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The Public Investment Corporation (PIC) plans to launch a mass campaign to value its expansive property portfolio, which stretches across South Africa, the rest of Africa and Europe — fresh from a bruising valuation scandal of Lanseria International Airport, which cost it R430m in dubious circumstances.
The asset manager, under the leadership of Patrick Dlamini, has issued a tender seeking experts to value properties directly under its custody for five years, starting with the financial year ending in March.
Among the requirements, the interested valuers should have a professional designation with the South African Council for the Property Valuers Profession (SACPVP), while valuations of properties located outside South Africa will be undertaken in line with “local legislation and/or recognised standards”.
The tender document indicates that the property under the PIC’s management covers a lettable area of about 4.3-million square metres, ranging from commercial office properties, retail properties and industrial properties to undeveloped land.
“The purpose of this tender is to appoint service providers with the professional capability and independence to perform property valuations across designated asset classes for purposes that may include acquisition, disposal, financial reporting, investment, impairment testing, lease transactions, mortgage/security purposes, litigation support, expropriation support, portfolio reviews and any other lawful valuation purpose required by the institution,” the tender document reads.
“In undertaking the full motivated valuations report, site inspections will be required to be carried out, and service providers are required to prepare a detailed valuation report of each property, including an estimated replacement cost, as well as an executive summary of the portfolio of properties being valued by the service provider.”
One of the mandates given to Dlamini when he took office just more than a year ago was to clean up the PIC’s unlisted portfolio, which has courted controversy. The property portfolio is a large chunk of the unlisted portfolio.
The PIC’s property investments span a wide range of activities, from large-scale commercial developments to affordable housing, inner-city regeneration and support for emerging and black property developers.
The importance of having valuation experts on speed dial was illustrated in the R430m settlement the PIC entered into with an outfit called Acapulco after a valuation dispute of the latter’s 25% stake in Lanseria.
A PwC report, commissioned by Dlamini into the transaction, found several flaws. One of the first flaws was the PIC agreed to terminate the mandate of accounting firm BDO, which found Acapulco’s stake to be worth about R330m, much less than the R600m Acapulco owed the PIC at that stage.
Acapulco came to owe the PIC money after the PIC, in 2013, lent the company R300m to buy a quarter of the airport — a loan Acapulco failed to repay within the agreed 10 years, resulting in much interest accruing.
The second flaw was roping in the services of accounting firm Crowe, introduced to the PIC by Acapulco, to put a price on the stake. Crowe arrived at a valuation of R400m, which the PIC rejected.
Despite the rejection of Crowe’s valuation, the PwC report found the PIC put forward a weak case when the dispute went into arbitration, in which the arbitrators awarded Acapulco R411m, essentially the difference between what it owed the PIC and the R1bn at which Crowe valued the stake.
PwC found Crowe had double-counted Lanseria’s assets to arrive at the valuation.
To get a better grasp of the portfolio, the PIC last year launched a review of its corporate structure, culminating in the decision to break the chief investment role into three roles, responsible for the listed portfolio, unlisted portfolio and property.
The review considered that one chief investment officer position responsible for several investment teams across different asset classes, while the combined assets the PIC manages on behalf of clients now exceed R3.5-trillion, had reached its sell-by date.
The thinking behind three CIOs is that different asset classes have different products, systems, processes, mandates and risk profiles.
Business Day reported in March that the PIC had gone to market looking to put together a panel of turnaround experts to look into its unlisted portfolio and identify reasons behind poor-performing investments and institute corrective measures, which might include restructuring plans.
Business Day
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