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The peculiar case of the Picvest billions: Part 5

A Moneyweb follow-the-money investigation into the sale of the 79 properties syndicated via the Highveld Syndication (HS) companies revealed that virtually all of these properties were sold to third parties before and shortly after the HS companies were put into business rescue.

A previous article analysed the sale of 21 properties before the HS companies were put into business rescue in 2011. Moneyweb can now reveal, based on the analysis of the title deeds of the properties, that the disposal of properties to third parties in fact accelerated after the commencement of the business rescue process in December 2011.

Read: The curious case of the Picvest billions: Part 1 (Background)

Read: The curious case of the Picvest billions: Part 2 (Background)

Read: The curious case of the Picvest billions: Part 3 (Overvaluation of properties)

Read: The curious case of the Picvest billions: Part 4 (Property transactions prior to business rescue)

The investigation found that at least 50 properties originally syndicated as part of the HS schemes were sold shortly after the commencement of the business rescue process.

Virtually all the properties were sold in 2013, although five – collectively valued at R328 million in the business rescue plan (BRP) – were sold within six months of the HS companies going into business rescue at the end of 2011. (The first property was sold back to property magnate and patron of the scheme Nic Georgiou within a few weeks; he then immediately sold it to a third party for a profit – see below.)

The sale of these properties is in stark contradiction to the provisions in the BRP, penned by business rescue practitioner Hans Klopper. Klopper was also a director of Orthotouch.

BRP and Section 155 Scheme of Arrangement

To put the sale transactions in context, the original intent of the BRP needs to be revisited.

The premise of the BRP was to transfer all the historic HS properties, as well as a few others, to one company named Orthotouch.

An experienced team of property professionals would then manage the properties to generate the required income to repay investors.

The directors of Orthotouch at the time were Georgiou, Panagiotis Kleovoulou, Klopper and Connie Myburgh. Myburgh is also chairman of the Nova Property Group, the rescue vehicle of the failed Sharemax investment scheme.

The BRP gave the board the authority to sell “non-performing” properties and use the proceeds to maintain, upgrade and improve certain other “primary” centres to “maximise” investment returns for investors.

This is contained in paragraph 2.3 of the Orthotouch business plan, which forms part of the BRP and reads:

2.3 The objective of Orthotouch is to maximise the investment return of shareholders and all stakeholders in Orthotouch by selling off the non-performing properties and utilising the proceeds to redevelop primary shopping centres, such as Southdale in Johannesburg South, Piazza in Randburg, Forum in Sasolburg, Saveways In Witbank and Lyttelton Manor in Centurion. In addition Orthotouch will retain certain retail and commercial properties such as those in Charles Crescent in Sandton, Cell C in Sandton and Ethos in Parktown.

However, despite this provision in the BRP, the primary properties and other retail and commercial properties described in the paragraph were sold shortly after the adoption of the BRP. Three of these properties were sold within six months, with the first (Southdale Shopping Centre) sold back to Georgiou’s company Zephan less than a month after the BRP was adopted.

These primary properties were:

No response from Klopper or Georgiou

Moneyweb sent questions to Georgiou and Klopper (in his capacities as both business rescue practitioner and director of Orthotouch) on November 9, 2018, relating to the selloff of the properties. Neither responded to the questions.

The Section 155 Scheme of Arrangement (SoA), which was implemented three years after the failure of the BRP, offered an explanation. The SoA stated that the properties were not transferred as Orthotouch wasn’t able to acquire funding from financial institutions. This was due to the actions of so-called “detractors”, which “sought to bring about the failure and demise of the HS Companies”.

These detractors were never named, but were accused of influencing financial institutions against providing funding to the group.

The SoA did, however, highlight that Georgiou went to great lengths to acquire funding from various financial institutions, a process that would have taken several months. The SoA does not, on the other hand, explain why the majority of the identified “primary properties” were sold within a few months.

A few of these sales transactions deserve further analysis.

Southdale

The Southdale Shopping Centre was the flagship property in the HS 17 syndication and was syndicated to investors for R205.5 million. At the time, it was the largest single property ever syndicated by any HS syndication.

The BRP also cited the centre as one of the “primary” shopping centres destined to receive additional investment to increase its revenue potential, but this never materialised.

The property was sold less than a month after the implementation of the BRP.

It was sold via a back-to-back transaction from Orthotouch to Georgiou’s company Zephan, which then on-sold it to Serica Investments. The transaction resulted in a profit of R26 million for HS 17, but a significant loss of R57 million for Orthotouch. Zephan, in turn, earned a profit of R33 million from the transaction.

The details appear in the table below:

The Piazza/Randview

It was not only the Southdale centre that was sold back to Zephan. The Randview Shopping Centre was originally syndicated as part of HS 16 and valued in the BRP for R105 million.

The source of the valuations that feature in the BRP was never disclosed. Yet the property was sold in a back-to-back transaction to Orthotouch (R160.9 million) and then immediately to Zephan for R105 million. The transaction did not stop there. Zephan then sold it to Moxicorp straight after for R148 million. Georgiou is currently the only director of Moxicorp.

Ethos

Another interesting transaction was the sale of Ethos. The property was syndicated to investors for R115 million in 2007, but was never transferred to HS 22.

Zephan, who procured the property in 2006 for R45.9 million, sold it to Annuity for R46 million in 2012 at nearly R14 million less than the BRP valuation.