The JSE has yet to decide if Sygnia’s tardy compliance with JSE listing requirements governing related party transactions justifies any sanction.
The matter concerns rental leases entered into by Sygnia Asset Management with two entities, Beret Properties and Widok Properties. Sygnia’s founder and executive chair, Magda Wierzycka, is a shareholder of Sygnia via the Zatoka Trust, which owns the two property companies.
Wierzycka and her husband, Simon Peile, are the sole directors of both property companies and own at least 60% of Sygnia.
Sygnia’s belated compliance with the JSE requirements may raise questions over governance at the asset manager. This is particularly pertinent as Sygnia discloses several related party transactions in its financial statements.
The company has more than R278 billion in funds under management and administration. It has a market value of R2.5 billion.
A JSE-listed company is required to comply with four conditions before completing a small related party transaction:
- Inform the JSE in writing of the details of the proposed transaction;
- Provide the JSE with written confirmation from an independent professional expert acceptable to the JSE that the terms of the proposed transaction with the related party are fair;
- Publish details of the proposed transaction, including that the transaction is fair; and
- Comply with the requirements regarding transactions with related parties if the independent professional expert states that the transaction is unfair.
Sygnia entered into the leases with the two property companies in March 2018 and March 2020. However, the asset manager only presented its shareholders with an independent professional expert opinion covering the leases on 20 July this year – more than three years after the first lease commenced.
JSE’s director of issuer regulation, Andre Visser, told Citywire South Africa that JSE-listed companies must inform the bourse in writing of the details of small related party transactions before the completion of such transactions.
“We have been and are continuing to engage with the company and its sponsor on this matter,” he said in an email.
Citywire South Africa asked the JSE whether it believed Sygnia significantly breached JSE listing requirements and if it would impose any sanctions.
Visser replied: “The JSE cannot comment on this aspect until such time that it has finalised its engagements with the company and their sponsor.”
Standard Bank has been Sygnia’s JSE sponsor since May 2019.
A fairness opinion compiled by BDO Corporate Finance’s director, Nick Lazanakis, dated July 20, 2021, concluded that the lease agreements between Sygnia and Beret Properties and Widok Properties had market-related terms.
“A monthly rental value and rental escalation rate are, in most lease negotiations, a matter of debate and negotiation,” he said in the report
The fairness opinion shows that Sygnia Asset Management planned or entered into leases with Beret Properties and Widok Properties at the following buildings:
- The Foundry in Greenpoint in Cape Town;
- The Katherine and West Building in Sandton in Johannesburg; and
- Newport House in De Waterkant in Cape Town.
These leases are worth about R15 million per annum before Vat.
Lazanakis found Sygnia concluded the lease agreements at a 5% premium to market-related rentals. That equates to an extra R750 000 before Vat.
“We believe that a variance of 5% regarding monthly rental value is within market-related ranges,” he said.
The report indicates that Sygnia planned or entered into the leases with annual escalations of 8%. This figure compares to local office property rental escalations of about 7% at the moment, while the rate was near 8% a year ago, according to Rode & Associates managing director Erwin Rode.
In an emailed response to Citywire South Africa’s questions about the related party transactions, Sygnia’s company secretary, Glen MacLachlan, said: “Without replying to each of your questions individually, we can confirm that Sygnia disclosed and discussed all of its related party lease agreements with the JSE during 2020 and 2021.
“The JSE approved the independent fairness opinion produced by BDO, and the transactions have been announced to shareholders as required.”
MacLachlan did not explain why it took more than three years for Sygnia to get an independent fairness opinion for the leases entered into in 2018.
Protea Capital Management, which holds Sygnia shares on behalf of its clients, raised the issue about Sygnia’s failure to address the related party agreements in an email sent to the JSE in June last year. Protea’s CEO, Jean Pierre Verster, confirmed this.
Verster raised the issue at Sygnia’s annual general meeting on 28 January this year. Sygnia barred the media from the meeting, allowing only shareholders to attend. Citywire South Africa gained access via a source.
Protea’s question read: “Sygnia’s pre-listing statement indicated that the related party rental of offices expired during 2020. No public announcement has been made regarding new lease agreements. Please share what transpired with this matter.”
In his response, Sygnia’s MacLachlan acknowledged that the related party lease agreements expired in 2020.
“The renewal of those leases constitutes related party transaction agreements. We raised that with the JSE last year and confirmed that they are small related party transactions. The fairness agreement required is being prepared now.”
This article was first published on Citywire South Africa here, and republished with permission.