Déjà vu disaster
Another bizarre rescue plan for StratCorp clients
UNLISTED GLOBALJEWEL – a jewellery wholesale venture aligned to JSE-listed financial services company StratCorp – is proposing a curious rescue involving Escalator Capital, a financial services company comprising a number of former executives from Blue Financial Services. Hang on a second…haven’t we seen this all before?
Yes. But let’s first look at the mechanics of the scheme. Basically, GlobalJewel – in which StratCorp holds a 15% stake and has many clients from its StratEquity subsidiary invested in it – has hit a wall. That’s unsurprising. Finweek warned some years ago that GlobalJewel wasn’t exactly a meaningful enterprise and was unlikely to return anything meaningful to shareholders.
Abridged (not audited) financial statements show GlobalJewel managing meagre collective revenue of R270 000 for its 2008, 2009 and 2010 financial years. Its balance sheet (or what passes for one) shows a company that isn’t only lacking means but is also hopelessly insolvent. That despite the fact its balance sheet snapshot at end-February 2008 showed a R3,6m cash injection, which presumably came from StratCorp.
Naturally, the big question at this juncture is how the hell StratEquity – which is, after all, part of a listed financial services company – could put clients into this piece of junk? It’s very difficult to find any semblance of a business model in its abridged financial statements. In its 2010 financial year revenue was nil, with a smattering of other income (totalling R405 000). Yet GlobalJewel managed to run up operating expenses of R52m (more than 20 times higher than its previous financial year).
Perhaps there’s a hope hard questions will be averted, with long-suffering shareholders focusing on a rescue restructuring that will see GlobalJewel issuing 325m shares to Escalator Capital for R2m. That deal gives Escalator – which has also been dabbling around venture capital listing John Daniel Holdings – effective control of GlobalJewel, which then changes its name to FundAfSA.
What’s in it for Escalator – which is really buying a bankrupt, unlisted shell company
The restructuring looks a done deal, with shareholders holding 70,86% of GlobalJewel seeing fit to commit to approving the scheme
– isn’t apparent, apart from an assessed tax loss. Escalator, which we previously featured after it launched a scheme that promised a 15%/year return – claims on its website to “invest in well-established companies which require growth or working capital and have sufficient security…”
GlobalJewel, in both current and new form, is neither well-established nor offering sufficient security.
Escalator director Danie Calitz tells Finweek the investment will be used to establish the new proposed business (which focuses on a variety of financial services) rather than paying GlobalJewel’s “old debts”.
“This company can – with a cash injection and the correct management – continue with investments and use the retained loss (as the business remains the same). In that way we can hopefully generate returns to the existing shareholders who have to date lost value on their investment and use this new company as an empowered vehicle to do investments in businesses in SA.”
For some older GlobalJewel shareholders there might be a disturbing sense of déjà vu. Its corporate history can be traced back to a company called WestJewel, which was involved in a similar reverse takeover scheme late in 2006 of another of StratCorp’s fizzled unlisted projects called Mobile Events Marketing (MEM). Like GlobalJewel, MEM never got its business model off the ground. When MEM hit the wall, the so-called assets of WestJewel (which became GlobalJewel) were reversed into MEM and out-of-pocket shareholders offered to ride along with the new jewellery business.
GlobalJewel shareholders may be a tad wiser this time.