In the News

18
Apr

The peculiar case of the Picvest billions: Part 4

Virtually all HS properties sold off before and after business rescue process.

Rock Cottage shopping centre is one of the 14 properties in the syndications that were sold at unrealistic prices, realising a loss of R72m for the HS companies, while another seven were sold ‘twice’. Picture: Moneyweb

Rock Cottage shopping centre is one of the 14 properties in the syndications that were sold at unrealistic prices, realising a loss of R72m for the HS companies, while another seven were sold ‘twice’. Picture: Moneyweb

A Moneyweb investigation shows that virtually all of the 79 properties once syndicated to the former Highveld Syndication (HS) companies were sold to third parties before and after the schemes fell into financial distress.

Around 18 000 investors paid R4.6 billion for these properties, which were at the epicentre of the HS schemes. They were bought with the investors’ money and the properties – without any mortgage bonds – were given to professionals to manage and to generate above average monthly income for investors. The properties also formed the underlying security for investors.

For a chronological history of the HS schemes, read:

The peculiar case of the Picvest billions: Part 1 (History)

The peculiar case of the Picvest billions: Part 2 (History)

The peculiar case of the Picvest billions: Part 3 (Overvaluation of properties)

But a Moneyweb investigation found that virtually all these properties were sold shortly before and after the HS companies were put into business rescue in December 2011. The investigation identified 14 properties sold by the HS companies themselves, and an additional seven sold by Zephan prior to the commencement of the business rescue process.

These seven properties were possibly sold ‘twice’ – first to investors for R450 million via the successful syndications but they were never transferred, and a second time when they were sold to third parties for R347 million.

This article analyses the sale transactions of these 21 properties. A subsequent article about the sale of the properties after the implementation of the Section 155 Scheme of Arrangement (SoA) will follow.

Investigation methodology

Moneyweb’s investigation sought to ‘follow the money’ from when investors invested R4.6 billion to acquire the properties, to who actually own the properties today. Over a period of nearly six months, we analysed the title deeds (more than 150) and sales transactions of the original 79 syndicated properties.

The individual transaction amounts related to these properties were also compared to the official syndication values as disclosed in the HS prospectuses, the valuations contained in the business rescue plan and the SoA, as well as the independent valuations contained in Accelerate Property Fund’s prelisting statement. Thousands of pages of court documents related to numerous court cases were also analysed.

There are many interesting individual transactions, which will be analysed in this and other articles. These required some context from Nic Georgiou, property magnate and patron of the SoA, and Hans Klopper, the business rescue practitioner and Orthotouch director.

Moneyweb sent detailed questions to Georgiou and Klopper in November 2018, as well as on subsequent dates, asking them to provide background and motivation for the business rationale of many individual transactions, but no answers were forthcoming. Moneyweb also requested interviews with Georgiou and Klopper, but these invitations were either ignored or declined.

Properties sold before the HS companies were put into business rescue

The original HS prospectuses marketed themselves as property investment vehicles that would see investors become shareholders in companies that owned unencumbered properties.

However, Moneyweb’s investigation reveals that the HS companies sold 14 properties to third parties for around R393 million, realising a loss of R72 million for the HS companies.

Although the Companies Act allows directors of the HS companies to buy and sell underlying assets of companies, the HS prospectuses did not emphatically state that such trading would occur. In fact, the properties were touted as hand-picked to ensure fulfilment of the HS conditions.

A summary of these transactions appears in the table below:

Properties sold prior to business rescue
Property name HS prospectus valuation Price sold to third party Third party
1 110 Hamilton Street – office building (HS 20) R43 023 578 R33 000 000 Epipax
2 Absa Potgietersrus (HS 18) R25 600 000 R17 000 000 TP Hentiq 6256 (Pty) Ltd
3 Caltex House (HS 18) R28 600 000 R33 500 000 Elatiglo (Pty) Ltd
4 Constantia Square (HS 16) R26 090 000 R15 100 000 Friedcorp 549 CC
5 Edgars Pietersburg (HS 19) R44 665 219 R32 000 000 Jason & Amy Prop Developing
6 Fourways Mall (HS 15) R68 260 000 R53 000 000 Balvest CC
7 Jacqueline Mall (HS 16) R29 160 000 R26 500 000 Dashing-Anglo Direct Division CC
8 Jeanlen Shopping Centre (HS 15) R24 965 000 R20 950 000 VVHHD Investments (Pty) Ltd
9 Panorama Shopping Centre (HS 16) R35 925 000 R35 989 536 Zephan
10 Pick n Pay Centre (HS 17) R27 660 000 R10 571 520 Blue Horison Investments 23
11 Rock Cottage Shopping Centre (HS 16) R48 135 000 R48 086 412 Zephan
12 Sabie Spar (HS 16) R18 315 000 R15 000 000 Magaliesboom Eiendomme Ses CC
13 The Village (HS 18) R14 000 000 R12 250 000 Readam SA (Pty) Ltd
14 Wierda Square (HS 15) R31 840 000 R41 000 000 Vresthena (Pty) Ltd
R466 238 797 R393 947 468


HS directors’ response

Moneyweb put questions related to these sales transactions to Ben van der Linde and Morkel Steyn, directors of the HS companies at the time.

