Picture: 123RF/NDUL
Picture: 123RF/NDUL

Controversial research house Viceroy could face legal action after sending the share price of the JSE’s second-largest property company, Nepi Rockcastle, into a tailspin last week.

Alex Morar, CEO of Nepi Rockcastle, one of the companies caught up in the share-trading scandal that engulfed the Resilient group of companies earlier in 2018, said the Central and Eastern European shopping mall owner might sue Viceroy following the research firm’s report last Wednesday in which it accused his company of inflating its profits. 

This sent Nepi’s share price down 14% to R99, wiping R9bn off its market capitalisation.

Most of Nepi Rockcastle’s 14% drop was recovered on Thursday after Morar and CFO Mirela Covasa released a detailed statement that argued Viceroy had not understood the differences between Romanian and international financial reporting standards (IFRS). 

They also said Viceroy had made no attempt to interview anyone at Nepi Rockcastle.

Morar maintained Viceroy had a destructive agenda and needed to be punished for playing with investors’ money. When asked if Nepi Rockcastle would sue Viceroy, he said lawyers were being consulted.  

“We are certainly assessing our options in this direction and have been contacting lawyers. While I am of the view that short-sellers have a role in the market in general, I don’t think a grouping like Viceroy can be categorised as such. Based on what I know now, I find their approach intentionally destructive for own gain and they’re hiding behind anonymity and a page-long disclaimer.”

His suggestion of legal action against short-seller Viceroy came on Friday, a day after SA Reserve Bank governor Lesetja Kganyago called Viceroy a hit squad.

“They generate a report and their disclaimer says that this is an educational report,” Kganyago told a media lunch. “So you go and take a position on a stock and then you ‘educate’ people about the stock and you can get away with it. They are a hit squad,” Bloomberg quotes him as saying.

Morar said Nepi Rockcastle owned more than 50 shopping centres worth about R83bn in nine countries in Central and Eastern Europe, and this meant it had to work within numerous accounting rules. 

He said the group would always comply with IFRS when reporting its financial results at a group level for JSE investors.

Viceroy broke into the local investment community late in 2017 when it published a report on Steinhoff International.

Viceroy alleged Nepi Rockcastle’s Romanian subsidiaries had recorded a pretax loss of about €41m in 2017 rather than the €284.8m profit reported to shareholders.

Romania accounts for close to 60% of Nepi Rockcastle’s net rental and related income.

Viceroy said the company’s earnings figures were “massively overstated for at least the last three years”. But Morar said his company’s response was thorough and that Viceroy’s report was a “shocking piece of fiction”.

Morar said the ongoing investigation by the Financial Sector Conduct Authority into the trading of Nepi Rockcastle’s shares and financial reporting by the company — as well as the other members of the Resilient stable of companies — had been prolonged for too long and was creating uncertainty around the companies. Nepi’s share price is down 48.5% so far this year.

The market abuse department’s investigation is two-fold: it is studying possible insider trading and price manipulation in the companies’ shares as well as false and misleading reporting by the group of companies. 

andersona@businesslive.co.za