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The published financial statements of
Edwafin and the auditors statement that forms part of the prospectus relating to a public offer of 30 000 unsecured fixed rated G debenture of R1 000 each clearly shows that the group was technically if not absolutely insolvent on 28 February this year.
Shareholders equity was a negative R36m and the auditors pointed out in an emphatic matter that the company made a loss of R33,2m in the past financial year.
The company has already issued nearly R80m of interest bearing debenture and if the latest issue is successful its long term debt will amount to R110m at an average interest rate of more than 15%. Annual interest cost would be in excess of R16,5m per year.
The interest cover on a good quality debenture, suitable for investor looking for good income ,should be at least five times. In simple terms the profit of the company should be at least five times the annual interest bill.
Edwafin does not remotely qualify for this very basics investment norm. It is at best a high risk venture capital company with a very poor success record.
A due diligence study is the final frontier of an investigation and is only conducted once the investors are satisfied after proper scrutiny of the audited and public and financial statements of the company. We were quite satisfied after scrutiny of the financial statements that Edwafin is not a suitable investment.
A due diligence study typically contains up to 2 000 questions. For the time being we will be happy with answers to the following four questions and we are sure Mr Don Hutchison from Edwafin will respond very soon:
1. What is currently the enterprise value of each of the three main businesses of Edwafin, and please use acceptable accounting standards and not future dreams to determine the value.
2. How much is the interest bearing debt of the Edwafin Group at the moment and what is the annual interest rate bill?
3. How much is the current projected cash flow profit of the group for the 2007 financial year.
4. Is the interest on the existing debentures, and your salary for that matter ,paid out of current operating income and profit, or is it covered from the proceeds of the sale of new debentures?
To Marinda Strydom, FSPNo12866, the financial planner who advertised the debenture of Edwafin of Fin24, only one question: Did you point out the risk involved in this venture capital company before recommending the "guaranteed interest bearing investment" to presumably predominantly senior citizen that could depend on the interest income.