Déjà vu disas­ter

An­other bizarre res­cue plan for Strat­Corp clients

Finweek English Edition - - COMPANIES&MARKETS -

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.

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