Who’s pay­ing the in­ter­est at The Villa?

Finweek English Edition - - COVER STORY -

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.

THE VILLA

Far from com­plete

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