Fidelity says US$200 million pre-tax profit expected from Langford Estate
FIDELITY Life Assurance says the acquisition of 81 percent of CFI Holdings’ Langford Estate will strengthen the insurance and property developer’s balance sheet giving it capacity to underwrite more business.
FLA managing director Simon Chapereka told shareholders that the transaction will bring additional insurance income amounting to US$8,7 million.
Shareholders approved the land for debt swap deal which will see FLA assuming CFI’s US$18 million debt in the form of US$16 million bank debts and settlement of $2 million to other creditors.
Of the assumed bank debts, a US$2 million deposit has been placed in a trust with one of the banks. The remaining $14 million will be secured by bonds on the land to be issued by FLA in favour of the banks.
Interest will be charged at 10 percent per annum on the outstanding balance for each stand.
Additional insurance income from the project of US$8,7 million will be realised.
Langford Estates comprises of 834 hectares and is expected to yield 11 264 residential stands.
“The US$14 million of the assumed debt will be serviced over a fairly long tenor of seven years thus alleviating cash flow pressures as would be the case with servicing short term borrowings. There will be a grace period of two years on the debt principal repayment,” said Chapereka.
Group chairman, Lawrence Tamayi said the project is being driven largely by high demand of houses with the housing backlog estimated at 2 mln units.
Tamayi said the success of previous projects by gives the group confidence of Langford development being profitable.
He said Manresa housing development was a success and yielded US$7 million for the group while the South View development has an economic value of over US$100 million.
“We anticipate reasonable returns and a firm balance sheet that will also allow us to underwrite more business and take more risk,” he said.
Chapereka believes that the backlog will help move the 11 624 to be realised from the development of Langford Estate.
Chapereka said the project is profitable with more than US$200 million profit before tax expected.
“We are saying the project is profitable if we go with the current selling price (of US$14 400) it will represent a rerun of 254 percent on the current investment of $22 300 000 or in the worst case scenario a return of 92 percent,’ said Chapereka.
Chapereka said in the event that the stands sell at US$12 500 a profit of $160 424 000 will be realised while the worst case scenario will see the company making about $81 562 000 selling at $9 250 each.
He said FLA expects to invest about $50 million in development costs.
“In terms of the development costs, we expect the bulk of the development costs to be in the roads and storm water drain costs of about $18 million, sewer reticulation $10 million, public lighting $4 million, finance charges $3 million and we have put in contingency charges of $4,6 million,” said Chapereka.
The company sees development cost savings as a result of utilisation of offsite infrastructure developed by Fidelity Life Southview Park.
The acquisition is seen as a significant development and a continuation in property development which is a profitable line of business. FinX