Publications
Partners
A former CEO and board member of Rebosis Property Fund expressed exasperation this week at the blame game he feels the company is playing.
“The board has scripted a narrative that lays the blame for its woes at my feet. It published this in its annual report and, most recently, in the June 9 edition of your newspaper,” Andile Mazwai told City Press in an interview this week.
“This narrative is untrue and unbecoming. What decisions did I make to bring the company to its knees? Surely I did something or did not do something?
“We never did anything wrong ... We were dancing like the music would never end and the party would go on and on. But the music stopped...”
Mazwai, who started his career as a stockbroker, was co-CEO of Renaissance BJM Securities from June 2002 to September 2006 prior to joining Rebosis.
“I did run the number one investment analyst house on the street [JSE]. I learnt a few things and thought I could bring this to bear at the board. I have seen a cycle turn … No one rewards a doomsday prophet.”
Mazwai served as nonexecutive chair of Rebosis’ investment committee from 2011 to 2016. He was the company’s chief operating officer from February 8 2017 and then, on October 1 of that year, he was appointed its CEO.
At a board meeting on April 18 last year, there was a major difference of opinion between Mazwai and the Rebosis board over the direction the company was taking.
“The reason for my abrupt departure was a fallout with the board,” Mazwai says.
He had recommended to the Rebosis board that they cut the level of the company’s debt by merging with another property company, and sell off assets and preserve cash, given the downturn in the UK and local economies, where Rebosis has its assets.
One of the companies Mazwai approached about a merger was Texton Property Fund, according to SA Commercial Property News. Sources close to Rebosis say this is true.
However, Mazwai says, his strategy was opposed by the board because it meant that Rebosis’ track record of paying increased dividends would halt and that the group would fall prey to analysts’ long-standing criticisms.
“The board was in no mood to change strategy. I couldn’t tell shareholders a story that I didn’t believe. A man should lead with conviction.”
Mazwai, who is a Formula 1 fan, uses racing-car imagery to describe the Rebosis board’s approach: “Driving down the road, they see a curve coming. ‘I think we should break and take it gently,’ says one. Another says: ‘Nah, put foot. Smoke the tyres.’
“The appetite for risk was too big,” Mazwai concludes.
In the 14 months since his resignation, the company’s share price has plunged by 90% and it has found itself “in the grips of a liquidity crisis”, he says.
Rebosis shares were this week quoted at 67 cents, up from its recent all-time low of 51c but far below its all-time high of above R13.
“It is a vindication, but there is no pleasure in that. Why would I be happy? I failed to win the confidence of the board,” says Mazwai, adding that it is time for the board to move on and “remove me from the room”.
DEBT-FUELLED GROWTH AND DIVIDENDS
During Rebosis’ early years, Mazwai says, the company achieved uninterrupted growth in dividends and never missed its earnings forecasts. However, he adds, this growth was driven in part by debt. “The foot was on the accelerator to get growth in. The guys ran hard.”
He says that to maintain the company’s growth in dividends, it geared its balance sheet through complex financial instruments: currency derivatives, cross-currency swaps, interest-rate derivatives, a two-tier share structure and financially engineered acquisitions and disposals.
“This form of financial engineering was practised by a number of South Africa’s leading property companies,” Mazwai says.
The way in which the rules pertaining to real estate investment trusts (Reits) work, says Mazai, differ from accounting standards in that the amount paid to shareholders “is typically higher than the cash you have in the bank”.
To illustrate the point, he uses the example of Rebosis’ interim report at end-February 2018, which was released in May, just after he left: Rebosis reported it had cash reserves amounting to R33 million and profits of R343 million – yet it promised its shareholders a R504 million payout.
Mazwai had expressed concern to the Rebosis board that their strategy could see the company run out of cash.
“Could I see a scenario where I pay a dividend, and a few months later I am forced to sell buildings to cure my obligation to the bank? That is precisely what happened to Rebosis.”
A key event he identified during his tenure as Rebosis CEO was a January 2018 report by Viceroy Research, which specialises in strategies that bet on falling share prices. “Viceroy shone the spotlight on the level of financial engineering that Reits were running.”
Reit regulations were exploited in the local market, he says. The Viceroy report triggered a collapse in property share prices and a strong dislike for complex financial instruments.
Mazwai is currently CEO of the National Stokvel Association of SA.
 |
| ||||||||||||
| |||||||||||||
