Business Day

Clover plans to build, Nam­pak sells sites

- Business · Estcourt · International Accounting Standards Board · Accounting Standards Board

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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