The spat between asset manager 36ONE and Resilient has intensified after the property group’s operations came under intense scrutiny in a scathing internal report, which prompted the JSE to investigate recent trades in Resilient stable shares.
The Resilient stable includes Resilient itself, Fortress, Greenbay and Nepi Rockcastle.
A leaked report by 36ONE Asset Management accused the Resilient stable of artificially inflating its distributable income (intended for dividend payments) through the inclusion of interest income earned from prime plus 2% loans to its Black Economic Empowerment schemes.
This alleged practice, 36ONE said, implies that Resilient group’s financial statements don’t comply with international financial reporting standards (IFRS) and are in contravention of the Companies Act of 2008 and JSE listing requirements.
It went on further to say that the high premiums to net asset values that Resilient, Fortress, Greenbay and Nepi Rockcastle shares fetch were influenced by directors buying substantial volumes of shares between October 2016 and December 2017.
In rejecting the allegations levelled against it, Resilient said 36ONE did not seek its response to any of the allegations before the report was circulated widely in the investor community.
It also accused 36ONE of having a large short position on Resilient, implying that it might have profited from the wild sell-off in the Resilient company shares since January 11. At the time, speculation was rife that activist short-sellers Viceroy would be targeting Resilient companies. Instead, Viceroy was targeting Capitec Bank.
Despite this, the selloff in Resilient, Fortress, Greenbay and Nepi Rockcastle continued, wiping off more than R100 billion in all four companies since January.
On Tuesday, 36ONE admitted to not engaging Resilient management when it was preparing the report because it might have compromised its freedom in the trade of Resilient shares.
36ONE said it was uninvited from Resilient’s results presentation in January, where it would have had the opportunity to quiz management. 36ONE received a “you’re not welcome letter,” according to its statement seen by Moneyweb.
“So the opportunity to question the Resilient CEO and CFO at the results presentation was denied to us. To add insult to injury Resilient now sees fit to criticise us for not engaging with them,” it said.
Des de Beer, the CEO of Resilient, has another version of events.
De Beer said Resilient didn’t invite 36ONE to its results presentation as they were vocal about their concerns regarding the property group’s accounting practices. Instead, 36ONE was offered an opportunity to engage on a one-on-one basis with Resilient management after the results presentation. “36ONE didn’t take up the opportunity to engage with us in the special meeting,” De Beer told Moneyweb.
The leaked report, which was still in a draft form prepared by 36ONE analysts, was never intended to be published. “It has never been our practice to publish our internal research, which is our own confidential information and upon which we make investment decisions, whether short or long. In this case, we took short positions based on our research.”
“It would make no sense for us to release a draft. If we intended to release a report, it would have been the final version and worded differently, although the substance of the report would have been and is the same.”
36ONE said it will cooperate fully with the investigations being conducted by the regulators. The JSE might involve the Financial Services Board in its investigation if it has found wrongdoing in the trading of Resilient shares.
Resilient described 36ONE’s report as “innuendo” and “damaging” when it rejected the asset manager’s allegations in its stock exchange announcement on Friday.
On Monday, Resilient said it doesn’t determine the market price of its shares and the fund manager’s “untested allegations” of share price manipulation are not substantiated and “will not stand up to independent scrutiny”. Resilient said 36ONE’s views were influenced by its large short position and not objective analysis.