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iProp shareholders are dealt a blow

Posted On Friday, 10 May 2002 10:01 Published by
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The hope of iProp shareholders benefiting from the proposed unbundling of the property group has been temporarily dashed because of interest rate volatility
The hope of iProp shareholders benefiting from the proposed unbundling of the property group has been temporarily dashed because of interest rate volatility.

The unbundling would have transferred iProp's property assets to a new company called iFour to be listed as a property loan stock on the JSE Securities Exchange SA (JSE).

The newly formed iFour was planned to enter the JSE with a R1,2bn property portfolio and iProp shareholders would have received 81 iFour units for every 100 iProp shares held.

The plan was that iFour's portfolio would be created from property assets worth R246,3m acquired from iProp and acquisitions in the property market.

iProp MD Anthony Diepenbroek has already resigned to become iFour's MD.

However, iProp has released a cautionary statement advising shareholders that, as a result of interest-rate volatility, the transaction was taking longer than expected.

Diepenbroek said the group was to release a statement today stating amendments on the deal.

The delay to the iProp-iFour deal is not exceptional, however, since several other similar proposed transactions have not been fulfilled.

The growth in the listed property sector over the past few years slowed, but was expected to accelerate this year. This appears to have been halted by the twopercentage-point rise in interest rates, and the prospect of a further increase in June makes the likelihood of such deals even more remote.

Ron van der Bos of BoE Merchant Bank agreed the slowdown in the listing of new portfolios was a result of higher interest rates.

'Deals struck before the two-percentage-point hike have made potential listing unattractive.'

The capital rates at which the property portfolios were to be listed had become unattractive when compared with other income-generating investments,' Van der Bos said.

He said the pace of new listings would remain slow until interest rates stabilised or when property owners were prepared to accept lower prices.

Van der Bos also said consolidation of the listed property sector would continue unabated despite a slowdown in new listings.

A number of funds have issued joint cautionary notices signalling plans to merge and create bigger and more liquid property funds.

The listed property sector has more than doubled its size in the past few years to more than R10bn and is expected to hit R30bn in the near future.

The delayed iProp-iFour deal was meant to achieve greater focus on land development for iProp while releasing trapped value.

The group had traded at a huge discount to its net asset value for a long time and the unbundling was seen as positive step to unlock shareholder value.

The proposals were subject to the approval of iProp's shareholders and the regulators.

iProp's share price ended unchanged at 400c on the JSE yesterday. The share price has retired gains made at the eve of the iProp-iFour deal announcement which saw it touch about 550c levels.

The property loan stock sector where iFour is to be listed has also lost value recently. This has been attributed to weakening fundamentals in the property industry.

The industry has come under pressure as a result of oversupply particularly in the office sector in popular nodes like Sandton.

Office vacancies across the country have risen bringing down earnings.

The sector's index closed 1% stronger at 371,1 points yesterday, having touched levels of about 420 points in the second half of last year.

Business Day

Publisher: Business Day
Source: Business Day
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