ZIMBALI CAPITAL SECTION 12J VCC PRIVATE PLACEMENT MEMORANDUM (PPM) Date of issue: 1 December 2018
REVISION 1 www.zimbalicapital.co.za
TERM
DEFINITION
Applicant
An individual, trust, company or other legal entity who/which applies to Zimbali Capital to subscribe for Shares in respect of this Private Placement/Offer
Board
The board of directors of the Company from time to time, which, as at the Offer Opening Date, comprises of the persons identified in section 14 of this PPM
Class Share Portfolio
Investments made by the Company using proceeds received from the Shareholder/s of that Class of Shares
Class Shares
Shares of no par value, defined in the Company’s MOI, which are ring fenced to a particular Share Portfolio of investments, the associated rights of which are briefly summarised in section 9.5 of this PPM. This specifically excludes the F Shares
Client Agreement
The client agreement which forms part of the Client Pack
Client Pack
The pack provided to an Investor which contains all the documents the Investor needs to complete and sign in order to subscribe for Shares in the Company, namely the Client Agreement, Disclosure Notice and Subscription Form
Director
A member of the Board who assumes the shared responsibility of the board to manage Zimbali Capital. Collectively known as Directors
Disclosure Notice
The disclosure notice which forms part of the Client Pack
Emboss Properties
Emboss Properties (Pty) Ltd (registration number 1997/011871/07) (see section 6.4 for further information)
F Shares
Shares of no par value, defined in the Company’s MOI as “F” Shares, the associated rights of which are summarised in section 9.5 of this PPM. These Shares are issued to the Fund Manager for the services provided by the Fund Manager
FAIS Act
Financial Advisory and Intermediary Services Act
FIM
Final Investment Memorandum
FSCA
Financial Services Conduct Authority
FSP
Financial Services Provider as defined in the FAIS Act
Fund Manager
Beachwood Capital (Pty) Ltd, (registration number 2018/012472/07, a joint venture between Jaltech, Zimbali, Zimbali Partners and a private company incorporated under the laws of South Africa (see section 6.4 for further information)
TERM
DEFINITION
Fund Manager Fee
An annual fee of 2% (two percent) (excluding VAT) based on the NAV of Zimbali Capital’s Share Portfolios. This is a fee levied by the Fund Manager to each Share Portfolio based on that Share Portfolio’s NAV
Governing Documents
The constitutional documents of the Company, which includes but is not limited to Zimbali Capital’s MOI
Gross Capital
The total consideration paid by Shareholders of a particular share class to purchase the issued Class Shares from Zimbali Capital
Hotel Operator
Zimbali Asset Management (Pty) Ltd (registration number 2018/561754/07) a private company incorporated under the laws of South Africa (see section 6.4 for further information)
IFA
IFA Hotel & Resorts Limited (registration number 1919/001318/06) being a subsidiary of IFA Hotel & Resorts KPSC which is listed on the Kuwait stock exchange (see section 6.4 for further information)
Investment Mandate
The general investment strategy and philosophy of Zimbali Capital as described in section 7 of this PPM
Investor
An individual, trust, company or other legal entity who/which subscribes for VCC Shares in the Company
Jaltech
Jaltech Structuring (Pty) Ltd (registration number: 2017/142518/07), a private company incorporated under the laws of South Africa (see section 6.4 for further information)
IRR
Internal Rate of Return
ITA
Income Tax Act
La Rez Investments
La Rez Investments (Pty) Ltd (registration number 1999/018725/07), a private company incorporated under the laws of South Africa (see section 6.4 for further information)
Material Contracts
The contracts listed in section 12 that govern the relationships between/amongst the various stakeholders and are deemed to be of significance to an Investor
MOI
Memorandum of Incorporation
NAV
Net Asset Value
Offer Close Date/Close Date
The closing time and date of the Offer expected to be 25 February 2019 which may be amended by the Company by way of an announcement released on its website
Offer Opening Date/ Opening Date
The opening time and date of the Offer expected to be 1 December 2018 which may be amended by the Company by way of an announcement released on its website
TERM
DEFINITION
Opportunity LINKED
The opportunity described in detail in section 8.1 of this PPM which is linked to the A, B, C, D and E Shares under this Private Placement/Offer.
