Pieter Prinsloo

SA's biggest listed mall owner, Hyprop Investments, is taking fellow retail-focused property fund Sycom to court in what could be a test case for the JSE on how it deals with corporate action by property unit trusts (PUTs).

Hyprop is seeking an order in the south Gauteng high court to declare 34,6m new units issued by Sycom unlawful and void.

The units were issued for cash (around R800m) to select unit holders in September 2010 and February 2012, increasing Sycom's units by around 16%.

Hyprop, Sycom's biggest single unit holder, wasn't offered the chance to participate in the capital raising, reducing its stake in Sycom from 39% to 34%.

Hyprop earlier this month complained to the JSE that Sycom wasn't entitled to issue new units without obtaining unit holder approval. The JSE subsequently ruled that Sycom had breached certain of the JSE's listing requirements and publicly censured the fund. But no fine or other penalty was imposed, prompting Hyprop to go the legal route.

Hyprop CEO Pieter Prinsloo says the JSE's public censure was a mere slap on the wrist for Sycom and provides no remedy to unit holders whose investment has been diluted. Based on legal advice, Prinsloo believes that the new units have been issued unlawfully and should thus be removed from Sycom's unit register.

Sycom will oppose the application inter alia on the basis that it's not possible to identify the disputed units and their current owners. Says Sycom CEO Paul Theodosiou: "I don't think Hyprop's case will succeed and I can see no benefit to unit holders arising out of their action.''

Whatever the outcome, the case raises important questions about the way PUTs are governed under the Collective Investment Schemes Act and the Financial Services Board. Industry players say the legal spat between Hyprop and Sycom wouldn't have ensued if PUTs weren't regulated by outdated legislation that compromises the rights of unit holders.

Stanlib investment analyst Ndabe Mkhize says PUT investors are becoming increasingly frustrated by the restrictions placed on unit holder participation. PUTs are run by external management companies whose decisions don't always have to be approved by unit holders.

"There is no official forum where PUT unit holders can voice their concerns. So we welcome any court finding that will lead to improved corporate governance.''

The case will be heard on December 11 unless opposed.