Default raises uncertainty over Texton
Property fund issues cautionary announcement
Texton Property Fund’s cautionary announcement concerning an empowerment consortium that holds a stake in the group adds uncertainty to the stock, an analyst says.
A default event had occurred on the loan that the Public Investment Corporation (PIC) made to the consortium to acquire 14.8% (net of treasury shares) of the group.
The breach giving rise to the default event needs to be remedied or the empowerment consortium may, in effect, be forced to exit the fund, subject to relevant procedural and regulatory approvals being complied with.
Texton, which has a market capitalisation of R2.215bn, owns R5.5bn worth of assets spread across the UK and SA. Texton’s BEE partner’s stake was worth R287.95m.
The share price is down 9.84% year to date after it closed 2.04% down on Friday at R5.77. The share price is down 44.8% on a three-year basis.
Texton said it had been notified by the PIC as a representative of the Government Employees Pension Fund (GEPF), relating to the funding granted by GEPF to Texton Broad-Based Empowerment Ltd (BEE SPV), that there was a default event by BEE SPV under the loan agreement and the PIC called on BEE SPV to remedy this.
THE BREACH GIVING RISE TO THE DEFAULT EVENT NEEDS TO BE REMEDIED
The default event relates to a breach of a share cover ratio covenant on the loan. Texton’s share price had fallen below the strike price of R11.20. As a result, the PIC is in a position where it can exercise its rights under a put option agreement that had been created when the BEE SPV acquired 51.9-million shares.
In terms of the put option agreement, if the BEE SPV fails to remedy the default event within the prescribed time, GEPF, with Texton’s approval, could exercise its rights and sell the Texton shares pledged to it by BEE SPV. If the default event remains unremedied, GEPF is entitled to exercise the put option in terms of which Texton would be required to repurchase the Texton shares from GEPF subject to certain approvals first being obtained.
The repurchase would be subject to compliance with the Companies Act and the JSE’s listings requirements.
Texton said its board and advisers are assessing the event and an announcement will be made in due course.
"This matter may have a material effect on the price of the company’s securities. Accordingly, shareholders are advised to exercise caution when dealing in the company’s securities."
Chief investment officer at Bridge Fund Managers Ian Anderson said Texton’s cautionary creates a lot more uncertainty for investors.
Evan Robins, the listed property manager for Old Mutual Investment Group, said Texton internalised its management company in 2017 and rebased its dividend so that it would be able to pay regular dividends — as is common practice in the property sector.
"They had been paying one-off items, which made for an unsustainable dividend base."