Opportunity DIVERSIFIED
The opportunity described in detail in section 8.2 of this PPM which is linked to the G Shares under this Private Placement/Offer.
Opportunity EQUITY
The opportunity, which will be launched at a later stage, is described briefly in Section 6.6 of this document.
Performance Fee
A fee that is 20% of the distributions to Investors, which are in excess of the Investors’ Gross Capital invested. This distribution is provided to the Fund Manager through the rights associated with the F Shares. This is not applicable to the LINKED Opportunity.
PIM
Preliminary Investment Memorandum
Private Placement/Offer
This private offer to a selected number of private investors to subscribe for Shares in the Company, the details of which are described more comprehensively in section 9 of this document
PPM
Private Placement Memorandum
Qualifying Company/ Investment
A company satisfying the conditions of a qualifying company as defined in Section 12J of the ITA
Qualifying Shares
An equity share issued to the Company by a Qualifying Company
Risk Capital
The Gross Capital reduced by the tax benefit (in accordance with Section 12J of the ITA) received by Investors. The following tax brackets are assumed: • For individuals and trusts the maximum of 45% • For companies 28%
Rykdom
Rykdom 278 Portion 1 (Pty) Ltd (Registration number: 2018/211171/07), a private company incorporated under the laws of South Africa (see section 6.4 for further information)
SARS
South African Revenue Service
Share
A Share of no par value in the Share Capital of the Company as defined in the Company's MOI
Share Capital
Capital of the Company that is derived from the issue of Shares
Shareholder
The holder/owner of Shares in the Company
Subscription Form
The subscription form which forms part of the Client Pack
Venture Capital Company/VCC
A company that has been approved by the Commissioner in terms of subsection (5) of Section 12J of the ITA and in respect of which such approval has not been withdrawn in terms of subsection (6) or (6A) of Section 12J of the ITA
TERM
DEFINITION
Zimbali
Zimbali Hotels and Resorts South Africa (Pty) Ltd (Registration number: 2003/023856/07), a private company incorporated under the laws of South Africa (see section 6.4 for further information)
Zimbali Capital/the Company
Zimbali Capital (Pty) Ltd (registration number 2018/028396/07), a Venture Capital Company (VCC-0124), a registered (FSP 49374) and a private company incorporated under the laws of South Africa
Zimbali Partners
Collectively refers to: Zimbali Rykdom Emboss Properties La Rez Investments And any other partners which Zimbali becomes affiliated with from time to time. (see section 6.4 for further information)
DIRECTOR
DESCRIPTION OF INTEREST
Werner Burger
Werner is the CEO of IFA and has interests in Rykdom, La Rez Investments and Emboss Properties. These parties will provide the pipeline of opportunities in which Zimbali Capital will invest.
Jonathan Maehler
Director of Legends Golf and Safari Resort
Andrew Rogers
n/a
Deon Viljoen
Trustee of Zimbali Vacation Club
Jonty Sacks
Jonty is a director of Jaltech (Pty) Ltd, the holding company of Jaltech.
Offer Opening Date
1 December 2018
Offer Close Date
25 February 2019 (subject to section 17)
Applicants to be notified of success/failure
2 weeks after the Offer Close Date
Posting of Share and tax certificates and refunds
6 weeks after the Offer Close Date
Purpose of the Private Placement
Zimbali Capital initially intends to raise approximately R725 million to pursue the highly attractive investment opportunities, to which it is uniquely exposed and to enable Investors to participate in these investment opportunities.
Expected number, type and subscription prices of Shares to be issued to Investors under this Private Placement
- LINKED Opportunity (see section 8.1) • 45 “A’’ Shares at an issue price of R1 000 000 per A Share in terms of a Private Placement. • 41 “B’’ Shares at an issue price of R1 110 000 per B Share in terms of a Private Placement. • 36 “C’’ Shares at an issue price of R1 250 000 per C Share in terms of a Private Placement. • 31 “D’’ Shares at an issue price of R1 425 000 per D Share in terms of a Private Placement. • 27 “E’’ Shares at an issue price of R1 665 000 per E Share in terms of a Private Placement. - DIVERSIFIED Opportunity (see section 8.2) • 5 000 “G’’ Shares at an issue price of R100 000 per G Share in terms of a Private Placement.
