e-spaces

By Tom Robbins

Cape Town – Shoprite could list a pan-African property fund to raise capital for expansion in oil-rich Nigeria, where a shortage of retail properties was holding back store openings, analysts said last week.

The supermarket group has been compelled to invest in its own malls north of South Africa, including two in Angola, another country riding the resources wave, at a cost of R130 million.

But the cost of developing properties will hold back expansion plans, particularly in Nigeria, which has a population of about 148 million and is considered to be the firm’s greatest growth opportunity.

The group already has experience managing a property portfolio with a market value of R3.5 billion in June last year.

Shoprite’s share of that was worth R1 billion, ahead of planned property expenditure of R600 million.

Chief executive Whitey Basson said last week that financial 2008 sales growth of 38.1 percent to R5.49 billion outside South Africa would be maintained if expansion plans were brought to fruition.

Basson lamented local property institutions’ reluctance to develop retail properties in Nigeria, even after the company more than doubled profits on the rest of the continent.

Evan Walker, an RMB Asset Management retail analyst, said management had alluded to a decision it had to make about changes to its capital structure.

“My sense is this will be about property,” Walker said. “In my opinion they should pursue listing a property fund in Nigeria, putting their African property assets in and then raising capital from investors.”

Investors, reluctant to take the risk of putting funds into greenfield properties, would have the comfort of earning rentals from existing properties, including from other tenants.

Bloomberg has reported that the company might consider forming a separate property investment firm that would build and manage its retail sites in Nigeria and other countries.

Walker said the fund could raise more capital over time by issuing new shares. Shoprite could retain a 50 percent stake, and once the ball was rolling, cut this to focus on core supermarket business.

He said even South African properties could be put into the fund, which could have a joint listing in South Africa.

Shoprite had already co-operated with Massmart to open stores in Africa. Walker said it had been opening about five stores a year on the continent. With the fund, this could be accelerated to 10.

The share price lost 1.28 percent to R47.60, while the food and drug retailers sector gained 0.14 percent.