Trencor avoids reporting costs
• JSE-listed group wants to be reclassified as investment entity to delay obligation to convert Textainer’s US GAAP results into international standards
Trencor has given up key shareholder rights over 48%-owned Textainer in a bid to avoid the delays and hefty costs associated with reporting its controlling stake in the US-listed container company.
Trencor has given up key shareholder rights over 48%-owned Textainer in a bid to avoid the delays and hefty costs associated with reporting its controlling stake in the US-listed container company.
The move, described by one shareholder as unprecedented, is expected to be a temporary measure that will cover the company until a planned restructuring is completed. That restructuring could result in Trencor’s listing disappearing and Textainer getting a secondary listing on the JSE.
But the bourse has rejected the interim plan to give up shareholder rights and told Trencor the plan would render it noncompliant with JSE listing requirements. In response, Trencor proposed to the JSE that it be reclassified as an “investment entity”, which would allow it to remain compliant. The JSE is considering that proposal.
At the end of June 2017, Textainer accounted for 77% of Trencor’s net asset value and cash accounted for 11.6%.
Minority shareholder Chris Logan said the restructuring plan had been on the cards for several months, but because of the various entities and jurisdictions involved it had been delayed. “They were hoping to complete the restructuring by the end of financial 2017, but the process proved to be much more onerous than originally thought,” said Logan.
Because JSE-listed Trencor is deemed to control Textainer, it is required to convert the US GAAP results produced by Textainer into IFRS (International Financial Reporting Standards), which are the accounting standards applied to JSE-listed companies. This resulted in the delay of the publication of the 2016 results and earned a warning from the JSE, which told Trencor it faced suspension.
The cumbersome accounting exercise also resulted in hefty expenses, with management attributing most of the R89m “other operating expenses” in Trencor’s 2016 accounts to auditing costs.
The stop-gap measure being implemented in an effort to sidestep the regulatory burden will result in Trencor limiting its rights to appoint and remove directors.
The rights will be limited to the extent necessary to ensure Trencor is not regarded as being in control of Textainer or of having a significant influence over Textainer. Trencor has informed shareholders that none of its other voting rights over Textainer will be affected.
Whatever happens in the medium to longer term, Trencor will not escape the obligation to convert Textainer’s US GAAP results for the 12 months to endDecember 2017 into IFRS.
The complexity of this exercise is unlikely to be as cumbersome as it was in relation to the 2016 accounts. That year was described as the group’s most challenging year since the 2009 global financial crisis.
The slump in Textainer’s performance forced Trencor to record a R2bn impairment on Textainer’s fleet of containers. US GAAP did not require Textainer to record this impairment but IFRS did require the impairment at Trencor’s level.