Two real estate moguls’ hopes of creating a major black-owned property crumbled on Tuesday when Delta Property Fund and rival Rebosis Property Fund scrapped merger talks.
After about six months, Rebosis, led by Sisa Ngebulana, and Delta, whose CEO is Sandile Nomvete, jointly announced their talks to create R29bn property group that would have had greater scale and financial muscle to navigate the toughest operating environment since the 2008/2009 global economic crisis failed.
“Market conditions deteriorated in the listed property sector making the transaction look impossible since the beginning of this year,” Ngebulana said.
The failed merger has raised the prospects of both companies being open to buyout offers or tapping shareholders for cash. They signalled last week in their separate updates to investors that both options would be on the table if the merger talks failed.
Shares in Delta, which leases the bulk of its offices to the government, climbed more than 40% in early deals before paring gains to close 33.3% higher at 56c.
But the stock has crashed more than 90% over the past two years, reflecting an industry-wide slump. SA's economy has hardly grown over the past ten years, which has reduced demand for commercial property.
For Delta, the deal would have handed its shareholders a company whose balance sheet was further wreaked by an ill-fated foray in the UK. Rebosis had sold a controlling stake in mall owner New Frontier Properties there for R700 in 2019 after paying R2bn for it in 2015 — a year before the Brexit vote hit property values.
For Rebosis, which sits on a R10bn debt burden versus property portfolio worth R15.6bn, the tie-up would have increased its exposure to the government, a cash-strapped Delta tenant looking at almost every single department to save money.
Delta has been through a drawn-out process of getting its state tenants, especially local government ones, to agree to new leases.
Rebosis' ordinary shares closed 3.13% down at 31c on Tuesday, having fallen more than 96% over the past two years.
Keillen Ndlovu, head of listed property funds at Stanlib, said Delta and Rebosis' proposed merger was a questionable from the onset for the market and some key shareholders.
“Our biggest concern was on the balance sheet and we said that hopefully with a bigger entity, it will be easier to manage the balance sheet. The key priority in the short term would be to reduce debt levels,” he said.
Both funds own government-tenanted offices and management said the companies would be able to benefit from cost-saving overlaps from these assets. They would have also co-owned shopping centres including Baywest Mall, Hemingways Mall and Forest Hill.
The merged entity also would have had greater liquidity and could have possibly attract a wider range of investors seeking to invest in bigger property counters.
In a separate statement on Tuesday, Delta said it expected its distributable earnings per share for its year to end-February to fall between 16% and 20%, from 73.84c previously.
With Karl Gernetzky
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