THE FINANCE GHOST
Tongaat Hulett needs a hero
While holding out for a hero, the company will be entering business rescue. It’s another sad chapter in a tragic story, as current management just couldn’t deal with the economic onslaught and frequent disasters in KwaZulu-Natal.
After alleged financial misstatements and mismanagement by the previous management team, the business was in no shape to deal with a pandemic, riots and floods.
There was a good effort to reduce debt and a misguided effort to raise capital from a potential investor who came with reputational question marks. After that capital raise fell over, the board had to scramble to put together a restructuring plan.
With time pressure to raise working capital for operations, it just wasn’t possible to get the parties over the line in time. The banks aren’t prepared to lend more and a facility of R600-million needs to be repaid.
With no alternatives, the board has put the company into business rescue. This is yet another blow to the KZN economy.
Interestingly, Tongaat’s operations in Mozambique and Zimbabwe are not in business rescue as they are self-funding, but the local property entity hasn’t escaped the business rescue net.
From one bad balance sheet to another
The good news for EOH shareholders is that the company is making an operating profit. The bad news is that the quantum only looks good until you see the debt still on the balance sheet.
With R1.3-billion in debt at the end of
July and only R104-million in repayments since then, there’s still a mountain for EOH to climb. It’s clear that a significant equity injection is required.
The Foschini Group delivers happy news for retail REIT shareholders
As those who bought overpriced tech companies during the pandemic will now tell you, the world has largely normalised since lockdowns were lifted.
The most interesting thing about the latest update from The Foschini Group (TFG) is that online shopping numbers are down significantly. Shoppers have returned to the stores, with group-level numbers showing a solid performance even on a like-for-like basis (without the impact of recent acquisitions). In contrast, online sales are down.
Group online turnover fell by 6.9% in the latest quarter, with an even greater impact in the UK (down 16.2%) and Australia (down 25.9% but with a significant base effect of draconian lockdowns in that country last year).
There’s a decent read-through here for investors in retail property funds, as a return to malls by shoppers is good news. It’s just a pity that interest rates are headed in one direction only, as they have an impact on returns of these leveraged funds.
Speaking of REITs, can Fortress retain that status?
In what would be a first on the JSE, Fortress is right on the cusp of losing its REIT status because of an inability to meet the minimum distribution requirements. This is a function of a complicated dual-share structure that perhaps made sense under normal economic conditions. As any property executive will tell you, there was nothing “normal” about Covid lockdowns.
In a last-ditch attempt to save REIT status (as previous efforts with shareholders came to naught), a group of institutional shareholders controlling 59% of the FFA shares and 16% of the FFB shares wants an amendment to the Memorandum of Incorporation to allow for dividends over the next two financial years that could save REIT status.
The fight is between the FFA and FFB shareholders, as it all comes down to how the economics are split. Nobody is quite sure what the loss of REIT status would mean in practice for investors, or what the market reaction would be, so there’s a strong argument that shareholders should try to save REIT status while they can.
A 75% approval vote from shareholders is required to make the change. Some gentle persuasion is going to be needed.