage of economies of scale and required mass for listing etc. •   - Eliminating undesired subsidies through properties • - Creating a property focus entity • Rejuvenating the inner city

  7. Address distortion and broaden BEE participation in both commercial property ownership and skills development • Encourage the S.O.E’s to forecast and accelerate in their core business • To create a State Property entity that provides business accommodation solution yet supporting the social objective of government

  8. STRATEGIES TO ACHIEVE SHAREHOLDERS OBJECTIVES • The Entity can evolve by merger of the portfolio and S.O.E become shareholders based on value of properties owned • Shareholder establishes the entity and injects capital to acquire properties from participating entities. (Acquisition can also happen outside S.O.E’s Properties) • The entity can also obtain funding from the market on the strength of the cash flow from the leases

  9. FUNCTION OF THE PROPERTY ENTITY • Provision of Property Business accommodation solution to the state organs and private sector • Property holding and Asset Management • Facilities and Property Management • To provide social objective services • Housing infrastructure • Technical expertise • Provide management & technical services to government reasonably

  10. SHAREHOLDER OBJECTIVES THROUGH GOVERNMENT BENEFITS • COMMERCIAL BENEFITS • Generate Revenue • Saving government resources • Provide quality services on time • Provide Private sector services • POLITICAL/SOCIAL • Proper coordination with all stakeholders ( 3 Tiers of Government, S.O.E’s & Private Sector) • Contribution to social development • Community development support and initiatives • Efficient utilization of Property Assets • Providing conducive environment for residential communities (issues of Safety)

  11. KEY ISSUES FOR CONSIDERATION • Guard against tendency to saddle the property entity with non performing assets • All properties excluding specialized properties should be included – commercial property • Specialised property like armament & electricity generating property should be excluded • SARCC properties should be included

  12. SENSITIVE ISSUES FOR CONSIDERATION

  13. The ownership of land and fixed property by South African BEE entities will be an elusive dream • Poverty will increase as land forms part of a basis for wealth creation • Leverage property for wealth creation will disappear completely

  14. WAY FORWARD • Detail study to be sanctioned, managed by shareholder needs to be undertaken • Promotion of the consolidation or formation of the state property entity must be driven by shareholder with specific time frame • A clear directive from the shareholder must be issued for alignment. • Direct involvement, participation by S.O.E’s and their buy-in must be sort by shareholder • Is this a dream or a nightmare? • NOTE A POLITICAL WILL SEEMS TO BE STRONG

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