Calgro M3 was forced to collapse a share scheme for its executives as it frantically sought ways to shore up capital ahead of the release of its interim results so that it did not breach its loan covenants. Photo: Simphiwe Mbokazi/African News Agency (ANA)

CAPE TOWN – Calgro M3 was forced to collapse a share scheme for its executives as it frantically sought ways to shore up capital ahead of the release of its interim results, so that it did not breach its loan covenants.

This emerged after the developer of lifestyle estates, memorial parks and rental units on Tuesday tried to explain the reasons for the JSE’s public censure of the company.

The JSE said the group had failed to follow proper governance processes when it collapsed the share scheme for executives.

It said Calgro had been censured because it had breached listing requirements by failing to announce all share dealings by directors, failing to announce the terms of share repurchases, and that the JSE had not been notified if shareholder approval had been sought to approve a board resolution for such a share repurchase.

Calgro M3 in September last year decided to cancel the executive share scheme initially approved by shareholders in July 2015, due to the negative impact that new accounting standards IFRS 15 and IFRS 9 had on the net debt/equity ratio, and the gearing ability of the company in future.

“Calgro M3 failed to seek the approval of shareholders for the buy back of shares. Calgro M3 failed to disseminate a directors’ dealings announcement within 24 hours by Calgro M3 of the directors agreeing to sell their shares to Calgro M3,” the JSE said.

Calgro directors said in response yesterday, however, that should any covenants of its debt instruments be breached, all the notes issued would have needed to be repaid immediately.

“The perilous economic environment had an adverse effect on the construction sector and this, with the implementation of IFRS 15 and IFRS 9, had a significantly negative effect on retained earnings, which was immensely exacerbated by the 2015 scheme,” the company said.

The effects only became apparent in the planning of the August 2018 half-year results.

“At this time, the company realised that it was dangerously close to breaching net debt-to-equity ratios and an urgent audit committee and board meeting was called.”

“There was no time to reduce debt or increase cash. Accordingly the option of cancelling the 2015 Scheme, which reversed a share-based payment reserve to retained earnings and immediately improved the company’s retained earnings, was the most sensible and effective way to achieve the required result under the prevailing circumstances.”

Calgro M3 directors said they had a “genuine and bona fide belief,” that they were complying with all relevant JSE listings requirements.

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