Listed property sector facing happier days
Is investor sentiment in the battered listed property sector finally on the mend? There’s probably still some way to go, but it appears that property punters are returning to the market to cash in on cheap buying opportunities.
The South African Property Index (Sapy) was up more than 2% over the past week, bringing the total gains since the index hit a three-year low on April 4 to 7.2%.
The Sapy is still down about 16% from the end of 2017, when it reached a high of 691 points.
But the market appears to have stabilised following the Resilient group of companies’ sell-down, which was triggered by allegations of insider-related trading and concerns about its cross-holding structure and black economic empowerment (BEE) scheme.
The index was further dragged down by a stronger rand, which has put pressure on the share prices of some offshore property counters.
April’s rebound has been supported by UK and European mall owner Hammerson, which rallied 13% last week after withdrawing its support for a merger with UK mall owner Intu Properties. In addition, the Resilient group’s four associated firms — Resilient Reit, Fortress Reit B, Nepi Rockcastle and Greenbay — have recovered between 18% and 34%.
That follows the release of the findings of former auditorgeneral Shauket Fakie clearing executives of any wrongdoing, as well as steps announced to unbundle its cross-holdings and restructure its BEE scheme.
The market still awaits the outcome of the probe of the Financial Sector Conduct Authority into alleged insider trading and false and misleading reporting about the group. Year-todate the four stocks are still down between 35% and 60%.
The timing of Nkonki Sunninghill’s decision to enter voluntary liquidation could not be worse for the audit profession. Nkonki says it was left with no option but to wind up the company after the auditor-general’s decision to terminate its contracts with the firm.
That decision was prompted by disclosures that majority shareholder Mitesh Patel’s management buyout of Nkonki was funded by Gupta lieutenant Salim Essa, and that Patel was effectively a front for Essa.
Plans by Nkonki’s management to buy out Patel following his resignation, were, the firm says, thwarted by the loss of public sector contracts.
As audit firms fight one scandal after another, the latest hit is not only a blow to the profession. Nkonki is one of a handful of sizeable black-owned audit firms and its closure is a setback for transformation of the profession, and diversification away from the big four.
Of course, it is true that black audit firms should not be held to different ethical or operational standards than their traditionally white counterparts. After all, the auditor-general also cancelled its contracts with KPMG.
The difference is that Nkonki, unlike KPMG, derives the majority of its revenue from public sector audits. This is true for most black audit firms, and it is not for a lack of trying to win private sector work. Black firms all too often face closed doors in this regard – just ask the country’s fifth-largest audit firm, Sizwe Ntsaluba Gobodo.
One wonders whether the auditor-general, Kimi Makwetu, considered this in making his decision. Was there a way to sanction the company without destroying it?