The debt crisis that has bedevilled Rebosis Property Fund over the past four years has intensified as the first black-owned and black-managed real estate company to list on the JSE is technically insolvent.

Rebosis, which owns mostly shopping centres and office properties across SA, revealed in its 2020 annual report that its current liabilities exceed the value of its current assets by R9.8-billion at a group level – rendering the company technically insolvent.

In other words, Rebosis’s short-term borrowings (amounting to R10.2-billion) that are mostly due in 2021 to commercial banks – including Nedbank, Investec, Standard Bank, RMB, Absa and Sanlam – are more than the R320.8-million in cash reserves on its balance sheet. Rebosis’s short-term borrowings are also larger than the value of its A and B shares on the JSE, which have a combined value of about R195.5-million.

The Rebosis annual report was probably missed by investors as it was published on New Year’s Eve at 12.50pm – ending a horrid 2020 in which the company’s A and B shares fell by 75% and 38%, respectively.

The technical insolvency doesn’t necessarily mean that Rebosis is on the verge of financial collapse, because it can sell its properties to free up cash to pay down debt. However, its balance sheet has become uncomfortably riskier. Rebosis owns a property portfolio worth R13.2-billion that includes well-known shopping centres such as Baywest Mall in Port Elizabeth, Forest Hill in Centurion and Hemingways Mall in the Eastern Cape, 36 office properties and a warehouse. The properties have been pledged as security on the money owed to commercial banks.

The debt problem 

Underscoring Rebosis’s debt load is a loan-to-value (LTV) ratio, a key metric used in the real estate sector to measure a company’s debt against the value of its assets. Rebosis’s LTV ratio was 72.4% as of the end of August 2020, which is the highest in the real estate sector. Investors prefer a company to have a ratio of less than 40% because beyond this threshold a company faces the risk of missing debt payments if lenders were to immediately call for loan repayments.

The Rebosis LTV ratio fell from 75.7% to 72.4% because the company reduced its debt by R500-million by using the proceeds from the sale of Mdantsane City Mall in the Eastern Cape and an office property. Rebosis CEO Sisa Ngebulana, who founded the company in May 2011 and listed it in the same year, wants the LTV ratio to drop to below 40%, which will involve the sale of more properties.

The source of Rebosis’s debt problems has been largely created by its ill-fated acquisition spree in the UK, when it paid R1.26-billion in 2015 for a stake in UK shopping centre owner New Frontier Properties (NFP), using cash and debt. A year later Brexit happened and Rebosis had to write down the entire value of its NFP investment. Rebosis later sold its NFP investment, leaving debt on its balance sheet associated with its foray into the UK.

The Rebosis balance sheet has deteriorated to the extent that its external auditor, BDO SA, has warned that the company’s going concern status or ability to survive for the foreseeable future might be threatened. In its audit report accompanying Rebosis’s annual report, BDO said the company’s ability to continue trading as a going concern and avert collapse depends on whether management and the board can win over banks to accept new debt repayment terms.

“The company’s ability to continue as a going concern is dependent on the roll-forward of the debt facilities by their banks [meaning that Rebosis will ask banks to roll over debt payments to a later period]. These conditions, along with other matters… indicate the existence of a material uncertainty that may cast significant doubt on the group’s and company’s ability to continue as a going concern,” BDO said in its report.

Although Ngebulana admitted in the annual report that Rebosis’s balance sheet doesn’t pass the liquidity test, he said the board “is of the opinion that the group… [has] adequate resources with the continued support of its funders to continue operating for the foreseeable future”. 

Along with selling properties to raise cash, Rebosis might delist from the JSE. A delisting would involve private investors buying Rebosis, and in the process, pumping cash in the business to settle its debt and fund growth plans. DM/BM