Fund manager drums up Balwin shareholders to reject BEE deal

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Balwin Properties' Greenpark development.
Balwin Properties' Greenpark development.
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  • Fund manager and Balwin shareholder Rudi van Niekerk has penned an open letter asking other shareholders to vote against a proposed BEE transaction.
  • Balwin wants to establish a BEE special purpose vehicle (SPV) with Vaal River City developer and architect Reggie Kukama.
  • Van Niekerk says it would be bad for minority shareholders.

 

Outspoken fund manager and a shareholder at Balwin Properties, Rudi van Niekerk, is building a campaign to block the property developer's proposed black economic empowerment (BEE) deal.

Van Niekerk, a founder and manager of an investment firm, Desert Lion Capital, penned an open letter to other shareholders, asking them to vote against Balwin's transaction agreement with Vaal River City developer and architect Reggie Kukama.

In May, Balwin announced that it had concluded an agreement with Kukama, which would see the two companies establish a BEE special purpose vehicle (SPV), Tatovect Proprietary Limited. The SPV is set to become a 10% shareholder in Balwin if shareholders vote for the deal. When it announced the agreement, Balwin said it wanted to increase black participation within the group.

But the BEE SPV would get its stake at a 20% discount to Balwin's share price in May. And most of the purchase price would be vendor financed by Balwin. Shareholders are supposed to vote on the issue on 6 September, and Balwin needs 75% of those who vote to be in its corner for the transaction to go through.

Van Niekerk said the transaction would be detrimental to Balwin's current shareholders. He said he had numerous interactions with other Balwin shareholders who share the same concerns since the arrangement means they will be financing the BEE SPV, which is not even paying the market price of Balwin shares. But he was also not happy that 10% of dividends that existing shareholders used to get will now go to someone else.

"We are not opposed to transformation or black empowerment. We are opposed to the transactions which are value destructive and constitute bad capital allocation decisions," he wrote in the open letter.

Furthermore, Van Niekerk believed that the deal would create "a close-knit network of insider shareholders" because Balwin's directors and prescribed officers already own a 49.2% stake in the company. With the SPV holding another 10%, Van Niekerk said he was worried that it would vote with Balwin directors to approve transactions of similar nature that would further dilute the value of minority shareholders' shares.

"It is critical that minority shareholders prevent a potential downward spiral of decreasing influence, further value dilution and bad capital allocation by voting against the transaction at the upcoming general meeting," wrote Van Niekerk.

Balwin founder and CEO Steve Brookes said he was aware of Van Niekerk's open letter, and the company had engaged with him previously on his concerns."The board has and still believes that transformation is an important imperative," said Brookes.

When Balwin it announced the BEE SPV, it spoke highly of Kukama.

It pointed out that due to the success of his previous property ventures and extensive experience in areas like greenfields developments and development of education centres, student accommodation and hospitals, other big names also collaborated with him. These included the Waterfall Investment Company, which worked with him to originate certain developments at Waterfall City.

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