The first cut wasn’t the deep­est

SPV to as­sist meat group Best Cut also gets chewed up

Finweek English Edition - - Insight -

IT’S BEEN well doc­u­mented in Fin­week that the demise of meat group Best Cut Hold­ings took a chunk out of the port­fo­lio value for StratEquity Em­pow­er­ment In­vest­ments 1 (StratEmp) – a ve­hi­cle cre­ated for BEE in­vestors by the in­vest­ment arm of AltX-listed StratCorp.

StratEmp’s an­nual re­port to end Fe­bru­ary 2010 de­tails a R23,6m im­pair­ment for the in­vest­ment in Best Cut, which has been sus­pended on the JSE pend­ing a liq­ui­da­tion ap­pli­ca­tion.

Read­ers may re­mem­ber that back in 2007/2008 Best Cut bat­tled to pull off a re­verse list­ing with scant (if any) in­sti­tu­tional in­ter­est in the pre-list­ing place­ment.

A paucity of de­mand in a pre-list­ing share place­ment would nor­mally raise a flag. StratEmp, though, ended up the largest share­holder in Best Cut – not only pitch­ing for pre-list­ing shares but also hap­pily ac­quir­ing a large par­cel of shares from a key ex­ec­u­tive shortly af­ter a rather dis­mal list­ing on the JSE’s DCM board.

At one stage StratEmp’s hold­ing in Best Cut rep­re­sented as much as 50% of the in­vest­ment port­fo­lio.

While it’s bad enough for StratEmp share­hold­ers to learn of a R23,6m im­pair­ment on an ill-ad­vised in­vest­ment, it’s prob­a­bly down­right dis­tress­ing to learn from the an­nual re­port that there are fur­ther losses from the as­so­ci­a­tion stem­ming from Best Cut be­ing brought to ac­count.

It ap­pears that dur­ing the last fi­nan­cial year, StratEmp floated a spe­cial pur­pose ve­hi­cle (SPV) to help Best Cut with trade fi­nance.

There’s no de­tail on how the SPV – Best Cut Dis­trib­u­tors (BCD) – was ar­ranged. But StratEmp dis­con­tin­ued the ven­ture when liq­ui­da­tion pro­ceed­ings were in­sti­tuted at Best Cut.

The SPV is now try­ing to claim “all amounts wrong­fully paid” to Best Cut from the liq­uida­tor. There’s also the mat­ter of a loan ad­vance to Best Cut and BCD stock held by the liq­uida­tor.

With the mat­ter tied up in the liq­ui­da­tion process, the mer­its of BCD’s claims look un­cer­tain.

It’s ugly stuff, and there’s some des­per­ate ut­ter­ances: “BCD has fur­ther­more in­sti­tuted le­gal ac­tion against all debtors who made wrong­ful pay­ments to Best Cut, as well as the debtor fac­tor­ing house and other out­stand­ing debtors to re­cover as much as is pos­si­ble.”

The bot­tom line is that StratEmp has im­paired BCD’s R3,3m debtor book by R1,6m due to the un­cer­tainty sur­round­ing the liq­ui­da­tion and col­lec­tion pro­cesses.

Once again one has to ques­tion the judg­ment of StratEmp’s di­rec­tors and as­set man­agers to plum for an SPV ar­range­ment with a com­pany that even to the ca­sual ob­server was bat­tling for vi­a­bil­ity from day one.

Much like when the StratEmp share­hold­ers were in­vestors of last re­sort for Best Cut at list­ing, one won­ders whether Best Cut could con­ceiv­ably have se­cured trade fi­nance from a party other than StratEmp.

Fin­week has noted pre­vi­ously that Best Cut CEO Thomas Hill and StratCorp CEO David Har­ing­ton are more than ca­su­ally ac­quainted – both serv­ing as di­rec­tors of a com­pany called Elec­tive Life­styles Fi­nanc­ing.

Moral de­bates aside, the score­card shows StratEmp is down some R25m on Best Cut – a rather in­vid­i­ous po­si­tion for a small in­vest­ment port­fo­lio of some R100m.

For early BEE in­vestors in StratEmp – now mainly in­vested in ex­change-traded funds and main­stream JSE shares – it could be years be­fore the Best Cut losses are fully re­cov­ered.

Whether StratEmp’s grandiose plans for em­pow­er­ment in­vest­ment have suf­fered ex­ten­sive rep­u­ta­tional dam­age is prob­a­bly a more se­ri­ous con­cern for StratCorp.

It’s dif­fi­cult to quan­tify such a mat­ter. StratEmp con­tin­ues to pub­lish new prospec­tuses, which sug­gest client monies are still trick­ling in.

But the 36 000 monthly sub­scribers to Stratcorp’s in­vest­ment sub­sidiary, StratEquity, paid over only R66m in the year to Fe­bru­ary 2010 – more than 20% down on 2009’s R84m.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.