Johannesburg - Curro Holdings plans to sell as much as R1 billion of property-backed bonds to fund new schools in South Africa, which is languishing near the bottom of global education rankings.
The operator of private schools with more than 21 000 students would issue the first R150 million of securities in two weeks, chief executive Chris van der Merwe said last week.
Finance director Bernardt van der Linde added that the bonds, to be sold over 12 months, would complement bank loans, development financing and share sales.
The chief executive’s goal of tripling the number of Curro schools to 80 over the next six years may appeal to investors in a nation with the third-worst education system, according to a World Economic Forum survey this year.
Securing the debt against Curro’s property holdings provided an additional lure, said Arno Lawrenz, the chief investment officer at Atlantic Asset Management. “Curro won’t struggle to place the bond,” Lawrenz said. “We fundamentally like the sector the company is involved in. This kind of issue will also suit development funds.”
The bond, arranged by PSG Capital, was rated A-, the fourth-lowest investment grade, by Johannesburg-based Global Credit Ratings.
Van der Linde said feedback from the market had been “very positive” following a roadshow in June with South African fund managers.
“For the first issue we’ll be looking for between three- and five-year funding,” he said. “We want to build a nice profile over time and see if we can stretch it to seven years.”
The average South African pupil aged 15 scored 13 percent for mathematics, according to the 2012 Annual National Assessment, as the government struggles to improve standards of education for black people following apartheid.
The education system was ranked only above Yemen and Libya in the World Economic Forum list, which was topped by Switzerland.
The low quality of schooling is feeding an unemployment rate that was at 24.7 percent in September. About 3.3 million of the 10.4 million South Africans aged 15 to 24 were not in employment, education or training in the third quarter, official statistics show.
While the government had widened access to education, the next challenge was to improve the quality, Finance Minister Pravin Gordhan said on Monday.
Curro could improve education levels in South Africa, Van der Merwe said. Its high schools have a 100 percent pass rate for graduates. It also runs nursery and primary schools.
“Curro has a good story that everyone understands and will likely want to support,” said Conrad Wood, a fixed-income fund manager at Momentum Asset Management.
Van der Merwe said that the company had four types of schools with different fee levels. “We don’t pay mega-bucks to our teachers because we’re trying to keep our school fees affordable,” he said. “Teachers join us because we offer smaller classes – 25 pupils at most instead of 40 or more in government schools.”
Curro raised R605m in a March rights offer, the third since listing in June 2011. The stock has quadrupled since August 2011 and closed at R19.96 yesterday.
Curro’s property, plant and equipment appreciated by 83 percent to R1.57bn by the end of June from a year earlier. That gave bond holders “excellent” recovery prospects, Global Credit Ratings said. - Bloomberg