Wednesday, December 14, 2011
Sharemax rescue hits speed bump
Sharemax rescue hits speed bump
Court decision will take place next year, giving dissenters time to argue their case.
JOHANNESBURG - Investors in Sharemax’s syndication companies will have to wait at least another month to hear if a proposed rescue plan will receive court approval. The North Gauteng High Court has delayed its decision until late January to allow dissenting investors time to argue why they believe the plan is flawed.
This means that the immediate threat of liquidation has not yet been removed. It is generally agreed that a liquidation would crystalise billions of rands worth of losses for Sharemax’s 35 000 investors. These investors, many of them elderly, have placed roughly R4.5bn in Sharemax’s various syndication schemes.
The rescue plan was presented to Judge Bert Bam this week for court sanction. According to those familiar with the process, court approval would have been virtually guaranteed, provided the plan was unopposed. However, an advocate representing a small handful of investors arrived in court and opposed the plan.
Attorney Chris de Beer, who represents the dissenting investors, explains it is not their intention to liquidate the Sharemax syndication companies. They argue, however, that proper process was not followed, and that the rescue plan seeks to legalise an illegal scheme.
The Sharemax rescue plan has been accepted by the vast majority of investors who voted. It has been reported that of the investors who voted, more than 99.9% were in favour of the scheme. Voter turnout is estimated at nearly half of all Sharemax investors.
If the rescue plan receives court sanction, the directors of the syndication companies will be free to begin the hard task of returning money to investors. If it fails, the Reserve Bank has indicated that it may have no option but to liquidate the various syndication schemes. If the Reserve Bank does not apply for liquidation, it is almost certain that someone else will.
But if the court approves the rescue plan, investors are by no means out of the woods. The scheme would provide Sharemax investors with a “clean”, legal structure, but it does not remove their financial problems.
The rescue plan proposes that investors are issued with new debentures that comply with the Banks Act. The repayment terms of each debenture will depend upon the health of the underlying syndication. The repayment terms, which are not open to public scrutiny, have been based on a fair and reasonable opinion obtained from BDO Corporate Finance. This opinion is, in turn, based on valuations and financial projections performed by DP Cohen Consulting.
If the syndication companies fail to meet their debenture promises, it may open them to fresh liquidation threats.
In the case of Sharemax’s two largest syndications, Zambezi and The Villa, much funding is necessary to complete the projects. These schemes together account for about R2.5bn of investors’ funds,
Investors have received half of the ownership of Zambezi, but must pay tens of millions to developer Capicol to receive the other half. With The Villa, investors have acquired just 30% of the massive unfinished shopping centre. Developer Capicol has 20%, and the remaining 50% has been reserved for anyone brave and rich enough to commit funds to finish the project.
Author: Julius Cobbett|14 December 2011 16:2
Sharemax flip flop on ownership
Dawie Roodt resigns. New plan for investors to own The Villa and Zambezi.
JOHANNESBURG - The latest plan to come out of Sharemax will see investors in the two largest syndications, Zambezi and The Villa, getting ownership of the underlying incomplete shopping centres. This is a complete about-turn on a previous proposal which would see investors being repaid their funds over nearly two decades. And details are scarce as to how investors hope to raise the money that is required to transfer these buildings.
Meanwhile Dawie Roodt, who was appointed independent director and spokesman for the syndication companies, tendered his resignation on Friday. Roodt was hesitant to divulge the reason for his resignation.
“I don’t think I can make a contribution to the [restructuring] process anymore,” says Roodt. “I think it’s also safe to say there were some disagreements.”
Roodt emphasised that he still believes that a proposed scheme of arrangement is preferable to the alternative, which would likely result in liquidation of investors’ companies. However, Roodt notes that the scheme of arrangement can be done in many different ways, some of which would be more investor-friendly than others.
Roodt was one of a trio of directors who were appointed in November last year to add independence to the Sharemax syndication companies. The other directors were High Court judge Willie Hartzenberg and accountant Rudi Badenhorst, who will continue to render their services to investors.
The original proposal, presented to the High Court earlier this year, planned for investors in Zambezi and The Villa to be repaid their money over nearly two decades.
On Thursday Sharemax successor Frontier Asset Management issued an update (click here to download) in which it noted that the boards of Zambezi and The Villa had “gleaned the general wish of investors to have ownership” of the shopping centres.
But the update was silent on how the companies hope to pay the outstanding amounts that are allegedly owed to Capicol, the developer of the two malls. Last year arbitration proceedings found that Zambezi investors owed Capicol R64.5m to purchase the property. However, Capicol claimed it was owed a further several hundred million in alleged damages.
Investors in Zambezi and The Villa have yet to receive a circular providing the finer details of the proposed compromise. Thursday’s update says it hopes to dispatch circulars in the latter part of August 2011. Formal meetings are expected to be held in September.
Meanwhile, the costs of the rescue plan are being borne by investors in the income-producing syndications. It is proposed that these investors eventually be repaid by shareholders of Zambezi and The Villa.
To date, the directors of the Sharemax syndication companies have not disclosed the legal costs that have come out of the recovery efforts. The lawyer leading these efforts is Connie Myburgh. Moneyweb readers may remember Myburgh for his aggressive defence of Garek, a scheme which cost its investors many millions of rand.