Resilient loans worry investors
Resilient’s history of granting generous loans to employees to buy shares in the property fund has concerned some fund managers, who worry about the ability of the employees to repay the loans.
Resilient’s history of granting loans to employees to buy shares in the property fund has concerned some fund managers who worry about the ability of employees to repay the loans.
Resilient’s current long-term share incentive scheme allows it to lend an employee up to 20 times that employee’s gross remuneration to buy shares in the group, at a weighted average cost of funding, which was 8.87% at the end of December.
At the close of trade on Tuesday, the company’s share price was down 57.76% year-to-date, having closed at R63.85.
There has been a sustained sell-off in the stock, suggesting that some Resilient employees’ investments in the group are under financial strain.
“We would assume that all loans taken from 2015 onwards are now likely underwater, meaning what is owed on the loans is higher than the value of the assets held, and any loans taken over the last two years are experiencing severe distress,” said Garreth Elston, of Golden Section Capital.
However, Resilient CEO Des de Beer said on Tuesday many of the shares were bought by employees long ago at much lower prices. “We listed in 2002 at R5 a share. Some employees bought at R20 levels, so R60 means they are seriously in the money. Some shares aren’t in the money. We have a blend.”
Robert Lewenson, of Old Mutual Investment Group, said the fund manager voted against Resilient’s request for shareholder approval to “approve financial assistance in respect of the incentive plan” at its annual meeting in November.
“As a general principle, companies should not act as providers of financing to their directors; there are other means to achieving the same goal, which do not involve the provision of company loans,” he said.
It was alleged in reports that Resilient’s shares traded at very high premiums for years, not as a result of normal market activity but rather because of shareprice manipulation.