Barloworld’s Khula Sizwe BEE scheme oversubscribed

Barloworld has raised R164m for its Khula Sizwe empowerment transaction after the BEE scheme’s public offer to black investors was oversubscribed, the industrial conglomerate says.

The R3.5bn Khula Sizwe BEE transaction will increase black ownership of the maker of Caterpillar’s construction machinery to 48% from 32%.

In terms of the deal, Barloworld will sell its R2.86bn property portfolio to a new company, Khula Sizwe Property Holdings. 

Eligible Barloworld employees, management and the black public will own Khula Sizwe, which has been established for the purposes of the scheme.

The scheme, launched in April, made provision for black individuals and black entities to apply for 16.34-million Khula Sizwe shares, at R10 per share. According to the company, the shares have a net asset value of R12.41 per share.

The public offer, which closed on May 31, will give black investors a 30% interest in Khula Sizwe. Barloworld said on Wednesday it had received more than 50,000 applications.

Money from the public offer will partly fund the acquisitions of the property portfolio, which comprises motor retail, industrial, industrial and residential properties. A total R207m and R174m will be raised from the management trust and the employees’ trust, respectively. Furthermore, R2.2bn of the funding is a loan from Nedbank.

Barloworld said Khula Sizwe would have guaranteed rental income and predictable cash flows for at least 10 years because the industrial company would continue operating its business from the properties.

The company will sell the properties — valued at R2.86bn — to Khula Sizwe at a 5% discount. The properties will be leased to Barloworld for 10 years, with the rentals paid by the company escalating at 8% per annum.

“Our vision for this transaction was to create a truly unique, property-based B-BBEE share scheme that is not related to the Barloworld share price, and which will be a long-term investment for shareholders that provides steady and predictable cash flows over 10 years,”  Barloworld spokesperson Tantaswa Fubu said.

Fubu, who is also group executive for human capital, internal audit and transformation, said shareholders should hold their shares beyond the five-year minimum lock-in period to truly benefit from owning shares in a property portfolio and to benefit from the steady growth in the investment.

The empowerment scheme has a 15-year investment horizon and shareholders will not be able to sell their shares in the first five years. The Khula Sizwe shares might be listed on a stock exchange to facilitate trading between black investors after the five-year lock-in period.

The scheme is a departure from BEE schemes which are underpinned by share price movements.

Barloworld shares were up 0.58% to R133.18 on Wednesday.