Who’s paying the interest at The Villa?
THERE’S A MAJOR slanging match currently on the go about whether new investors in The Villa are in fact paying the interim interest existing investors are receiving while the centre is being built or whether the developer – Capicol 1 – is paying it. If it’s the new investors, then it’s simply an illegal Ponzi scheme. It’s no surprise Sharemax is denying that most strongly.
Investors and readers are advised to decide for themselves on the basis of the following facts. With the issuing of debentures – and now ordinary shares – the promoter, Sharemax, has already collected around R1 500m, of which about R1 185m (79%) has been paid to Capicol 1 for the construction work already done.
However, at The Villa investors are receiving interest of 12,5% on the funds – ie, the R1 500m that’s already been collected – even though the building is still far from finished and no tenant is yet paying rent. The monthly interest therefore currently amounts to around R15,5m. Sharemax says it receives that from Capicol 1, the developer, as interest on the amount already paid for the partially completed building work.
The developer, Capicol 1, currently appears to have no other source of income than the payments it receives from Sharemax for the building work already completed. Capicol 1 and the builder, GD Irons, are in turn trying to synchronise the building work to fit in with the rate at which Sharemax is collecting new investments. That’s why it sometimes seems to be very quiet at The Villa – such as now.
But with the SA Reserve Bank no longer prepared to allow Sharemax to make use of debentures, the latter is now offering ordinary shares at a premium. The shares are being offered in The Villa Retail Park Holdings 2 Ltd. The second of those prospectuses that will attempt to attract R75m from the public was registered on 28 June this year. If Sharemax succeeds in attracting the full R75m, some R59,225m will be paid to Capicol 1 for building work on The Villa already completed.
But at the same time Capicol 1 will have to pay R15,5m/month to Sharemax as interest on the loans or withdrawals already received and that Sharemax, in turn, uses to pay the interim interest, now dividend, to existing investors.
If Sharemax succeeds in filling one of those prospectuses every month, Capicol 1 receives R59,225m of it – but has to pay R15,5m to Sharemax as interest. In terms of that scenario, interim interest is already devouring 26% of the new funds being received from investors.
The debate about whether new investors are paying old investors’ interest is open to many interpretations. If the full R59,225m flows through Capicol 1’s bank account and it pays R15,5m out of its bank account to Sharemax again, it can be regarded as an arm’s length transaction. If Sharemax were to conveniently keep the interest of R15,5m/month back when the payment is made to Capicol 1, it may perhaps alter the debate slightly.
We aren’t taking sides in this matter. The new investor must decide for himself.
Far from complete