Engagements between property company Letlole La Rona Limited and various asset managers resulted in the extraordinary general meeting (EGM) of Letlole that was due to be held last week being postponed, The Business Weekly & Review has established.
In a statement announcing the postponement, the Board of Letlole said that it received requests for additional information to assist them in making an informed decision regarding a recently announced investment opportunity. Letlole recently announced that it was offered a co-investment opportunity alongside Grit Services Limited in the acquisition of an industrial property in Nairobi, Kenya through Orbit Africa Logistics.
Orbit is a special purpose vehicle incorporated in Mauritius, which is wholly owned by Grit. Letlole said the co-investment will be through subscription of new shares in Orbit by the company. A statement by the company said the acquisition of shareholding by Letlole will initially be through the injection of equity in the form of a shareholder loan amounting to approximately $7,200,000 (P88,324,272) to acquire 30 percent shareholding in Orbit. The company will have the option to increase its shareholding to 50 percent in Orbit by injecting a further approximate $7,600,000 (P93,231,176) to be paid to Orbit, including a fee of 8.5 percent per annum of the option price, calculated from the date of payment of the subscription price by Letlole.
The total investment in the asset is expected to be $53.6 million or P657,525,136 (incl. VAT), comprising the initial sale and leaseback on a new 25-year US dollar denominated triple net lease to Orbit at a net acquisition yield of 9.60 percent, alongside the redevelopment and the expansion of the facility at an attractive contractual development yield of 16.0 percent. The transaction envisaged is categorised as a related party transaction as Grit is a material shareholder of Letlole by virtue of its 30 percent shareholding in the company.
Regarding postponement of the EGM specifically, the Board of Letlole said it acceded to the request of the asset managers to provide the additional information for the company to be as transparent as necessary in the related party transaction and allow the unitholders to make an informed decision at the EGM. Letlole said it further noted that given the recent turbulence and adverse sentiments in the market regarding listed entities and related party transactions, it is vital that the consideration of any related party transaction be thoroughly interrogated and all relevant information disclosed that would provide comfort to unitholders in voting in favour a proposed transaction.
Traditionally, companies could release the bare minimum on related party transactions. However, after what transpired with Turnstar Holdings, observers argue that institutional investors now require more information. Others argue that market players are looking for more transparency and accountability, given that expansion strategies of other listed companies, especially Choppies, did not go as planned.
The point is that asset managers do not run businesses. They are investors and their role is to ask the relevant questions and get assurance, especially where related parties are concerned. That is not to say related party transactions are in themselves wrong or a problem. Against this background, Letlole advised unitholders that a supplementary notification pertaining to the transaction will be issued in terms of Section 6.10 of the Equity Listings Requirements. The CEO of Letlole, Kamogelo Mowaneng, says the company strongly supports transparency and full disclosure to stakeholders, particularly against the backdrop of recent media reports on offshore property valuations.
Turnstar was reportedly duped when the value of the property it supposedly bought was inflated, resulting in shareholders reportedly losing nearly P70 million in value. “It is therefore prudent to postpone the EGM and provide supplementary information which will allow unitholders to make a fully informed decision,” said Mowaneng. “We remain excited by the solid platform that the transaction provides for further similar co-investment opportunities.”
But she was quick to let it be known that the transaction will see Letlole earn US dollar revenue from one of the leading and oldest manufacturers in Kenya, a country widely regarded as the gateway to East Africa. “The transaction is strongly value accretive in terms of NAV growth with an expected US$ initial yield of 7 percent,” she said. “It will further improve the fundamentals of LLR (Letlole), considering the 25-year lease term.” Some fund managers observed that some of the maths did not make sense, hence Letlole has to make more information available for them to know where the figures were coming from.