Tsogo Sun bailout as bosses feel squeeze

Tsogo Sun, the hotel and gaming group that has lost about a third of its value in the past two years, is set to bail out executives who face losses on the R200m interest-free loan they were granted in 2014 to purchase shares.

The arrangement will be implemented if controlling shareholder Hosken Consolidated Investments (HCI), one of the most high-profile union investment companies, gets minority shareholder backing to spin off Tsogo Sun’s properties into the separately listed entity Hospitality Property Fund.

This is the latest evidence of pressure on executive remuneration caused by sustained weakness in the share market.

Richard Brasher, CEO of food retailer Pick n Pay, has just lost out on a potential multimillionrand share award because the company’s share price did not reach the targeted level.

Gerald Seegers, head of human resources services at PwC, said there is no doubt equity market conditions will put pressure on executive earnings.

“Long-term incentives will be around but in a different format,” he said.

The five top Tsogo Sun directors were given the loan in 2014 to buy shares when SABMiller sold its near 40% stake in the casino operator to institutional shareholders at R25.75 a share.

HCI, which took up an initial 10% stake in Tsogo in 2002 as part of an empowerment deal, emerged as the single largest shareholder after the 2014 deal and it now has a controlling stake of 47%.

HCI, which is also the largest shareholder in Hospitality, will be repurchasing the shares at R25.75. They are currently trading at R21.74.

Since reaching a record high of R31.74 in August 2016, shareholders have seen almost onethird of their value disappear.

One analyst, who cannot be named, said the bailout would make it more difficult for HCI to get the necessary backing of Tsogo Sun shareholders for the Hospitality transaction.

“The R18m involved may not be significant but the principle is,” said the analyst.

At the time, the loan, which has no fixed repayment date and was designed to align executive interests with those of shareholders, was slammed by unions.

“It can’t be empowerment for just a few people,” a National Union of Mineworkers spokesperson said at the time.

At the weekend Cosatu spokesperson Matthew Parks said HCI is one of the best-run union investment companies. “We have confidence this matter will be managed well.”

Not everybody opposed the loan. One remuneration consultant who welcomed it said at the time, “these guys now have skin in the game. Executives are not usually exposed to a fall in the price of shares they are awarded as part of their executive remuneration package”.

In exchange for the loan the five executives gave up their entitlement to a risk-free annual cash payment awarded in terms of the company’s phantom share scheme, which tracks the value of the shares.

The bailout would make it more difficult for HCI to get the necessary backing