Dipula Income Fund on Friday proposed a scheme to consolidate its dual share structure into one, a R1 billion capital raise that will include an investment by Resilient, and the possibility of relinquishing REIT status in the interests of reducing gearing.
South Africa focused Dipula owns a sectorally and geographically diversified property portfolio, mainly in convenience and township retail, which has proven defensive in the current market. Its dual share structure comprises “A” shares that have preferential entitlement to dividends, but do not receive any residual dividends in excess of their preferential entitlement.
But, according to management, its shares are “substantially illiquid,” volatile and have consistently traded at a discount to net asset value and did not correlate to the operational performance reflected in distributable earnings.
“The board has considered the complexity and negative impact of Dipula's dual share capital structure and believes it would be in the best interest of Dipula to have a single class of ordinary shares, which would unlock value for all shareholders,” the group said on Friday.
A R1bn equity raise would comprise R404.5m to be invested by Resilient through a disposal of properties of equal value, in exchange for an issue of new Dipula B shares, while the balance of the equity raised would involve issuing new DIB shares for cash, with Resilient underwriting this balance.
A scheme was proposed between Dipula and its “A” shareholders whereby Dipula would repurchase DIA shares in exchange for DIB shares and cash.
“In the current environment, Dipula is unable to raise equity unless it can achieve a simplified share capital structure, and it would be imprudent and impractical to finance its capital requirements out of debt,” the group said.
It needs capital to reduce debt and to finance capital expenditure to enhance its portfolio, and also to take advantage of asset management and strategic opportunities.
“If the transaction is approved and implemented, Dipula will be positioned to unlock value for shareholders with greater investor demand for its shares and, with a better rated and more liquid share. Dipula would have attractive consolidation and strategic opportunities within the property sector.”
When the group originally listed, it operated “in a more benign and higher growth environment”, and the continuation of the 100 percent distributable earnings payout policy was being reconsidered.
“If this is no longer appropriate, Dipula will evaluate its alternatives.”
The board’s view was it would be in the company’s best interest not to pay any dividends, rather than to pay out only a portion of distributable earnings, while it has a dual share capital structure. If the company no longer meets the distribution requirements of a REIT, it would cease to hold REIT status.
“In these circumstances, Dipula would retain its distributable earnings and, after meeting its capital requirements, would reduce its gearing over time,” the directors said. Dipula’s “A” and “B” shares were unchanged at R4 on Friday afternoon.