JSE-listed Nepi Rockcastle fell 14% on Wednesday following the publication of a research report by short-seller Viceroy, which alleges among other things, that the management has enriched itself through merger and acquisition activity, that international earnings are irreconcilable, and that an established financial fraud has taken place.
This is the second time that a warning flag has been waved about accounting practices at Nepi. In February two reports found their way into the public domain, one by independent sell-side research house Arqaam Capital, the other by 36One Asset Management, which questioned why the Resilient Group of companies has such a high premium to net asset value.
While Nepi is an independent company listed on the JSE and Euronext Amsterday, its shareholders include Resilient Reit with 13% and Fortress Reit with 24%.
Cy Jacobs, director of 36One, noted on Twitter that the company was still in the process of analysing the Viceroy Report on Nepi. “Our initial view is that the report is compelling as the conclusions drawn appear to be justified. The report echoes the concerns we had and continue to have about the entire Resilient Group.”
In a statement released on Wednesday at 3.15pm, Nepi management noted that Viceroy had not approached the company for comment and thus they had not been able to respond to the allegations prior to the release of the Viceroy report.
The company added that the report is based on numerous factual errors, misleading information, and false claims; and that it is considering taking measures to hold any parties accountable for presenting misleading information.
While every asset manager will now be asking questions, ripples will be felt immediately across the property sector. As Ian Stiglingh pointed out in an article on Sharenet Nepi Rockcastle (NRP) is one of the largest constituents in the FTSE/JSE SA Listed Property Index, with a 13.70% weight in the index.
“Passive funds tracking the index are also being impacted. Looking at end of September holdings data: Sygnia’s Listed Property Index holds 13.10% NRP while the Satrix Property ETF has 9.48% exposure to NRP. Satrix has a 10% cap on the weight of each underlying share and this clearly benefits the fund by keeping the concentration of its positions in any single share to a palatable weight.”
More to follow.