No ruling yet in Resilient scandal
Listed property set to suffer until FSCA concludes investigation
One year after the biggest scandal to hit listed property began unfolding, fund managers and other investors are desperate for the Financial Sector Conduct Authority (FSCA) to conclude its longawaited investigation. Analysts say that the listed property sector will not experience any meaningful improvement in its fortunes until the FSCA releases findings of its investigation into the allegations of share price manipulation that have plagued the Resilient stable since January 2018.
One year after the biggest scandal to hit listed property began unfolding, fund managers and other investors are desperate for the Financial Sector Conduct Authority (FSCA) to conclude its long-awaited investigation.
Analysts say that the listed property sector will not experience any meaningful improvement in its fortunes until the FSCA releases findings on its investigation into the allegations of share price manipulation that have plagued the Resilient stable since January 2018.
Ian Anderson, chief investment officer at Bridge Fund Managers, said while the FSCA was being cautious as it was not the first time the group was under investigation or allegations had been levelled at the companies within it, the investment community was becoming desperate. Fund managers wanted a conclusion to the allegations around the stable. “While it’s frustrating for investors, I’d rather the FSCA and JSE do their jobs properly and turn over every stone in their investigation and make the judgment in the end, and one the market can trust given the time taken to reach that judgment,” he said.
Garreth Elston, portfolio manager at Reitway Global, said: “I’m sure that the entire investment community remains hopeful that its investigation will be resolved as soon as possible. A year of market uncertainty is a very long time.” The JSE can suspend companies for not meeting its listing requirements but the FSCA has the ultimate authority on the conduct of companies listed in SA.
Ridwaan Loonat, an analyst at Nedbank CIB, said the FSCA was dealing with a number of other cases.
“The timing delay was expected given the number of cases and the complexity of some of them that the FSCA currently have opened [including] Capitec, Steinhoff and Resilient. Unfortunately while these investigations are ongoing, uncertainty will weigh on share prices,” he said.
The Resilient stable includes Resilient, Fortress, Nepi Rockcastle and Lighthouse Capital, previously Greenbay Properties. The FSCA began investigating events around Resilient and Fortress in March. The other stable members were added later.
The FSCA’s investigation is twofold: it is studying possible insider trading and price manipulation in its shares; and false and misleading reporting by and on the Resilient stable. Attempts to reach the FSCA on Thursday were unsuccessful.
The leader of the directorate of the market abuse investigation team at the FSCA, Alex Pascoe, in December referred Business Day to a report released earlier that month which said the probe was continuing. In January 2018 there was a large sell-off in stocks of the four companies, followed by a number of reports accusing their managements of inflating share prices through related party deals and other manipulation techniques. Resilient and Fortress fell 7.32% and 11.22% respectively on January 10 2018 and then continued to fall for the rest of the month. The other two stablemates also saw their prices drop.
The allegations persisted and a group of short sellers aggressively shorted the stable’s shares, with up to R120bn lost at one point. The sell-off has stopped, but the companies’ recovery has not gained much momentum.
Resilient’s share ended 2018 down 58.3%, while Fortress lost 66.5%, Nepi Rockcastle 43.5% and Lighthouse Capital 46%.