The JSE censured Delta Property publicly for breaching listings requirements under the previous executive management, which misled the investing public when reporting its financial results from 2018 to 2020.
The stock market operator also imposed a financial penalty of R7.5m, of which R5m was suspended for five years on condition that Delta does not commit similar offences.
In arriving at the punitive sentence, the JSE said on Friday that it took Delta’s own forensic probes into account, which unearthed irregular accounting and other practices over the time horizon; the present economic climate; and the remedial action taken by the present executive management, as well as the broader interests of the investing public.
The black-owned and managed real-estate investment trust has been selling properties to manage its loan-to-value (LTV) ratio, which stood at 60% in the six months to end-August.
LTV measures a company’s debt relative to its assets, and 40% is considered to be the limit above which financial stress is felt on a balance sheet.
The JSE said the accuracy and reliability of financial information published by listed entities played a pivotal role in maintaining a fair, efficient, and transparent market.
“The provisions of the listings requirements, which impose various important obligations on listed companies in respect of the disclosure of financial information, enhance the integrity of the market and promote investor confidence,” the exchange operator added.
Dealt blow
Delta, which generates the bulk of its revenue from government tenants, has been through a rough patch since its founder and former CEO, Sandile Nomvete, resigned in August 2020, with other members of executive management amid allegations of fraud, which they disputed.
Their departure coincided with the Covid-19 pandemic, which dealt a big blow to commercial property, particularly the office market that was shaken by a hybrid work model.
The pandemic was followed by a cycle of interest-rate hikes, which further squeezed debt-laden Delta.
In November, the company said it was looking to offload 43 noncore assets valued at R2.2bn. At the end of the interim period, Delta’s property portfolio consisted of 91 properties with a total investment value of R6.9bn.
Its share price was flat at 18c in early trade on the JSE on Friday, having plunged 95% over the past five years, according to data compiled by Infront.
In the intervening period, trade in its shares was suspended temporarily after it failed to report financial results within the stipulated three months after the end of the financial year, as required by the JSE.
Business Day reported in December that former Delta chair Johannes Magwaza and Nomvete would have to fend off a delinquent directors application brought against them by a creditor of their liquidated entity Somnipoint.
Suing men
Johannesburg-based private equity firm Vantage Capital Fund Management asked the high court in Johannesburg to declare the men delinquent directors in a case that also lifts the lid on alleged governance breaches at Delta during their tenure.
Vantage is also suing the two men, with another former Delta executive, for altogether R371m over a property deal that went pear-shaped. The private equity firm claims it granted Somnipoint a R200m credit facility nearly a decade ago to buy a building in Pretoria.
As security for the loan, Vantage registered a mortgage bond over the building called Absa Towers and obtained a cession of the rentals from Somnipoint.
Vantage argues that Somnipoint’s default on its debt was not a normal default, accusing the company’s directors of having used Delta in frustrating it from exercising its rights as a creditor.
Delta informed the market in December 2020 that a forensic investigation found evidence of past practices involving governance failings and wrongdoing at the company, “including unsubstantiated payments, procurement irregularities and other unethical business dealings”.
The report has not been made public. Business Day has gathered that Absa Towers was also part of the reasons for ructions at Delta.
Delta entered into an agreement with Somnipoint in 2015 to acquire the Absa Towers building from Somnipoint and paid a R45m refundable deposit to Somnipoint.
Delta’s investment committee later declined the deal. However, Delta claims the deposit was not refunded, a contention Nomvete denies.
Update: February 18 2024
This story has been updated with new information.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.