PERSPECTIVE
P
resident Cyril Ramaphosa recently declared South
Africa the world’s ‘hottest emerging market’ and set
a target of 3% economic growth for 2018. Goldman
Sachs predicts a 2.3% growth in GDP for the country this
year, with most local economists putting their money on
a more conservative 1–2%, up from growth of lower than
1% in 2017 and 0.3% in 2016.
Having shed, in the fourth quarter of 2017, 19 000
and 7 000 jobs respectively, the construction and mining
industries are perhaps not as upbeat, and they continue to
count the cents when capex is on the cards.
There is a multitude of financing options available to
ease the pain of parting with hard-earned profits, but, in
answering the question ‘To own or not to own?’, nothing
beats good, old-fashioned homework.
Before opening the corporate wallet, one must decide
if the intention is ownership of the asset or purely use,
says WesBank Corporate chief executive officer, Gerald
Burton. “Historically, intent has almost always been the
deciding funding factor from a balance sheet perspective,
determining on balance sheet (acquisition) or off-balance
sheet as an operating expenditure (use).”
However, this accounting approach is currently being
revised in the quest for full and prudent financial disclosure,
with IFRS 16 preparing to make an appearance on 1
January 2019.
The traditional options for those who do not want to
pack bundles of bullion on the balance sheet are, of course,
instalment sales agreements (ISAs) and finance leases.
The ISA remains the most popular option, says Burton,
as it allows the client immediate ownership on payment of
the final instalment. ISA products provide two options on
termination of the agreement: ownership of the asset or
extension of the lease.
The advantages of the finance lease are freedom to
select the number of payments and costs that remain
constant unless interest rates increase, says Nico van
Heerden, director of Optimum Asset Finance.
“Leasing gives some financial breathing space in
that it doesn’t tie up capital,” he says. “In some cases,
payments may even be lower than with rentals. Although
normally a more expensive option, the lease removes the
burden of servicing or maintenance of the asset during
the lease period. In addition, larger leasing companies
often allow lessors to upgrade equipment during the
lease period.”
In the Merchant West funding portfolio is a little-known
‘sale and lease back’ product that enables companies
to free up capital by selling their owned assets back to
Merchant West through the operating lease or ISA.
“It is a financial mechanism not often used, but it can
be a powerful tool when applied appropriately,” says the
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