Sport & Business

WP Rugby Football Union/Investec Newlands deal on the ropes

By Craig Ray 5 June 2020
Caption
Cape Town Stadium. (Photo: Pxfuel)

Earlier this week the Western Province Rugby Football Union (WPRFU) president Zelt Marais chose not to sign the final long-form agreement, ceding Newlands development rights to Investec, diverting the years-long saga down an uncertain path.

It’s a 13km drive from Newlands to Green Point, which on a good day can take about 15 minutes. But for the WPRFU and its legion of long-suffering fans, the journey to the Cape Town Stadium in Green Point has been a commute with multiple twists and turns. And, as of this week, there is still no clarity following the latest developments after Marais failed to put his signature to the final paperwork. 

Why? That remains the burning question. Marais might have sent the WPRFU on a deadly spiral to bankruptcy with this action, especially in these Covid-19 times. Or has he played a final ace that will astound everyone with its brilliance? Given the WPRFU’s governance track record, which has already once resulted in the liquidation of its professional arm under the weight of a R276-million claim from a supplier in 2016, the answer is: probably not. 

A price of R110-million for the purchase of development rights, and a 99-year lease of the property from the WPRFU by Investec was accepted in 2019. Heads of agreement, which made the WPRFU’s move to the Cape Town Stadium a reality, were signed on 28 November 2019. And the final sale of those Newlands development rights was supposed to be completed this week. 

Marais’s decision not to sign off has put the entire deal in jeopardy. One source claimed the backtrack was because the Sports Science Institute Building, situated on the southern side of Newlands, was not included in the deal. 

It sounded plausible, but further investigation revealed that not to be the case. Even if the WPRFU overlooked that rather large fact, Investec certainly didn’t. 

The Sports Science Building belongs to a share bloc consisting of several entities, including the University of Cape Town. The WPRFU only owns a small stake in the property, which holds a 77-year lease on the land it occupies. 

Investec’s plans to redevelop the precinct had to factor in working around the Sports Science property. As a result, Investec dropped its initial offer of R150-million to R110-million. Despite some unhappiness at the WPRFU, it was accepted. 

This situation has been outlined in the heads of agreement. Investec have a “Put” option on the building, so that if for any reason the Sports Science owners decide to move out and give up their lease, Investec could buy it at an agreed price. 

On Thursday, a spokesperson for Investec confirmed that negotiations between the financial company and the WPRFU had stalled. They declined to comment further. 

Investec plans to redevelop Newlands into a residential and retail complex. The WPRFU will benefit from a 5% share in any profits derived from this plan, plus a further 3.5% share from the resale of any units developed. 

The R110-million advance was payable immediately on signing of the heads of agreement. The WPRFU needed the money urgently, to cover its growing cash-flow issues at the time. In the pre-Covid-19 world the price seemed low for prime property in one of Cape Town’s most desirable suburbs, but the cash-strapped union was not negotiating from a position of strength. 

More than R50-million was paid by Investec to the WPRFU late last year, while Investec will pay the balance of a WPRFU loan owed to investment holding company Remgro. Investec was due to pay the R58-million owed to Remgro by the end of this month, once the paperwork for the deal was finalised.

In dramatic developments on Tuesday night, WP Rugby (the professional arm of the business that rose from the ashes of their 2016 liquidation) board member Kevin Kiewit resigned from the executive committee. It was significant because Kiewit is WPR’s point man on the Investec negotiations and had been instrumental in bringing the deal to a close. Or so he thought. He is also a lawyer and would have understood the consequences of Marais’ actions. Reneging on a binding contract is illegal. 

Kiewet declined to speak to Daily Maverick and Marais did not respond to questions from Daily Maverick. 

The vital question is, why would Marais put the entire deal in jeopardy by not signing off? Even if he has found another buyer – or a bank guarantee of some sort, which is a highly unlikely scenario – there appears to be no backing out now because the WPRFU have a signed memorandum of agreement (MOA) with Investec. 

Furthermore, Investec has advanced more than R50-million to the WPRFU, and if this deal falls through the company would want that money paid back. And then there is the issue of Remgro’s money. That loan has been outstanding for years. It’s unlikely that Remgro would let the loan roll over when it has recently bought a majority stake in the Bulls. Remgro would be within their rights to foreclose.

Investec was already in negotiations as a potential buyer for Newlands when Marais won the election for president in November 2018. He immediately tried to demonstrate his own business acumen by searching for an alternative buyer, which, as president, he was entitled to do. Initially he had some support from the WP board, but as each month passed without a new suitor, financial pressure mounted on the union. 

But as long-time investors in the WPRFU, Remgro wouldn’t want to be known as the company that brought WP down. In the world of multibillion-rand deals that Remgro moves in, R58-million is miniscule. Perhaps that’s what Marais is banking on. 

Marais has a lot of questions to answer, and according to three sources Daily Maverick spoke to, by Thursday the president had not yet offered any explanation for his actions to the board. As an elected official he can’t be fired, but there could be a call for a vote of no confidence in his presidency. 

The backdrop to this deal is shrouded in internal WP politics: from Marais’ rise to president over the legendary player and administrator Peter Jooste, to financial problems that left the union with few options but to sell Newlands. 

Investec was already in negotiations as a potential buyer for Newlands when Marais won the election for president in November 2018. He immediately tried to demonstrate his own business acumen by searching for an alternative buyer, which, as president, he was entitled to do. Initially, he had some support from the WP board, but as each month passed without a new suitor, financial pressure mounted on the union. 

The clock was ticking because of lack of cash flow and the need to pay off the Remgro loan. It reached a point in late 2019 when SA Rugby sent a letter to the WPRFU, asking it to clarify its financial position under Section 28 of the Administration and Estates Act. 

If the WPRFU couldn’t show it was a financially stable, going concern, SA Rugby would have to take over the running of the union, as it had been forced to do at Eastern Province two years earlier. 

That threat from SA Rugby, according to sources, focused minds and brought the majority of the board and executive committee to the realisation they had to accept the Investec deal. 

All they need now, is for their president quickly to come to the same conclusion. DM

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