Picture: ISTOCK
Picture: ISTOCK

The market has welcomed the decision by the Resilient group of companies to restructure its controversial broad-based black economic empowerment arm as well as to eliminate its cross-holdings with its associate Fortress.

Resilient and Fortress were recently criticised for the way they accounted for the Siyakha education trusts, which were feared to be in dire straits, as well as for employing complicated cross-share structures.

The two real estate investment trusts (Reits) both lost about half their market value in under two months as the market punished them over their structure.

The Reits stepped in on Wednesday and said they would take full ownership of the education trusts.

Nesi Chetty, head of property at MMI Investments, said this was the "kind of positive move investors had waited for".

Resilient’s board released a statement, saying that as a result of the lower Resilient and Fortress share prices the liabilities of Siyakha Trust and Siyakha 2 Trust, being loans from Resilient, Fortress and other lenders, exceeded the current value of their assets.

This reduced the extent to which Resilient and Fortress considered it appropriate to distribute interest income accrued on their portion of the Siyakha loans, Resilient said.

"In these circumstances, and because it is the intention of Resilient and Fortress to eliminate the cross-shareholding between them, Resilient, Fortress and the trustees of the Siyakha Trust and the Siyakha 2 Trust have agreed to a proposal that the affairs of each of Siyakha Trust and Siyakha 2 should be restructured."

The Siyakha Trust would transfer all its Fortress shares to the Siyakha 2 Trust and the Siyakha 2 Trust would transfer all its Resilient shares to the Siyakha Trust.

Thereafter, the Siyakha Trust would hold only Resilient shares and will change its name to the Resilient Education Trust and the Siyakha 2 Trust would hold only Fortress shares and will change its name to the Fortress Education Trust.

Resilient would replace third-party funding of R1.25bn to eliminate all third-party liabilities, leaving Resilient as the sole creditor of the Resilient Education Trust.

Fortress would replace third-party funding in the amount of about R650m to eliminate all third-party liabilities, leaving Fortress as the sole creditor of the Fortress Education Trust.

Separate from Siyakha, Resilient and Fortress would "explore alternatives to eliminate the cross-share holding between them".

Resilient’s share price closed 2.49% up on Wednesday, making it the best performer among listed property stocks on the day, said Jay Padayatchi, executive director at Meago Asset Management.

On Wednesday, Resilient also revised its dividend growth forecast from 13% to 6% for the 2018 June financial year and from 12% to 8% for the 2019 financial year.

andersona@businesslive.co.za

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