Pain, no gain

Its 50% div­i­dend cut is only the be­gin­ning

Finweek English Edition - - INSIGHT -

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

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