South Africa’s first preference shares with an infrastructure focus were listed on October 22 on 4 Africa Exchange (4AX), Gaia Fund Managers and Kruger International Asset and Wealth Management confirmed.
Gaia, together with Kruger, is listing Gaia Fund 1 (the Fund), which complies with Collective Investment Scheme regulations. The Fund’s A preference shares will trade under the ticker 4AGF1A on 4AX.
The preference shares will be bought by Kruger’s various funds, the proceeds of which will be used by the company to buy a 16% indirect shareholding in the Tsitsikamma Community Wind Farm.
As a listed entity, the Fund will enable collective investment scheme portfolios to increase their allocation to infrastructure from an unlisted instrument threshold of 5% to 10%, yet retain the benefits of being unlisted through price stability.
Gaia and Kruger state that the ability to do this will open a unique market opportunity for future collective investment scheme-compliant portfolios to invest in 4AX-listed infrastructure projects through new issuances of preference shares in the Gaia Fund 1.
Gaia Fund 1’s A preference shares will be 4AX’s seventh equity listing.
With the saving and retirement industry recognising the important role it can play in bringing about social change by supporting South Africa’s infrastructure needs, the companies note that “there is a dearth of viable options available”.
As listed companies with a pure or major focus on the South African economy struggle to deliver returns to investors, the managers of retirement funds and other savings are now looking for alternative asset classes to obtain sufficient returns, the statement said.
Gaia chief investment officer Dr Hendrik Snyman said that, with the local stock markets having underperformed over the past number of years and with limited options available, “it is necessary for asset managers to be innovative in obtaining returns for their investors”.
He explained that, globally, there has been a trend whereby asset managers are looking to alternative assets to provide resilience to negative market movements, price irrationality or a lack of returns.
Collective investment schemes and retail investors have struggled to directly access infrastructure investments for several reasons.
“First, they are not readily available. Second, they are not usually listed on stock exchanges. Lastly, those options which are listed are subject to deflated prices owing to the lack of a readily traded market that understands the underlying principles of the asset class,” Snyman elaborated.
He explained that “infrastructure as an asset class can provide investors with stable inflation-linked cash returns while preserving their capital. However, the current means of gaining access to these projects includes a daunting and protracted process requiring, among other things, negotiating lengthy contracts”.
This process is far removed from investors’ ordinary means of acquiring shares on a trading platform and, therefore, acts as a significant investment barrier to entry and exit, Snyman added, noting that, in addition to the process, the unlisted equity available in the projects precludes certain collective investment scheme portfolios from acquiring interests in the projects.
“A listed security removes many of the entry and exit barriers for investors and allows infrastructure to take up its rightful place as an asset class in many investor portfolios.”
Kruger MD Hein Kruger, meanwhile, said that “through the Kruger Ci Prudential, Balanced and Equity funds, clients can now invest in the operational wind farm in a safe, regulated and tax-effective way where the impressive returns inherently adjust by inflation each year”.
Kruger’s co-investors in the wind farm near Humansdorp, in the Eastern Cape, include the Tsitsikamma Development Trust (9%) and Cennergi (75%), which is a wholly owned subsidiary of listed company Exxaro Resources.
This makes the endeavour an environmental, social and governance investment, as the community trust receives investor returns for their shares. The construction has already benefitted the local community through infrastructure upgrades, a new community centre, cattle fencing and bush clearing.
Since then, the wind farm contributes 2.1% of its revenue quarterly to enterprise and socioeconomic development in the surrounding communities.
The wind farm is a renewable energy project with an installed capacity of 95 MW, situated in the Koukamma local municipality.
It became operational in August 2016, offering a measurable record in output performance.