Clover plans to build, Nampak sells sites

IT IS just over a year since Clover tabled plans to build Africa’s first industrial park. The factory, which will be located in Estcourt, KwaZulu-Natal, will export milk by-products such as whey to the pharmaceutical and baby-food industries.

Municipal officials in Estcourt have been gracious enough to donate Clover the land on which the mega-factory will be built, says CEO Johann Vorster.

Plans are at an advanced stage, he says. But the main challenge of finding a partner for the park still remains. Vorster claims negotiations with the potential partner or partners are going well, but is tightlipped about which industry they operate in.

He only discloses that his ally must come with equity. The equity requisite is not surprising, given that the estimated cost of building the factory has shot up drastically in the past year.

When Clover first announced the mega-plant, costs were pegged at about R800m.

It is now estimated to cost R1.5bn, Vorster says, mainly because of the volatility of the rand. With more rand volatility expected for the foreseeable future, Clover’s construction bill looks set to creep up even higher.

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AMPAK has concluded the sale and leaseback of 15 properties for a purchase price of R1.7bn. It will lease the properties for 15 years, with an option to renew the leases for 10 years. There is an option to repurchase the properties at marketrelated prices at the end of the initial or extended lease periods.

It says the rentals payable are equal to the current rental paid by Nampak’s divisions to Nampak’s property division, and that the transaction will deleverage its balance sheet.

But a Business Day reader seemingly familiar with accounting principles thinks it “somewhat strange” if degearing Nampak’s balance sheet is the primary objective of this transaction. He reckons it will be interesting to confirm that the net present value of Nampak after “all taxes and so on” is indeed enhanced, and would like to see such calculations.

It seems IFRS 16 — put out by the International Accounting Standards Board to provide guidance on accounting for leases — will require the capitalisation of all leases. This means the balance sheet will effectively reinstate the asset on the same valuation as is now applied, and will capitalise the lease liability and reflect it as a noncurrent liability — apart from lease payments due within the next 12 months.

The reader well-versed in accounting is “fairly confident” that the effective cost after “all fees and so on” are taken into consideration will be higher than the interest costs payable on a loan of R1.7bn. Nick Wilson edits Company Comment (wilsonn@bdfm.co.za)

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