RMBH progress snagged by Atterbury loan dilemma

Ongoing efforts by RMB Holdings (RMBH) to return value to shareholders could hit a snag after the investment company confirmed there was a difference of opinion on the settlement terms for a sizeable loan made to a key investment.

RMBH, which after unbundling its FirstRand stake in mid-2020 has been left with a variety of property assets, distributed around R2bn to shareholders in the interim period to end-September. 

A trading statement released this week showed that the revised net asset value (NAV) for RMBH for the year ended March 2023 would range between 77.5c and 116.3c a share.

The share is trading at 50c on the JSE with some market watchers believing that complications around settling a R489m loan to property group Atterbury — where RMBH holds a 27.5% stake — is weighing heavily on investor sentiment. Atterbury is by far RMBH’s biggest asset following the recent sale of its stake in Atterbury Europe.

At an investment presentation on Wednesday a number of shareholders expressed concern that Atterbury, which is highly geared, would be pushing hard to convert the loan into equity rather than repaying in cash. Not only would this preclude the payment of another special dividend, but now the worry is that RMBH would struggle to quickly offload its larger shareholding in Atterbury, especially with the local property market still subdued.

RMBH Property CEO Brian Roberts said the facility agreement between Atterbury and RMBH gave the property company a right to issue a conversion notice around the loan. “This was on the condition that Atterbury, in their reasonable opinion, does not have available cash resources to repay the loan.”

Roberts said RMBH had been engaging with its lawyers on the matter since March this year.

“We are of the opinion that it was never the intention that Atterbury could force RMBH to accept shares as a form of repayment of the loan, and that we would always have the right to decline the offer of shares as a form of repayment.” He said Atterbury had a different view.

Shareholder Nick Krige said there were widespread rumours in the market that Atterbury was in trouble, and that developments with the RMBH loan also suggested that “things were not right” at the property company.

Roberts said Atterbury had made significant progress in selling off assets. “We sit on the Atterbury board, and it is in their interest to convert the loan. It improves their balance sheet ... it reduces debt and provides financing for developments rather than repaying the loan.”

Asked if Atterbury was breaching debt covenants, Roberts said the company was not.

If RMBH does have to convert the loan to equity, it would then hold 42%-44% of Atterbury, a company with sprawling property interests including the Mall of Africa.

Roberts said the larger stake would allow RMBH to appoint four directors on the Atterbury board, though effective control of the property company would still lie with the founders.

Opportune Investments chief information officer Chris Logan asked why RMBH had taken so long to inform the market about the price-sensitive loan conversion developments. He noted the matter had been leaked into the market before the release of RMBH’s interim results.

Roberts confirmed RMBH received notification from Atterbury in late November but was surprised at the leaking of private correspondence.

Another issue that will irk RMBH shareholders is the fact that the potential conversion arrangement will not be executed at Atterbury’s net asset value (NAV). Roberts explained that the conversion price would be based on embedded value — that being NAV plus the value of the management and development businesses.

This might mean a premium of 10% to 12% over Atterbury’s NAV.