The Johannesburg Stock Exchange has publicly censured Trustco Group Holdings Ltd for breaching its Listings Requirements, after the Financial Services Tribunal (FST) dismissed an application for its decisions to be reconsidered.
The decisions relate to the failure by the Namibia-based company to inform shareholders timeously of the effects of a change to the terms of a loan linked to its chief executive, Quinton van Rooyen.
JSE-listed Trustco is the parent company of Trustco Resources (Pty) Ltd. Trustco, through Trustco Resources, sought to purchase the entire issued share capital in Huso Investments (Pty) Ltd.
At the time of the proposed purchase, Van Rooyen was the controlling shareholder of both Trustco and Huso Investments.
In 2015, Van Rooyen made an equity loan of N$295 million to Huso Investments.
In July 2015, Trustco Resources concluded a share purchase agreement with Van Rooyen for the entire issued share capital in Huso Investments.
In September 2015, Trustco, as it was obliged to do in terms of the Listings Requirements, issued a circular to its shareholders about the acquisition of Huso Investments.
The shareholders approved the share purchase agreement transaction at a meeting in October 2015.
In December 2016, the parties to the share purchase agreement concluded an addendum to the agreement that changed its terms.
As required, Trustco issued a second circular to its shareholders, in May 2017. In the circular, the Huso loan was disclosed as an equity loan of N$295.833m, and Huso Investments was reflected as having a consolidated net asset value/net equity position of N$92.131m (inclusive of the N$295m equity loan).
Trustco’s shareholders approved the amended share purchase agreement in June 2017.
Change in the terms of the loan
In March 2018, the directors of Huso Investments passed a resolution to amend certain “term/s pertaining to the 2018 financial statements” relating to the loan from Van Rooyen to Huso.
The original terms stated the loan was interest-free, unsecured, and would be repaid at the option of the company. This was changed to: “The loans are unsecured, bear interest at rates that are determined by the directors from time to time and are repayable within the next 12 months.”
In essence, the loan was changed from an equity loan to a financial liability, thereby diminishing Huso’s net asset value (NAV).
The share purchase agreement (as amended) closed on 4 September 2018 after the final condition of the agreement was fulfilled.
In December 2018, Trustco published its interim results for the period to the end of September 2018. This was the first time Trustco’s shareholders and the market were made aware of the financial impact of the Huso transaction following the change in the loan from equity to a liability.
Trustco disclosed the assets and liabilities acquired of Huso, including increased liabilities comprising “related-party balances” of N$401m, which was significantly higher than the related-party liabilities of N$532 000 disclosed to shareholders in the circular.
The interim results also disclosed Huso’s net equity position as negative N$240.41m, which was a result of the change in the classification of the Huso loan in March 2018. This differed materially from Huso’s positive net equity position of N$92.131m as disclosed to shareholders in the second circular.
These disclosures were confirmed in the provisional and final annual financial statements to the end of March 2019.
In May 2021, the JSE informed Trustco it was in breach of paragraph 9.19(b) read with 3.4(a) of the Listings Requirements for not disclosing the changes to the financial position of an acquiree (Huso Investments), “having due regard to the price sensitivity of such matter”.
In June 2021, Trustco objected to the decision. The objection stated, inter alia, that Trustco was not required to announce the change in NAV because it was not the subject matter of the acquisition, “and a reasonable investor would not have considered it to be a significant factor in making an investment decision relative to Trustco’s market capitalisation at that point in time”.
In August 2021, the JSE informed Trustco it had decided to censure Trustco for failing to comply with the Listings Requirements.
Trustco applied to the FST for the reconsideration of the JSE decisions. It also applied for an order suspending the JSE’s decisions, pending the outcome of the reconsideration application. The JSE did not oppose Trustco’s suspension application but opposed its reconsideration application.
Trustco’s suspension application was granted in October 2021, and the reconsideration application was heard in June 2023.
This month, the Tribunal rejected the reconsideration application as to both the merits of the JSE’s decision and its decision to censure Trustco publicly.
JSE’s reasons for censuring Trustco
Paragraph 9.19(b) of the JSE Listings Requirements require that when a significant change to a matter or transaction has arisen, which is identified after the relevant shareholders’ meeting, a supplementary announcement is required if such information falls within the ambit of paragraph 3.4(a) of the Listings Requirements – that is, if it constitutes price-sensitive information, the JSE said its public censure.
Trustco did not disclose to shareholders and the market that the financial position of the entity it was acquiring had changed significantly from what was contained in the circular that shareholders had previously approved. “Such a significant change in the underlying financial position of the entity to be acquired was specific and precise and had the potential to influence the economic decisions of shareholders and investors,” the JSE said.
It was only after the transaction became effective and disclosed in the Trustco’s interim financial statements that shareholders and the market were made aware of the impact of Huso’s change in financial position on the Trustco group.
Compliance with the Listings Requirements is to protect investors and uphold investor confidence. “To aid in this objective of transparency and a trusted marketplace, issuers are obliged to inform the market if there has been a significant change to a matter or transaction after the relevant shareholders’ meeting that is price sensitive,” the JSE said.
Trustco maintains it acted in good faith
In a statement following the publication of the censure, Trustco said although it was disappointed by the censure, it accepted the FST’s ruling.
Trustco maintained its position that it acted in good faith throughout the process, adhered to the prescribed Listings Requirements regarding SENS announcements and disclosure to its shareholders, obtained the necessary approvals from accredited independent JSE auditors and IFRS experts, and received approval on its circulars from the JSE during the process.
“Trustco remains committed to the highest standards of corporate governance, transparency, fair dealings, and interactions with all stakeholders. The board takes its oversight duties seriously and will continue to exercise independent judgement in the best interests of the company and shareholders.”
The statement quoted Van Rooyen as saying: “It is regrettable that we’ve reached a point where it’s presumed that regulators are infallible. It is essential for justice to be not only done but also seen to be done. Furthermore, it’s evident from the track record of companies’ subject to censure that the JSE exercises its rules with complete discretion, and the FST has never found against the JSE, indicating that the JSE is not capable of making a wrong decision.”