Allotment of funds and minimum investment per Investor
The basis of allotment if a surplus of funds are raised will remain within the discretion of the Directors of Zimbali Capital. The minimum investment per an Investor is R1 000 000 (one million South African Rands)
Qualifying Company/ Investment
A company satisfying the conditions of a qualifying company as defined in Section 12J of the ITA
Operating history
Zimbali Capital is a new Section 12J VCC, it has not previously operated and has no operating history.
The Fund Manager
Beachwood Capital (Pty) Ltd (Registration number: 2018/012472/07), a joint venture between Zimbali, Jaltech and Zimbali Partners.
Outsourced administrative functions
The Fund Manager outsources certain administrative functions to Jaltech (see section 12 for Material Contracts)
Other key stakeholders and technical partners
- Zimbali - Jaltech - IFA and Zimbali Partners (providers of pipeline of opportunities on an exclusive basis) - Zimbali Asset Management (together with well- known/international hotel operators) as Hotel Operator and asset manager of the properties held by Zimbali Capital’s investments.
Fees
The fees charged by the Fund Manager to Zimbali Capital are as follows: - Fund Manager Fee of 2% per annum (paid quarterly) based on the NAV of Zimbali Capital’s total Class Share Portfolio. This is a fee levied by the Fund Manager to Zimbali Capital. - 20% Performance Fee (not applicable to the LINKED Opportunity), which is 20% of the distributions to Investors that are in excess of the Investors’ Gross Capital invested. This distribution is provided to the Fund Manager through the rights associated with the F Shares (refer to section 9.5 for more information on the rights attaching to the various shares).
Shareholder reports frequency
Quarterly
15
Other technical partners/stakeholders:
DESCRIPTION
INDIVIDUALS/TRUSTS
CORPORATES
Initial investment (Gross Capital)
R1 000 000
R1 000 000
Tax relief (in the tax year of initial investment)
(R450 000)2
(R280 000)
Net investment (Risk Capital)
R550 000
R720 000
19
Legends Golf & Safari Resort
GATED RESIDENTIAL ESTATES - Vergezicht Estate, Somerset West, South Africa - Olijvenhof Estate, Somerset West, South Africa - Liberte, Stellenbosch, South Africa - Kleine Parys Estate, Paarl, South Africa
RETIREMENT VILLAGE
MIXED USE, STUDENT HOUSING AND HOSPITALITY
La Clemence, Stellenbosch, South Africa
- La Rez, Stellenbosch, South Africa - Dempsey, Stellenbosch, South Africa - Habitat Center @ the Mall, Somerset West, South Africa - De Zalze Lodge, Stellenbosch, South Africa
LINKED OPPORTUNITY Hotels – 70% - 100% ASSET ALLOCATION
Student accommodation – 0% - 30%
DIVERSIFIED OPPORTUNITY Hotels Student accommodation Non-Qualifying Investments Cash/short term Operating assets Assets in development
50% - 80% 0% - 30% 0% - 15% 0% - 100% 50%-80% 0% - 50%
INVESTABLE ASSETS
Mixture of the following developments (or similar): - Boulevard PAD - Boulevard Hotel - Ocean Club - Fairmont Zimbali Resort - Legend Golf & Safari Resort - De Zalze Lodge - La Rez student accommodation
MIN IRR TARGET
15% p.a. (with no leverage)
18% p.a. (with no leverage)
DEPLOYMENT OF FUNDS
Within 3 months of raising capital
Within 12 months of raising capital (average of 6 months)
LEVERAGE
Up to 50% leverage may be utilised within investments
Up to 50% leverage may be utilised within investments
EXIT
Investees will be required to have pre-determined exit mechanisms for the units/ assets which they operate, ensuring a smooth exit for Investors after the investment term
Hospitality assets, which include student accommodation, in highly desirable locations. Buy operating investments/assets at a minimum yield of 5%
5 - 7 years and the majority of assets/ investments selected should be flexible enough to be disposed as a whole or via specific sections/units which simplifies Zimbali Capital’s ability to exit 50% of the investment to have a pre-determined exit mechanism/strategy. This will include prearranged sale strategies with Zimbali, IFA and Zimbali Partners (amongst others)
Offer Opening Date
1 December 2018
Offer Close Date
25 February 2019 (subject to section 17)
Applicants to be notified of success/failure
2 weeks after the Offer Close Date
Posting of Share and tax certificates and refunds
6 weeks after the Offer Close Date
RISK
Zimbali Capital does not achieve expected return for Investors either due to: • lower than expected operating returns from investments; or • lower than expected capital growth from investments or even capital loss
