ANALYSIS | Will Covid-19 push Ngebulana's debt-laden Rebosis off the cliff?

Sisa Ngebulana of Rebosis.
Sisa Ngebulana of Rebosis.
Elvira Wood
  • Sisa Ngebulana's Rebosis has reported a R1.8 billion loss for the six months to February 2020
  • The company generated just enough operating profit cover its finance costs.
  • As more of its debt becomes due in 2021, Rebosis is hoping to sell more assets to cover
  • But with Covid-19 reducing rental income and disrupting property values, analysts worry that Rebosis might struggle to solve its problems.

Covid-19 has exposed vulnerabilities in many companies, none more so than in the property sector. Reduced rental collections, probable tenant failures and the fall in demand for office space as more people move to work from home is worrying the whole industry.

But for Sisa Ngebulana's Rebosis, this new cocktail of problems could be the nudge that finally pushes the fallen property giant off the cliff. Analysts say it will be difficult Rebosis can recover from the current property sector slump given that its debt problems were probably going to bury the company even if things were normal.

"When you look at the results...they just earned enough to pay the interest costs," said Evan Robins, a portfolio manager at Old Mutual Investment Group.

On Monday, Rebosis published its financial results for the six months ended on 29 February. The company narrowed its loss for the period slightly to R1.8 billion compared to just over R2 billion in February 2019. Robins said many of Rebosis' key financial matrix were already so weak during this period.  With most of the company's debt due to mature in 2021, he said it will be difficult for Rebosis to wangle itself out if its current debt crisis.

Will sale of assets be enough?

Rebosis is of course pinning its hope on being able to sell some properties to reduce its debt levels. The company announced at the beginning of June that it has accepted a R91 million offer to purchase for its Medscheme building.

In 2019, it sold Mdantsane shopping centre to Vukile Property Fund for R515 million, helping the company reduce its borrowings to R9.7 billion from R10.1 billion by February 2020. It has also sold some of its office assets in the Western Cape and is currently negotiating sales of more assets with potential buyers.

But with property valuations evaporating because of Covid-19, investors will have to wait to see if Rebosis will fetch respectable selling prices as not many buyers are lining up for property assets.

"The problem with that strategy is that, when you've got high gearing as they do, it's very hard to sell yourself out of trouble. Yes, your debt reduces, but the value of your assets also reduces. Obviously selling is good because it gives you cash. But it's hard to sell yourself out of trouble even in best of times," said Robins.

"It would be a sad day" if Rebosis fail

Rebosis cannot attribute its problems to Covid-19 as its debt problems were spiralling out of control even before with an untimely expansion in the UK

The UK expansion and aggressive expansion of some of its shopping centres when the SA economy has not been exactly booming are some of the missteps that Ngebulana will likely ponder on for years to come.

Makwe Masilela, chief investment officer at Makwe Fund Managers said even bigger and more experienced companies, including Famous Brands, Brait and Woolworths did burn their fingers with UK but had stronger balance sheets to help them recover.

"It does not change that [Ngebulala] is a formidable businessperson. For him to start his company and get it listed on the JSE says a lot. The boy definitely knew what he was doing. And the good thing is that his company is not in trouble because of fraud or misstating financials. It's in trouble because of how things panned out," said Masilela.

Robins also said "Ngebulana is a formidable businessman and property developer but Rebosis has worked out badly". Rebosis' share price captures investors growing apathy towards the company. In the past year, Rebosis' A and B shares respectively lost 92% and 40% of their value. Several equity analysts who were invested in the stock or used to keep an eye on it no longer do.

But Makwe said even then, it would be a "sad day" if Rebosis were to cave in. "It's unfortunate that a company which was supposed to be one of the shinning stars among the black in a space that is mainly occupied by whites might not be able to survive going forward."

NOTE: The article was updated on 30 June to indicate that although Rebosis did initally negotiate disposals of Mdantsane shopping centre, Sunnypark Shopping Centre and Bloedstreet Mall with Vukile Property Fund, it only sold Mdantsane Shopping Centre to Vukile.

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