Delta Property Fund’s house of cards
When the founding CEO and CFO of Delta Property Fund abruptly resigned with immediate effect at the end of August, it was clear that something was amiss at the real estate company. This followed a failed merger with Rebosis.
In a JSE news service announcement on Tuesday 3 November, Delta Property Fund provided a chilling update for investors that has prompted fears of another possible case of private sector corruption and mismanagement.
Delta, which owns a range of office properties that are largely occupied by government departments and entities, was left leaderless when CEO Sandile Nomvete and chief financial officer Shaneel Maharaj resigned with immediate effect in August.
Adding insult to injury, chief operating officer Otis Tshabalala also abruptly left the company, electing not to complete the threemonth notice period that was announced at the beginning of July.
A month later, the Delta board announced it had initiated a second forensic investigation into shenanigans relating to alleged procurement irregularities and misappropriation of funds by senior executives. Delta has not yet offered details of the allegations and it hasn’t made the findings of its forensic investigations public.
Delta is one of three black-managed real estate companies on the JSE. Its share price, which reached highs of R9.60 shortly after it listed on the JSE in 2012, is now a penny stock, eroding value for shareholders in the process. Its share price finished 3.3% higher on Tuesday at 31c.
Nomvete declined to comment this week, saying he is yet to read the forensic reports.
Business Maverick couldn’t reach Maharaj or Tshabalala.
The forensic investigations, conducted by Mazars, were sparked by an anonymous tipoff to Delta’s whistle-blowing programme, and initially covered the period from 1 March 2018 to 30 April 2020.
“On first becoming aware of the allegations, the board initiated a preliminary investigation, and subsequently a forensic investigation into the matter. It further subsequently sought external legal advice,” Delta said.
Following submission of the preliminary findings of the first forensic investigation by Mazars, Nomvete and Maharaj offered their resignations and Tshabalala opted not to see out his notice period.
Their departure is said to have been sought by Cornwall Crescent, a BEE consortium that owns 26% of Delta’s shares and is the biggest single shareholder.
Cornwall wanted to bring in new leadership at Delta after its botched merger plan with Rebosis Property Fund, which was abandoned in March. Cornwall had previously criticised Delta for attempting to merge with Rebosis, saying the companies were not a good fit.
According to Delta’s announcement to investors, the Mazars forensic investigation has now been concluded and “a final issued report is expected shortly”.
The Delta board has asked Mazars to conduct a follow-up forensic investigation covering the period 1 March 2017 to 31 August 2020. This will focus on the “double payment of commissions and improper procurement processes” at Delta.
Engagements with Delta auditors, industry watchdog Delta’s board has engaged with its auditor, BDO South Africa, about Mazars’ preliminary forensic findings and the circumstances surrounding the resignation of the three executives.
As a result, BDO has engaged with the audit watchdog, the Independent Regulatory Board of Auditors, about the real estate company’s reportable irregularities.
“The auditor [BDO] is currently conducting additional audit procedures into the matters in light of the new information that came to their attention post sign-off of their audit opinion,” Delta said.
“Shareholders should note that, subject to the further findings of the auditor, the auditor will consider the implications on the audit opinions issued.”
In the meantime, Bongi Masinga and Marelise de Lange were appointed as Delta interim CEO and CFO respectively at the end of August. Delta expects to release its results for the six months to 31 August 2020 at the end of November.