MITIGATION • Upfront Section 12J tax deduction immediately increases the returns to Investors and de-risks their capital exposure by up to 45% • There is a strong pipeline of quality assets for the DIVERSIFIED opportunity • For the LINKED opportunity assets are known upfront • Fund Manager and management team have extensive experience in the hospitality & property sector in South Africa • Investments are backed by property assets which will reduce the potential for capital loss • Experienced Hotel Operator and asset manager who will outsource certain operations to well-known/international hotel operator • In depth due-diligence and investment process
Zimbali Capital Class Shares are illiquid and Investors should expect to be invested for at least 5 years
• This is a risk prior to the minimum investment period of 5 years • After the 5-year period, the nature of Zimbali Capital’s investments reduces this risk • Exit mechanisms and strategies required by Zimbali Capital’s investments before investing • Investment Mandate requires a portion or all (depending on the Opportunity) of Zimbali Capital’s investments to have pre determined exits
Reduced demand in the hospitality sector
• Tourism industry in South Africa has proven to be resilient in the face of economic and political uncertainty • Tourism is expected to grow steadily and ahead of GDP in South Africa in the coming years • Quality assets in Zimbali Capital’s pipeline help to reduce this risk
Low deployment of capital. A risk facing many Venture Capital Companies and private equity companies is the low deployment of capital leading to the capital remaining in low yielding assets such as cash
Zimbali Capital has a strong pipeline of investments which is in excess of the targeted capital to be raised. This significantly reduces this risk
Zimbali Capital will invest in high-value quality property assets. Loss of property due to fire, natural disasters and general damage will result in a loss in revenue and/or capital which could have a severe impact on the Zimbali Capital’s performance
• Within investments implement internationally recognised measures to prevent and minimise the damage. This includes all necessary firefighting equipment and training employees • Investments of Zimbali Capital will be required to maintain minimum levels of insurance for this risk and business interruption insurance
RISK
MITIGATION
The Company’s targeted return is based on several assumptions. There is no guarantee that actual experience will be the same as assumed experience
The targeted return is based on conservative assumptions for the cost structure, revenue and capital appreciation, actual experience may be better than expected. In addition, the Section 12J deduction will provide a buffer increasing the Company’s chances of meeting its target
Therefore, Investor returns may be lower than expected. Major assumptions affecting the targeted return include: • cost structure; • capital appreciation; • inflation; and • availability of suitable investments and the duration between raising capital and deploying money into suitable investments
However, to mitigate against inflation and the availability of suitable investments: • Zimbali Capital will increase accommodation rates in line with inflation, where possible; and • the Company has secured exclusive rights to an extensive pipeline of developments. The Company will also create and maintain a pipeline of opportunities for future investments • Zimbali Capital will also ensure that it has an extensive pipeline prior to any capital raising activities. The Company has also secured performance standards and operating procedures from hotel operators to provide an additional layer of protection against low returns
Due to Socio-economic volatility interest rates and inflation may increase
Hospitality revenue and assets are generally expected to grow in line with inflation
The Company is incorporated as a VCC under Section 12J of the ITA. The VCC regime is subject to a sunset clause terminating on 30 June 2021. It is reasonable to assume that SARS will review the efficiency of the regime and a decision will then be made as to whether it should be extended. To the extent that it is not extended, the Zimbali Capital may no longer be able to raise capital post this date under the current Section 12J regime Furthermore, other changes to the ITA may also adversely affect the Company
The Fund Manager continues to keep up to date with the latest changes to the Section 12J legislation
087 095 2742 | HELLO@MYZIMBALI.CO.ZA