The Public Investment Corporation’s investment in the erstwhile JSE-listed property group GRIT has run into turmoil, with the asset manager at elevated risk of losing a lot of money.
GRIT is listed on the London Stock Exchange (LSE) and its shares are suspended after it didn’t table its financial statements on time.
It delisted from the JSE seven years ago but began having a torrid time before then.
The numbers have looked grim since 2018, the year GRIT made its LSE IPO.
The group total return to shareholders stands at -91%, pointing to a company in structural, sustained decline that has unfolded over many years.
Having listed with ambitions to deliver 12%-15% total annual returns to shareholders, the group has delivered a near-total loss of capital in the past eight years.
The PIC not only owns about 22% of GRIT, but in 2024 it saw fit to inject equity of $48.5m (roughly R900m at the time) into the company -- essentially a bailout.
The Government Employees Pension Fund accounts for 85% to 90% of the PIC’s total asset portfolio, an amount of roughly R2.7-trillion.
The desperate need for the PIC to come to its rescue is underscored in GRIT’s 2024 annual report.
“In preparing the forecast cashflow, the board has identified a material uncertainty that may cast doubt on the group’s ability to continue as a going concern,” the report read.
“The uncertainty primarily arises from the timing of the receipt of the proceeds from the PIC on a capital raise called for by one of the group’s subsidiaries, Gateway Real Estate Africa, amounting to $48.5m.”
The investment eventually came, but seemingly too late to save the day. The investment forms part of a litany of investments by the PIC, particularly in the property space.
Eskom Pension Fund is also a big investor in GRIT, which is led by Bronwyn Corbett.
One of the sticking points in GRIT is its high exposure to interest-bearing, dollar-denominated debt. Corbett and her team walked straight into a debt trap.
In the 2024 financial year the group was saddled with crippling interest expenses that were more than double what is normally considered safe territory for a REIT.
In essence the company’s total debt is nearly 14 times greater than its annual cash earnings, and would theoretically take the company more than 13 years of uninterrupted, pre-tax operating earnings to pay off all its obligations.
The group, in a last throw of the dice, has roped in respected restructuring specialist Michael Dorn as chief restructuring officer, hoping he could achieve for GRIT what he did for Nampak.
GRIT said its suspension on the LSE was related to a potential transaction that could have a material impact on the financial statements as a whole if completed, and the company was still finalising its financial statements before informing the market.
“This is not a routine reporting delay. The group has been dealing with persistent headwinds, including rising finance costs, increasing debt liabilities, valuation pressure and ongoing lender discussions,” GRIT said.
The PIC hid behind its “long-term” investor mandate when asked about its continued investment in GRIT despite its sustained poor share price performance and under-pressure property valuations.
“The company’s share price and its property valuations have been under pressure since 2015.
As a long-term investor, the PIC has continued funding support for GRIT to protect shareholder value on behalf of its client, the Government Employees Pension Fund (GEPF),” it said.
“Such support is based on proper due diligence and valuations conducted by independent transaction advisers.
“GRIT maintains a strategic pan-African real estate platform with more than 30 assets across 12 countries.
“The PIC acquired 116,588,059 ordinary GRIT shares for R1.8bn and the value would be reflected in the latest traded price on the London Stock Exchange.” — Business Times