Sharemax-Investigations Part 2: Shareholder structure hides how directors’ acquired 87.1% of Nova share

Investigations
Part 2: Shareholder structure hides how directors’ acquired 87.1% of Nova shares
Directors strip 2 000 shareholders of voting rights as it “is impossible for a company to have thousands of people that make decisions”.
Ryk van Niekerk  /  21 November 2016 00:07


The complicated shareholding structure of the Nova Property Group was finally revealed when the Nova board opened the shareholder registers of various companies in the group to Moneyweb, after a judgement in the Supreme Court of Appeal in Moneyweb’s favour.
These documents show how the four directors of the company, who are four of the seven founding shareholders, have managed to acquire 87.1% of the Nova shares, while around 2 000 ex Sharemax investors – who chose to receive shares and not debentures – own 4.3%. The balance of 8.6% is owned by the three other founding shareholders who are former and current Nova managers.
­­Founding shareholders
Class A
Class B**
Class D
Shareholding in Nova
Connie Myburgh*
10
510 712 950

21.8%
Dominique Haese*
10
510 712 950

21.8%
Dirk Koekemoer*
10
510 712 950

21.8%
Rudi Badenhorst*
10
506 233 012

21.6%
Matthew Osterloh
10
67 199 072

2.9%
Nel van Zyl
10
67 199 072

2.9%
Corrie van Rooyen
10
67 199 072

2.9%
2 000 Investors
0
0
99 923 617
4.3%
Total
70
2 239 969 079
99 923 617
100%
Total shareholding
0.000003%
95.7%
4.3%

Payment for shares
R70
R0
R94 939 589

Voting rights
Yes
Yes
No

*Directors of the company
** The 2 239 969 979 Class B shares are registered in the name of Nova Nominees. The seven founding shareholders own 100% of Nova Nominees. The number of shares listed per director was calculated via the individual directors’ shareholding in Nova Nominees.
The ordinary shares consist of four classes: A, B, C and D. The seven founder shareholders were issued class A and B voting shares, while the Sharemax investors received class D non-voting shares. No class C shares have been issued.
Selection of founding shareholders
These seven founding shareholders were nominated by three directors of Nova Property Group Holdings when it became clear that Nova would be the central company to the scheme of arrangement.
These directors were Dominique Haese, Dirk Koekemoer and Rudi Badenhorst.
In response to Moneyweb questions, Haese said the founding shareholders were chosen on the basis that they would constitute the core senior management of the newly-restructured Nova Group post the sanctioning of the schemes and would be responsible for running the company in order to repay debenture holders.
Class A shares
The shareholding structure is complicated and consists of various share classes, ranging from A to D. All shares are ordinary shares.
The first shares to be issued were 70 class A shares that were issued to the founding shareholders. They were issued for R1 each –  these were the only shares the founding shareholders actually paid for, amounting to R10 each for each founding shareholder.
Myburgh said during the meeting with Moneyweb that the issue of class A shares to Haese, Badenhorst and Koekemoer was disclosed in the scheme documents, as they were directors. It was indeed disclosed that they owned 43.2% of the company, based on the calculation that the three directors own 30 of the 70 issued shares. (This calculation is actually 42.9% but be that as it may)
Moneyweb has in the past referred to this 43.2% as the directors’ total shareholding in Nova, and it was one of the reasons former Moneyweb journalist Julius Cobbett applied to access the shareholder registers, to find out who owned the balance. The reality was that the directors owned 87.1%, with other senior managers owning a further 8.6%.
The Nova board has never offered to correct this factual error, despite numerous opportunities to do so.
Class B shares
The issuing of the class B shares to the founding shareholders is more complicated. The shares were issued in accordance with a single paragraph contained in an appendix to the scheme of arrangement documents. This paragraph appears below the formula that calculates the number of shares that would be issued to debenture holders who elected the option to swop their debentures for shares.
The paragraph states that the seven founding shareholders would receive all the shares that were available to those of the 33 000 investors who decided not to exercise the option to swop their debentures for shares.
In this process, a total of 2.2 billion B shares or 95.7% of Nova was issued to the founding shareholders for free.
Myburgh and Haese respond
During the meeting with Moneyweb, Myburgh justified this provision, saying the B shares were issued to the seven individuals, as “they were the individuals who were steering the ship”.
Haese said in response to written questions that Nova has the obligation to pay debenture holders. “The liabilities to debenture holders created by the schemes were equivalent to the value of the assets as per the schemes, held by the Nova Group at the time of the sanctioning of the schemes and consequently the shares had no inherent value. Given that the equity account of the Nova Group was zero at the date of the sanctioning of the schemes and before the commencement of the implementation of the schemes, the shares had no value and could not be allotted at a price, and therefore nothing was paid.”
Haese also said these B shares held by Nova Nominees could in future be “utilised in the process of procuring funding” for the ultimate repayment of debentures.
However, the 2 000 minority shareholders had to surrender debentures worth R94.9 million to receive their 97 million D shares. This means the investors ‘paid’ or surrendered value amounting to 98c per share.
Haese also emphasised that the paragraph in the appendix was contained in the scheme documents and that investors must have been aware of its implication when they signed the document. “It follows… that no scheme shareholder (ultimate electing debenture holder), could not have known that shares available following non-elections, would be issued to the holders of the initial 70 founder shareholders ordinary shares in Public Newco (Nova Holdings).”
Voting rights
What was not in the scheme documents was that investors would receive shares that were stripped of voting rights. This was an unilateral decision by the board members when they issued non-voting D shares to 2 000 investors. The B shares issued to the founding shareholders had full voting rights.
During the meeting with Moneyweb, Haese said the reason the shareholders did not have voting rights was “because it is impossible for a company to have thousands of people that make decisions”.
In a subsequent communication, Haese said “at the time of the preparation of the scheme documentation and in terms of the old Companies Act, the concept of shares with voting rights as distinct from shares without voting rights did not exist, and therefore no explanation (in the scheme documents) was given.”
She added that with the new Companies Act, which allows the issuing of non-voting shares, the board decided that the “best and most practical manner would be to issue different share classes, particularly having regard to the implications of the implementation of Appendix ARR8 (the conversion formula)”.
The new Companies Act was promulgated in April 2009 and has been effective from May 1 2011. The scheme was sanctioned in December 2011.

Key documents:
Here are the actual shareholder registers.

Sensitive information, such as ID numbers, has been removed. The list of holders of minority D shares is not published, as their identities are irrelevant in the context of the Nova shareholding.
Shareholder register of the Nova Property Group
Shareholder register of Nova Nominees
Shareholder register of Frontier Asset Management
Shareholder register of Centro
Here are the full questions and answers as per correspondence between Moneyweb and the Nova board.
Questions and answers 1
Questions and answers 2
Questions and answers 3