Former Sharemax investors’ déjà vu

DISCLOSURE, TRANSPARENCY ISSUES. Debenture holders don’t have sufficient information to make an informed decision.

Nova debenture holders may experience some déjà vu when looking at the Section 155 Scheme of Arrangement documentation on the proposed Nova group listing.

Just as when Sharemax collapsed, investors must decide on the future of their investments based on a legal and technical document, by the same author: current Nova chairperson and major shareholder Connie Myburgh.

It explains how debenture holders can swap their debentures for shares in a new JSE-listed entity, allowing them to sell these shares on the open market to liquidate at least a portion of their original Sharemax investment. Again, investors are threatened with losing more money if they don’t approve the proposal.

The previous Scheme of Arrangement that brought about Nova Group didn’t deliver the promised payouts and interest payments. But the four directors and three other founding shareholders received nearly 96% of the company without paying a cent.

Complex, sparse

Moneyweb analysed the newly-proposed Scheme of Arrangement and asked legal and accounting experts for opinions on its fairness. The main message is that it’s a very complex scheme and too little information was disclosed for a verdict on its fairness. Judging from industry experts’ response and the relative silence from Myburgh and his board, it’s clear debenture holders don’t have sufficient information to make an informed decision.

Imminent listing unlikely

From available information, it’s highly unlikely the listing will happen soon. Seven working days ahead of the vote for/against the scheme, no formal application for a listing was submitted to the JSE. The prelisting statement hasn’t been published either. This is telling, as serious questions remain over the company’s financial viability. Its latest 201617 financial statements show an operating loss of R87 million and a significant restatement of previously-overvalued properties. This seems to contradict scheme documentation in which Nova projects an operating profit for the current financial year (ending February 2018) of R36 million and R65 million for the next.

The courts may also delay the listing, as Deon Pienaar has fi led an application to be heard next week for an urgent interdict against the proposed transaction. Experts queried the absence of clear conditions for the Scheme of Arrangement on ownership and transfer of underlying properties if the JSE doesn’t approve the listing.

Sponsor, leadership not disclosed

Nova hasn’t disclosed the sponsor, but we’ve confirmed it’s River Group, a former sponsor of Gupta-owned Oakbay. River Group partner Andrew Lianos will be a director of the company to be listed. Nova stated it has an investor willing to invest R400 million, but is yet to reveal their identity. This investment is critical to the promised buyout of some debentures and to set the company toward profitability. If it doesn’t materialise, the group’s financial health may change very little.