Resilient Reit is cleared by FSCA

Resilient Reit, which was accused of publishing misleading financial statements, has been cleared by the financial market regulator of any wrongdoing, bringing an end to a scandal that threw the R580bn listed property sector into turmoil for two years.

The Financial Sector Conduct Authority (FSCA) said it has concluded its market abuse investigation into Resilient and found that the company did not contravene the financial markets act.

Since early 2018, the FSCA had been investigating Resilient, Fortress, Nepi Rockcastle and Lighthouse Capital, which were all under the Resilient group of companies and have the same owners and directors. Many of the cross shareholdings have been removed including the one between Resilient and Fortress. 

Following the sale of the four companies’ shares in January 2018, which wiped out more than R100bn of their market value, reports were released by asset and hedge fund managers alleging that the companies’ share prices were overvalued and had been manipulated by directors and insiders, and that the companies had used related party deals to inflate profits and dividends.

The FSCA started investigating the Resilient stable towards the end of the first quarter of 2018. It has gradually cleared each company of the allegations.

The FSCA said its market abuse investigation stemmed from allegations that Resilient may have published false, misleading or deceptive statements, promises or forecasts when it restated its 2013-2017 financial statements.

Fortress and Resilient restructured their BEE scheme following market criticism. Resilient had been declaring income from these trusts as distributable but it had not consolidated these trusts into its books, according to analysts.

“Based on the evidence available, the FSCA is satisfied that Resilient’s financial statements needed to be restated, in so far as the consolidation of the Siyakha Trusts [BEE scheme] is concerned,” it said. “The authority has determined that Resilient, its directors, board and audit committee members, did not negligently or intentionally make or publish a false, misleading or deceptive statement and have therefore not contravened section 81 of the Financial Markets Act. The FSCA has now closed its investigation into this matter.” 

Keillen Ndlovu, head of listed property funds at Stanlib said, “The closure of all these cases is a relief for the sector, given the size and influence of this stable, or former stable, at more than 30% of the SA listed property index. There’s been so much noise and uncertainty over the past 22 months or so. We are glad that it’s gone and we can focus on core property fundamentals and valuations now.” 

Another investigation into allegations relating to market participants manipulating the Resilient share price is still ongoing. This investigation is expected to be completed in early 2020.

The FSCA said, “It is important to note that this investigation is not into the affairs of Resilient.” 

andersona@businesslive.co.za