Pain, no gain
Its 50% dividend cut is only the beginning
PICVEST’S ANNOUNCEMENT, last week, that it would immediately cut the cash interest payments on all its property syndicates from the previous 10% and even 12,5% to 6,5%/year is only the beginning of the pain for many a senior citizen who so eagerly invested in the scheme over recent years. The value of the investment – if it can indeed still be realised – is probably not worth more than 40c in the rand on the free market. But that’s still much more than the hoped-for 20c in the rand investors in the Sharemax syndicates will realise under the best of circumstances.
A written request by advocate Michael Blackbeard, Deputy Registrar of Banks, for PICvest to visit him on 15 April for more than just a cup of tea was the death knell for the house of cards of property syndicates and cross-guarantees, the seams of which were already beginning to unravel.
For Bloemfontein property magnate Nic Georgiou it was a golden opportunity to turn his back on his guarantees regarding interest to investors derived from overhead leases, as well as the guaranteed buying back of properties he’d in most instances sold to the PICvest schemes at inflated prices.
The real transaction involving Highveld 15 – one of the first schemes in the current PICvest portfolio – is probably the best illustration for investors as to how the scheme “worked” and also made the SA Reserve Bank see red. It also explains why the Georgiou Group was rather pleased at the apparently legitimate reason to be able to walk away from its guarantees.
In a letter/contract dated 3 September 2009, on a PIC Syndications letterhead addressed to Zelpy (Pty) Ltd (the company in the Georgiou Group providing the guarantees), the following transaction was agreed to: Highveld Syndication No 15 Ltd
Syndicate value R253m. This is the amount for which the property was sold to investors.
Actual net annual rental income R14,4m – a real return of 5,7%.
Actual value of buildings in the syndicate at a discount rate of 10%/year is R144m, or only 57% of the syndicated value.
Zelpy’s offer was to guarantee investors’ interest at 8,7% from the effective date, while Zelpy guaranteed it would buy back the buildings in the syndicate after no more than five years for R253m, which was also the syndicated value.
In short, Zelpy – and therefore the Georgiou Group – guaranteed the investor a return of 8,7%/year and 100% of his capital back in five years. The true situation was/is that the buildings earned rentals