Baywest Mall for sale
Debt-laden Rebosis Property Fund forced to offload giant shopping precinct punted to be a game-changer for city
With Rebosis Property Fund’s debt ballooning to R9.5bn, and after protracted business rescue attempts, the major property group has been left with no option but to sell some of its assets, including Baywest Mall, worth a total R1.6bn.
And while the bidding process starts for the company’s multibillion-rand portfolio, comprising properties across the country, in Gqeberha, Covid-19 piled on the financial pain for what was punted to be a game-changer for the city.
The portfolio consists of 35 office buildings, five shopping centres and an industrial building.
Some properties have been neglected due to lack of cash for maintenance and refurbishments, while others have high vacancies.
Also up for sale is East London’s 73.829m² Hemingways Mall, valued at R1.72bn.
Mthatha’s BT Ngebs City mall, one of the Eastern Cape’s flagship shopping centres, has already been sold.
Rebosis, a real estate investment trust company, entered into business rescue in August, after years of financial turmoil which was worsened by the pandemic.
A few months after the business rescue process commenced, five of the 10 directors at Rebosis resigned.
The company, established by the Billion Group in 2010, became the first black-managed and substantially blackowned property fund to be listed on the JSE in 2011.
It owns a 100% stake in the 89,000m² Baywest Mall.
Business rescue practitioner Jacques du Toit said it was imperative to sell Baywest in a desperate attempt to repay their debt.
“The basis of the sales process is to reduce debt because the loan-to-value ratio is out of sync,” Du Toit said.
“In terms of the JSE listing requirement, we need to get the loan-to-values down in an affordable and viable scenario and that’s why we need to sell.”
Du Toit said close to 10 people had already indicated they were interested in buying the mall, and a total of about 50 for the remaining properties.
“But we are still adjudicating the interested parties before moving to the next phase.”
He said it would be premature to divulge the amounts offered.
“We are not yet at that stage, applications for the closed-sale process closed on Monday.
“We’re currently assessing the applications.”
Ultimately the creditors, of which Nedbank is the largest, will decide.
Du Toit said the current tenants of Baywest would not be affected by the sale and would continue renting as per their original lease.
Part of the developer’s counter to critics who said the mall would never work because it was too far out of town was the promise of more people moving into the area.
The developers were going to build housing adjacent to the mall and also planned to partner with the metro on the much bigger N2 North Housing Development. This development would deliver 2,949 houses and light industry premises across the highway from the mall abutting Rowallan Park.
The N2 North project was vetoed in 2017 by the provincial environment department, which referred to initiatives under way to rehabilitate the Baakens River mouth and upgrade bridges, and said for the housing project to go ahead, thereby creating new flooding threats, would be “nonsensical”.
However, in 2019, an appeal by the then Bay council against the department’s ruling was upheld by provincial economic development and environmental affairs MEC Mlungisi Mvoko. Yet neither of the housing projects appear to have gone ahead.
Du Toit said the sale of Baywest would stabilise the business.
“It will help Rebosis to continue with business as usual, just with a smaller portfolio, and it’s also our aim to stay listed.”
In its business rescue plan, some of the reasons provided for its cash flow issues included the impact of a rising interest rate and the inability to recover increased municipal costs from sovereign tenants.
However, Rebosis believes that business rescue has reasonable prospects of success.
The practitioners also pointed out that based on a calculation by Deloitte, in the event that the company had to be liquidated at the time the business rescue commenced, concurrent creditors would have received nothing.
Since the start date of business rescue, the company had just more than R2m in the bank.
The company generates revenue through its normal trading activities, which includes the leasing of commercial and retail properties to government and retail tenants.
“While the company owns a number of high-value incomegenerating properties, [Rebosis] has come under increasing financial pressure in recent periods which has resulted in the group’s financial position deteriorating significantly,” the
business rescue plan says.
“[Rebosis] is financially distressed with liquidity constraints and high debt levels which resulted in the commencement of business rescue proceedings in respect of certain entities within the group.”
The plan said further that due to the size of the group property portfolio and, in particular, the liquidity constraints of the group, the business rescue practitioners would be required to raise a significant amount of equity to reduce current overall debt to a sustainable level.
“It is therefore proposed that the company disposes of the sale properties pursuant to the public sales process and/or for secured creditors to take over their secured properties [in reduction of the secured debt owed to such secured creditor].”
This, the plan outlined, was to enable the practitioners to reduce the company’s debt and, depending on the outcome of the property portfolio restructure, to consider the viability of implementing a balance sheet restructure.
Balance sheet restructuring, also known as financial restructuring, provides a platform for businesses to undertake operational turnarounds and mitigate distress within.
“The public sales process will endure for the [stipulated] period unless extended with the approval of 75% of the voting interests of the remaining secured creditors taking into consideration the remaining properties which have not already been disposed of, taken over or otherwise excluded from the public sales process, and determined as at the date on which the vote is to be conducted,” the plan says.
Rebosis, in the meantime, will continue operating as normal, it says.
“[This is] to preserve its goodwill through an effective moratorium in respect of all legal proceedings and claims against the company.
“If the company’s ability to continue trading was in any way hindered, alternatively stopped, it would have resulted in the financial collapse of the company and an outcome that would have been detrimental to the interests of all stakeholders, including creditors and employees.”
Though there might be layoffs of staff in future, no employee had been laid off to date.
All non-critical and onerous contracts that were concluded before the business rescue process were suspended.
However, no contracts were cancelled.
Bay economist Charles Wait said a number of factors had likely provided challenges for Baywest, including that it was judged “too far out” for many residents and that new malls competing for some of the same customers had emerged, including the Summerstrand Mall and another complex in Jeffreys Bay.
“A lot of the expected visitors were going to come from the metro’s western suburbs and surrounding towns and the access to transport for these communities was perhaps a problem.”
Rebosis is no stranger to financial difficulty. Between 2018 and last year, it attempted various restructuring initiatives, including the disposal of certain assets to raise liquidity, but the initiatives all failed.