The company is seeking to raise about N30bn ($68m), comprising N20bn in debt and N10bn in equity. The debt, which will be in two tranches of N15bn and N5bn, will be used to expand, while the equity from the IPO will be used to keep leverage down.
Talks with Infracredit are “close to closure,” Agboola says. The IPO, for which Kairos Capital is the lead issuer, opened on 21 November and runs until 23 December.
Infracredit, which has a capital of $195m, is Nigeria’s sole infrastructure credit guarantee provider and has triple-A ratings from Agusto & Co and Global Credit Ratings.
Its guarantees are designed to act as a catalyst to attract investment from pension funds, insurance firms, and other long-term investors which is not available from domestic banks.
Purple is Nigeria’s first business to be registered as a Real Estate Investment Company (REICO) with the Securities and Exchange Commission (SEC), which allows it to sell securities.
The company, which started business in 2014, develops, buys, and manages a range of Nigerian property assets. Projects include the Maryland mall in Lagos and retail and residential development at Lekki. The company has assets of N30bn, and aims to raise this to N80bn after the IPO.
- The company is targeting a 10-year average return on equity (ROE) of 18%, excluding any capital appreciation in properties. The ROE in 2021 was 17%.
- Purple’s ratio of debt to gross net asset value won’t exceed 35% over a 10-year average, and once there is a listing the company can go back to the market to raise more equity as needed, Agboola says.
Store of value
The timing of the IPO may come as a surprise as higher inflation and pre-election uncertainty undermine the purchasing power on which the property market rests.
The IPO prospectus notes that rapid urbanisation, a growing middle class and young demographics support the case for Nigerian real-estate investment. Still, the prospectus says, financing has remained a problem for property developers.
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The prospectus notes some of the obstacles to real estate investment in Nigeria. There are “cumbersome” processes for land acquisition and ownership documentation.
Construction costs are high due to a reliance on expatriate workers in high-quality developments, and these have risen further due to the weakening of the naira.
The “deplorable” state of roads and highways stifles real estate markets outside the major hubs of Lagos, Abuja, and Port Harcourt, the prospectus says.
Agboola says real estate can come into its own at times of economic stress. “Real estate is a strong play in preserving capital against inflation,” he says. “Property is a store of value. It’s for times like this when the economic cycle doesn’t look easy.”
- He wants to follow the example of UK-based Grit Real Estate and continuously find new opportunities and raise funds.
- Once listed, Agboola wants to expand the company’s asset base into West Africa and then across the continent.
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