A Viceroy like attack on JSE listed property group Resilient Income Fund may have not only exposed questionable cross shareholding structure in the company but also a grand broad based black economic empowerment (BBBEE) fronting scheme.
Resilient stands accused of running its multi-billion rands BBBEE scheme called Siyakha Trust, like its own spaza shop. This flies in the face of very clear stipulations that a BBBEE scheme that becomes just another charitable arrangement, like the Siyakha Trust, amounts to fronting.
Resilient is not really denying lack of independence of the Siyakha Trust but says it packed the trust with its lackeys to ensure that the scheme had skilled personal. And yes Resilient is now talking about making adjustments to ensure the independence of the Siyakha Trust and to ensure that the BBBEE scheme does not actually become a money making scheme, from the point of view of interest charged to the scheme.
The Viceroy act
Resilient was actually hit by a rumour that Viceroy, the short-selling player of the Steinhoff and Capitec fame, was going to release a report on the JSE listed property fund. The market was shaken. Resilient is after all one of the darling of the listed property sector of the JSE.
With an asset base of about R56 billion, Resilient owns an impressive list of shopping centres spread across the country. The list includes Jubilee Mall, Irene Mall, The Galleria, Boardwalk Inkwazi Shopping Centre, The Grove Mall, Diamond Pavillion, Brits Mall, Highveld Mall, I’langa Mall, Limpopo Mall, Jabulani Mall, Mall of the North, Tzaneng Mall, Secunda Mall, Tubatse Crossing and Soshanguve Crossing.
Resilient also owns about 10% of Fortress Income Fund, another JSE listed property operation with asset value of about R60 billion. That goes to say; the Resilient/Fortress formation is a more than R100 billion affair. And Resilient also owns 13% stake in NEPI Rockcastle and 21% in Greenbay.
The Viceroy rumour proved to be just that, a rumour. Instead, it was reports from 36One Asset Management, another short-selling specialist, and Arqaam Capital, a specialist emerging markets investment bank, which transpired.
The 36One and Arqaam reports, accusing Resilient of all sorts of misdemeanours, centred on creating cross shareholding structures that seem to prop up their own shares, have shaken the market. Resilient share price skidded by more than 50%, from levels above R150.00 seen towards the end of December last year, to R68.50 on Friday last week. It recorded some recovery on Monday to close the day at R72.00.
Fortress shares have not been spurred either. They have more than halved from levels above R40.00 in December last year to a close of R15.45 on Friday.
The decline coincides with the circulation of the 36One and Arqaam reports questioning the cross shareholding.
Des de Beer and his team at Resilient are essentially being accused of borrowing from Peter to pay Paul type of behaviour. This stems from the complicated cross shareholding between Resilient and its subsidiaries and associates.
Take the Siyakha Trust situation. The trust is passed as a BBBEE partner holding about 10% of Resilient shares valued at about R3 billion at current market value. The BBBEE trust has been largely funded by Resilient at attractive interest rates and thus generates considerable interest income for Resilient. This situation is replicated for Resilient subsidiary, the JSE listed Fortress with the same Siyakha Trust holding about 8% stake in Fortress.
And so the 36One/Arqaam charge is that, together with a host of other related party share transactions, the Siyakha Trust arrangement has been used by Resilient to manipulate the value of its own shares.
There will be a counter argument that the Resilient/Siyakha arrangement is simply vendor financing which is a widely established trend in the BBBEE space. The problem here seems to be the quantum and rate of return generated by the vendor financer. And there is the charge that Resilient runs Siyakha Trust like its spaza shop even as it claims the trust is an independent entity.
Resilient hires and fires Siyakha board of trustees members at will. As a matter of fact, Resilient has packed this board with individuals beholden to it. These are mainly individuals who either have worked or are still working for Resilient.
Denials from Resilient are not convincing.
The group has stated that the “36One’s untested allegations of concealment, deception and share price manipulation are not substantiated and we believe will not stand up to independent scrutiny, which is underway by the relevant regulators with the full cooperation of Resilient management and the Board. We believe that the views within the 36One report are more informed by its large short position than by objective analysis.” The same applies to the other reports
As for other reports published, said Resilient, we believe that since they broadly concentrate on similar angles to 36One’s report, they should be considered in relation to the information we have provided herewith.
About the lack of independence of some of Siyakha Trustees, said the following with regards to a Siyakha board member, Dazray Tarr, who is also its employee:
“In appointing trustees to the board of trustees, management considered the necessary skills and experience of each individual appointed. Mrs. Tarr is an employee of Resilient. She does not hold any position in Resilient’s executive management as has been seconded to assist with the management of the Siyakha Trusts. She was considered appropriate for this position due to her background of being involved in numerous outreach and support programmes in her community. Whilst Mrs. Tarr does not have a financial background, both Resilient and the board of trustees are satisfied that Mrs. Tarr contributes a different set of skills to the trusts that are also necessary for the successful operation of the trusts.”
BBBEE is a reparative programme, primarily designed to redistribute economic power. It should not be a charitable act. In Siyakha Trust, Resilient has established a charitable trust focused on education and firmly under its control. Let alone the independence factor, no one knows whether the tales of educational development programmes said to be undertaken by Siyakha amount to anything other than just tales. That’s because no one has seen Siyakha’s audited annual report.
This must be a case for the BBBEE Commissioner.