Van der Linde responded on behalf of both directors and said the sale of properties was in accordance with the Companies Act, which allows the directors to sell assets. He also supplied Moneyweb with an email that he sent to Georgiou and other parties in May 2011 in which he questioned the sale of the properties from the syndications, and asked how the proceeds were to be used. “I was never answered in writing,” said Van der Linde. “We had meeting upon meeting, but nothing happened. This continued for years until the HS companies were put into business rescue.”

It is also clear from the email that the directors were not fully informed of the reasons and circumstances related to the sale of the properties.

Individual transactions

The sale of two properties listed in the table above, Panorama and Rock Cottage, require further analysis. Both properties were syndicated as part of HS 16, but shortly before HS 16 was put into business rescue in December 2011, the properties were sold back to Zephan, which in turn resold them to third parties at a significant profit.

Panorama

The Panorama Shopping Centre is situated in Mulbarton in the south of Johannesburg. It was originally syndicated in 2006 as part of HS 16 at a value of R35.9 million. The title deed shows that Bosman & Visser (B&V) acquired the property for R43 million from High Adventure Investments Twenty in 2006, and immediately sold it to HS 16 for R51.8 million.

HS 16 remained the owner until 2011, when the property was sold back to Zephan for R35.9 million. Zephan then sold Panorama to Oaktree Inv (Pty) Ltd in 2014 for R101 million. A summary of the transactions as per the title deed appears below.

Panorama Shopping Centre (HS 16)
Valuations Date Valuation
Syndication value as per HS prospectus 2006 R35 925 000
Transactions
Company Year Price
Bosman & Visser 2006 R43 000 000
Highveld Syndication 16 2006 R51 877 008
Zephan 2011 R35 989 536
Oaktree Investments (Pty) Ltd 2014 R101 000 000

There are many interesting facts related to these transactions. B&V acquired the property at nearly R8 million more than the syndication value, and sold it to HS for R16 million in excess of the R35.9 million syndication value.

HS then sold the property to Zephan in 2011 at the original syndication value, and the syndication company suffered a loss of nearly R16 million. Zephan earned a profit of R65 million when the property was sold to Oaktree three years later.

Moneyweb put questions to Georgiou, but he did not respond.

Rock Cottage

Another interesting transaction involves the Rock Cottage Shopping Centre in Randpark Ridge as part of HS 16 for R48.13 million. After B&V acquired the property in 2006 for R44.3 million, it was sold to HS 16 for R48.08 million, slightly less than the syndication value.

In 2011, HS 16 sold the property to Zephan at the same amount HS 16 paid to B&V to acquire it five years earlier.

Two years later, Zephan sold the property directly to Accelerate for R63 million, earning Zephan a profit of nearly R15 million. (This is one of few properties Zephan sold directly to Accelerate and not through back-to-back transactions involving Orthotouch.)

A summary of the transactions appears below.

Rock Cottage
Valuations Date Valuation
Syndication value as per HS prospectus 2006 R48 135 000
Transactions
Company Year Price
Bosman & Visser 2006 R44 270 833
HS 16 2006 R48 086 412
Zephan 2011 R48 086 412
Accelerate 2013 R63 000 000
Vresthena Pty Ltd 2016 R65 000 000

Moneyweb put questions to Georgiou to explain the context and rationale behind the transaction, but he did not respond.

 Seven properties sold ‘twice’

The Moneyweb investigation also reveals that at least seven properties were possibly sold twice by Zephan, Georgiou’s property company. The seven properties were originally syndicated for R450 million through several of the HS syndications, but were never transferred to the relevant HS companies.

Zephan sold these seven properties to third parties for R347 million. This suggests that Zephan sold the properties to the HS companies and third parties for a total amount of nearly R800 million.

A summary of these transactions appears below.

  Property name HS prospectus valuation Price sold to third party Third party
1 Mount Royal (HS 19) R21 293 661 R12 500 000 CEZ Investments CC
2 Graaff Reinet Portfolio (HS 19) R25 465 833 R25 000 000 Shoprite Checkers
3 Mr Price Vryburg (HS 20) R14 910 922 R12 500 000 Camden Bay
4 The Mill House (HS 21) R64 023 288 R21 500 000 Schaeffer Technologies Trust
5 Airport Shopping Centre (HS 21) R125 596 500 R114 500 000 Growealth
6 Vaal Sanitaryware (HS 21) R63 440 989 R62 000 000 Amnem Investments (Pty) Ltd
7 Centex Close (HS 22) R134 360 315 R98 795 850 Amnem Investments (Pty) Ltd
R449 091 508 R346 795 850

 

Moneyweb put questions to Georgiou to explain the context and rationale of these transactions and who authorised them, but no answers were forthcoming.

Part 5 in this series of articles will analyse the sale of properties following the interpretation of the SoA.

Publisher: MoneyWeb / Ryk van Niekerk  /  25 March 2019 00:41