One of Kenya’s leading manufacturers has this week announced a new kind of financing deal in the Kenyan market, raising more than Sh5bn by selling its own manufacturing plant and warehousing, as buildings, to an international real estate fund, and then leasing the buildings back to continue its manufacturing.
For Orbit Products Africa Limited (Opal), which is the contract manufacturer in Kenya for Reckitt, Colgate-Palmolive and Unilever owned by brothers Sachen and Dirchen Chandaria, the deal has brought in a cash sales price of $53.6m.
However, the Chandaria firm’s manufacturing will continue on the same site, with Opal having agreed a new 25-year lease on the same premises, with an option for a further 10 years.
“At a time when finance is a strained issue everywhere in the world after the unprecedented economic shock delivered by the Covid-19 pandemic, and with our own East African banking system working hard to contain its risk through restructuring existing lending, ‘sale and lease back’ opens a new path to cash injections and finance for manufacturing expansion,” said Sachen Chandaria, CEO of Orbit.
The buyer of the Opal properties, London Stock-Exchange listed GRIT Real Estate Income Group, runs one of Africa’s largest property investment portfolios, and already owns two other industrial properties in the same area around Mombasa Road, being the Imperial Health Sciences logistics facility and another site that GRIT will soon be developing to offer new industrial property.
The group’s expansion across Africa has been rapid, with GRIT moving to the main list on the London Stock Exchange in January 2021.
Under its new deal with Opal, GRIT will now upgrade and expand the Mombasa Road manufacturing facilities to provide factory and middle management space for an additional 100 employees. The redevelopment the plant, which will be built to green certification standards, will also create around 150 jobs during the course of the construction.
For investors in GRIT, properties that secure long-term tenancies of 20 years or more with blue-chip tenants, such as Opal, are considered highly attractive investments.
The social and financial benefits of the sale have also attracted the interest of the international financial institutions, with the IFC arm of the World Bank providing over half of the finance for GRIT to purchase the Opal facility, at $28.6m, while GRIT has raised another $25m with a corporate bond issue.