Sanari 12J Fund – Update and Feb 2020 Final Closing
Get Yours Now | Last Chance to Invest in a Sanari 12J Fund
Dear Friends
The 2019/2020 financial year-end is rapidly approaching and hopefully the holidays gave us all time to recover from a challenging year and prepare for the new decade starting in 2020. During this time of reflection our financial objectives are usually front of mind, with critical questions around how to generate investment returns in a low-growth economic environment, how to manage currency risks and increasingly in this day and age, how do we do good whilst making a profit?
In the past year, Sanari Capital has worked hard to answer some of these questions and we would like to share with you some news on our investments and some potential considerations for your portfolio to be implemented early in 2020.
Sanari Capital is a value-adding private equity firm that invests in South African companies with local, regional and global growth prospects. You can access our investment programme and the attractive private equity asset class via a Section 12J tax-deductible investment that has been approved by some of South Africa’s largest and most well-regarded wealth managers.
Our Sanari 12J Fund I is closed and fully allocated (you can view our broader portfolio here) but Sanari 12J Fund II is open for capital raising ahead of the 29 February 2020 tax deadline. The current Fund II portfolio includes our investment in Edulife Group and 60% of our targeted fund has been allocated to investments currently underway and in our pipeline. Please see below for insights into upcoming investments.
WHY IS THIS A LAST CHANCE OPPORTUNITY? Sanari Capital is in the process of raising a larger institutional private equity fund which is expected to close in the latter part of 2020, meaning that our fund minimum investment will increase dramatically and likely out of range for most individual investors. We hope you will join us in closing out our second and last 12J fund.
Given that the tax year end of 28 February 2020 approaches so quickly, we advise investors to obtain information on their options early so as to avoid the rush and analysis paralysis that is customary around tax year-end. This year in particular you only have R2.5 million per non-corporate investor to allocate to 12J so make sure it counts!! See the Regulatory Q&A below.
In October Sanari completed its latest investment with a R28 million investment in education company, Edulife Group. Edulife is the largest independent school group in the Free State, with more than 20 years’ operating history and over 1200 learners. Edulife has just opened its fourth school now in January 2020. You can read more below on this exciting investment opportunity which provides both highly attractive financial and social investment returns. THIS JUST IN: Edulife’s Academy of Excellence achieved a 100% matric pass rate for 2019! Not only that but 60% of the learners achieved university entrance level grades. We are so proud of this investment which shows how the private sector can partner the public sector to afford high quality education for exceptionally low income groups and that where teachers care and students are committed, extraordinary results can be achieved.
The current Sanari portfolio has fared well even in these difficult economic conditions, delivering respectable growth, disciplined expenditure as well as achieving key strategic outcomes in a short space of time. Sanari’s longest-standing investment is in Fernridge Solutions, a market leader in geo-spatial data and solutions in Africa, has grown its revenue and EBITDA by over 20% per annum in the past 2 years. Two of our other portfolio companies signed up large scale strategic customers at the end of last year boding well for 2020.
Our team is available to support you in your investment decision-making process. Investors should feel free to contact Sipho Sibeko directly on ssibeko@sanari.co.za or (071) 231 4487 with any questions. You can also download the Fund 2-Pager and Fund Overview Presentation and contact us for a fund application.
Wishing you a happy, healthy and prosperous 2020!
Samantha Pokroy | CEO
Regulatory Update: Section 12J
Tax legislation changes were announced in July 2019 with the introduction of a limit on the tax deduction that an investor can claim in relation to a Section 12J investment in any single year of assessment, being a cap of R2.5 million for non-corporate investors (individuals and trusts) and R5 million per corporate investor.
Q&A: What does this mean for me as an investor?
- Can I only invest R2.5 million in Sanari’s 12J Fund?
No, individuals/trusts can invest more but only R2.5 million of the investment can be claimed as a deduction in the year of investment.
- If I want to invest more than R2.5 million in Sanari’s 12J Fund, how will it affect my expected returns?
Net after-tax investment returns (net of fees and taxes but prior to dividend withholding tax) for Sanari’s 12J fund are targeted at between 26% and 31% when accounting for the benefit of the tax deduction (at a marginal tax rate of 45%). Without the tax deduction, the fund would be expected to generate net after-tax investment returns of 18% to 23%. Thus if an investor wished to invest R10 million, a blended net after-tax return (assuming 75:25 weighting) of 20% to 25% would still be achievable.
- Can I invest R2.5 million in my name PLUS R2.5 million in my spouse’s name PLUS R2.5 million through my family trust?
Yes, there are no connected person limitations on the cap – it is simplistically applied per taxpayer per year of assessment. This also means that each taxpayer could invest R2.5 million on 29 February and R2.5 million top-up on 1 March (achieving a R5 million investment per investor that is fully tax-deductible prior to Sanari’s fund closing but spread across two tax years).
Calculating my CGT Liability and Offsetting Sanari 12J Investment Amount
Calculating how much of a 12J investment in Sanari’s fund would offset the capital gains tax (CGT) bill can be estimated as follows (of course this must be confirmed with your tax advisors as client specific conditions are not factored in. Also note this example applies for an individual investor in the highest tax bracket, other investor calculations will vary):
- Assuming a capital gain of R8 million (say R10 million in sale proceeds or spun out Naspers’ value less a R2 million base cost)
- Multiply by the inclusion rate of 40% for an individual investor to get to taxable income from the capital gain of c.R3.2 million
- To be precise you would use the tax tables, annual exclusion and primary rebate but to approximate the tax payable you would multiply by 45% resulting in provisional tax payable in Feb of c.R1.44 million
To reduce the tax obligation you can make a Section 12J investment. To fully offset the tax liability your client would need to invest R3.2 million, but if the cap is limited to R2.5 million then this maximum investment would still offset c.R1.125 million of the tax liability, reducing tax to c.R320k payable at the February provisional deadline.
Deal Pipeline and Expected Fund Portfolio Composition
Sanari has over 30 new opportunities in its pipeline, with several having been identified as priority. The pipeline provides significant exposure to leading global trends and attractive cash flows.
On the basis of executing our highest priority and highest probability investments (summary of which is noted below), we currently anticipate the approximate portfolio composition of Sanari’s 12J Fund II as follows:
For this series of investments, 20% of the portfolio has been deployed, with the next 60% already allocated to identified investments that will be executed over the next 6 months.
Already invested: Edulife Group
Follow on investment: Sensor Networks
Bolt on acquisition for Fernridge: Project Globe
New investments: Projects E!SH, Casper & Secret Sauce
Summary descriptions of upcoming investments:
- Sensor Networks(follow on investment) Leading South African Internet of Things (IoT) business focused on insurable risk
- Project E!SH Buy-and-build AI and Cloud platform backing former CEO and CTO of leading global tech company
- Project Globe Business services provider of precise geospatial data analytics solutions
- Project Casper Specialist food service business serving customers through an innovative business model tapping global trends
- Project Secret Sauce Niche food producer
Sanari invests in school group Edulife
Read our investment announcement here.
Leveraging more than 20 years’ operating history, Edulife and Sanari embark on a drive to scale the company’s successful model.
As Edulife moves into its next growth phase, we expect the company will realise substantial benefits from our “3S” private equity approach focused on sustainability, scalability and saleability. The market opportunity for quality, affordable and accessible education is substantial and we see opportunity in existing and new markets
Read: Why we invested: Sanari Capital sees opportunity in South Africa’s education sector
Olive Ridge School First Day Grade 1
