The “TIPping” point for economic transformation
Formation of a new asset class – a listed portfolio of BEE schemes
Unique financial structure – majority black-owned at all times
Unlocking black capital – promoting greater financial inclusion
With an ANC 2019 election manifesto that reaffirmed its commitment to raising industrial and enterprise financing for black industrialists alongside ongoing government support for the Black Industrialists Fund, a theme of Cyril Ramaphosa’s presidency is evident.
The Department of Trade and Industry is also ramping up efforts to develop black entrepreneurs and build its black industrialist incentive programme. But, as Ramaphosa noted in his 2018 State of the Nation Address, “It is our shared responsibility to grow this vital sector of the economy.”
In other words, business and private individuals need to step up and find ways to support economic transformation. Developing an inclusive economy in South Africa will lead to a reduction in inequality and generate investment, economic growth and stability.
It is thus timely that the Transformational Investment Portfolio One (TIP One), an empowerment investment holding company that aims to proactively transform South African capital markets, is coming to market.
“TIP One will play a critical role in democratizing and transforming capital markets in South Africa,” says Dr Gil Mahlati, Chairman and founder of the African Financial Group, the firm that developed and is promoting TIP One’s listing on the ZAR X stock exchange.
“South Africa is faced with severe challenges – from unemployment and poverty to inequality and low growth – which need to be urgently addressed. By creating a more inclusive economy and unlocking existing black-owned capital, we will be able to move towards overcoming them,” says Mahlati.
It is estimated that black investors own R400bn of equities on the JSE via various BEE schemes. However, these investors typically face three key challenges, namely: long-term lock ins with little or no liquidity; no diversification in that there is only one underlying asset in the scheme; and the inability to borrow against this asset. For all intents and purposes, this asset is “sterilized” on the owner’s balance sheet – and from the county’s economy for that matter – until the scheme matures.
By buying out investors in selected BEE schemes, TIP One will unlock this trapped value in the economy. “We believe that the impact this can have on the economy, as well as for these patient participants, many of whom have been waiting many many years, can be significant,” notes Dr Mahlati.
Given that these assets are typically valued at significant discounts to the underlying listed share that they own, TIP One will build a portfolio of assets that also enjoy very attractive returns above that of the underlying listed companies, as the underlying schemes mature. “In essence, even if equity markets continue to remain flat into the future, the added return of the BEE discounts closing out will boost the return of TIP One above that of the market,” explains Geoff Blount, TIP One’s CEO.
TIP One is currently open for applications for a private placement that will close on 1 November, and the share will then start trading on 13 November.
“As TIP One has a unique company structure, we have opted for a ZAR X listing,” notes Lemao Ditodi, TIP One Financial Director. “TIP One’s unique trading rules, in conjunction with the exchange’s pre-trade compliance systems, will ensure that TIP One is always majority black owned and controlled. Trades cannot be executed in the market that will breach our trading rules. In this way, we can always guarantee the company’s black credentials.”
Given that TIP One is not an operating company, it is possible to keep costs to a minimum while at the same time building a diversified basket of investments across all market segments.
TIP One further offers a mechanism for existing holders of B-BBEE-scheme shares in listed companies to sell their investment to TIP One, in exchange for shares in TIP One. In this way, investors in BEE schemes can diversify their portfolio rather than be invested in a single stock, as well as own a liquid tradeable asset. TIP One would take over all the rights and obligations that the original investor had with the scheme.
“We aim to act as a strategic investor into BBBEE schemes, but not lock in our underlying investors, as per typical current B-BBEE structures. We also provide our shareholders with exposure to an attractive, diversified pool of listed assets, managed at a low cost, by an experienced team,” explains Ditodi.
“In addition, TIP One investors will enjoy attractive market-like returns, boosted by closing BEE schemes discounts. We aim to attract individuals, community groups, stokvels, pension funds, union funds and other institutional investors into TIP One.”
There is no lock-in for investors. As a listed company, TIP One investors are free to trade their shares on the market. TIP One will therefore provide investors with the liquidity of a listed share, and the advantages of a diversified, professionally-managed asset base.
For the underlying company or BEE scheme, the advantage of the arrangement would be to obtain a significant long-term strategic investment partner with BEE credentials that will never falter. It should be noted, though, that only those companies which merit inclusion in the TIP One portfolio would be considered for this.
“We aim to embed the ethos of transformation and inclusive growth into how everyone from small retail savers through to institutional investors approach their savings, and impact how consultants, financial planners, advisors and other industry role-players include transformation in their approach. It is critical for the country to create more inclusive capital markets,” says Mahlati.
To get in on the action, head to www.tiponesa.com where you will find a prospectus and more information on the private placement.
This article does not take into account the needs or circumstances of any person nor constitute advice of any kind. It is not an offer to sell or an invitation to invest. African Financial Group does not accept any liability whatsoever for any loss arising from reliance on this article.
For more information: www.tiponesa.com