Trustco, the controversial Namibian investment company enduring a lengthy suspension on the JSE because it has not furnished investors with financial statements for the past two years, will brace for a third assault from disgruntled shareholders soon.
Will this be the long-awaited watershed moment for Trustco? Or will the effort wash out again in a stream of legal obstructions that have, so far, kept the board safely ensconced?
Though Trustco has been suspended from trading on the JSE for the best part of two years, the energy and commodity boom predicted for the Namibian economy has re-ignited interest in the group — particularly in its swathe of real estate interests in and around Windhoek.
The US-based Riskowitz Value Fund (RVF), headed by South African-born investment manager Sean Riskowitz, has successfully requisitioned a shareholder meeting on December 2 in Windhoek. The purpose is to reconfigure Trustco’s board of directors.
The RVF has called two similar meetings in the past year. Neither passed muster after Trustco challenged the legality of the RVF’s position.
At the general meeting in August this year, Trustco chair Raymond Heathcote ruled that the meeting “was found not to be validly requisitioned as the ‘requisitionist’ was not found to be a member of Trustco Group Holdings”. This was despite the fact that the RVF, and allied investment funds, have long been sizeable and strategic shareholders in Trustco.
Quinton van Rooyen is Trustco’s founder, its largest shareholder and its CEO. After that meeting he dismissed the RVF’s tilts, claiming: “There is no version of this campaign in which asking a third time produces a different answer. This board is going back to work — we’d suggest Riskowitz does the same.”
The third thrust is not guaranteed to succeed, even if the RVF has all its ducks in a row. Riskowitz tells the FM that the RVF has addressed all of the issues raised by Trustco and the chair at the previous meeting, adding “though neither we nor the law agree with them”.
If the December 2 meeting moves to tallying an actual vote around removing and replacing shareholders, things could get interesting. But they could also become murky, considering that Trustco is in the process of reversing a share swap deal at subsidiary Legal Shield that involved issuing a heap of shares to the RVF.
Riskowitz, however, is confident. “We expect to succeed by a clear margin if all votes are properly counted.” But investors who eavesdropped on proceedings at the Trustco meeting in August would probably bet on the RVF facing more obstructions in its renewed bid to institute wholesale board changes.
At that meeting long-standing shareholders could, curiously, not be confirmed on Trustco’s share register. This would have left large shareholding blocks unable to vote in what was merely an informal poll, as the meeting was deemed not to have been properly constituted.
Indeed, in Trustco’s notice convening the general meeting, shareholders were reminded that only those shareholders recorded in the company’s securities register on the applicable record date would be entitled to attend, participate and vote. Trustco also indicated that while the board was required to convene the general meeting it did not “advise on the legality of the requisition or the requisitionists’ right to call it”.
The December meeting, though, might at least allow for the RVF to pose a few uncomfortable questions to the Trustco board. Riskowitz points out that independently of the vote, the RVF has already asked the board in writing to explain a loan reinstatement of R1.5bn, the reversal of the Legal Shield transaction with the RVF, the long-outstanding financials and other related-party matters. “The board has refused to engage in any substantive way with us, the company’s largest shareholder.”
The loan reinstatement is morbidly fascinating, especially considering that the original waiver was a key reason Trustco fell foul of the JSE’s stipulations on financial reporting standards. In the year to March 2019, Trustco reported a profit of R725m, but this was mainly due to a R546m “one-off gain” that stemmed from Van Rooyen waiving a R546m loan that sat in Huso (a diamond exploration company acquired by Trustco from Van Rooyen).
The JSE argued this should never have been classified as a “profit”, as this infringed the IFRS rules, but credited to the reserves instead. Trustco disagreed, saying its auditors supported its view. A few months later, in the six months to September 2019, Van Rooyen again “waived” R1bn in loans that Trustco owed him — and again, the company reported that “gain” as a profit.
At the end of financial 2023 the R1.5bn loan was duly reinstated. According to Trustco’s annual report this was done “following the JSE’s instruction to derecognise the gain on waiver of the loans which was recognised in profit or loss”.
The RVF, however, is arguing that, according to independent legal opinion, the debt had been extinguished and could not be revived without new agreements and compliance with the JSE’s related-party rules. Riskowitz tells the FM: “Remarkably, the JSE has accepted the reinstatement as an exempt transaction while claiming that determining its legal validity falls outside its mandate.”
This matter has some serious potential implications for the RVF’s bid to shake up the Trustco board. Having R1.5bn of previously waived debt suddenly restored in favour of the controlling shareholder materially weakens the balance sheet. But if the debt is converted into equity it could substantially strengthen Van Rooyen’s control and dilute minority shareholders at the very time when the Trustco board is under fire.
