More questions surface on Sharemax

Johannesburg - The South African Reserve Bank's investigation into the affairs of property syndication company Sharemax has given rise to many questions about the group's funding model.

There is particular concern about the way in which the two latest syndications were financed.

For the Zambezi Retail Park, billions were raised from the public and from the start interest was paid to investors, even though no asset was generating revenue.

The same situation now applies to The Villa, a massive shopping centre to the east of Pretoria, for which Sharemax wants to raise R3.5bn.

Investors are already earning interest, although the centre is still under construction and the second fundraising round recently began.

The big question is the source of the money from which interest is being paid to investors. Last week reports claimed that Sharemax was using money from new investors to pay the interest.

Sharemax immediately responded with legal action and the company's CEO Willie Botha denied this was being done. Because of the impending legal action he was unable to expand on the funding model.

But Botha did say that money for The Villa was being raised from investors and paid over to the developer, Capicol, as part of the purchase price of the property and in payment for the construction already completed.

A portion of the money paid over to Capicol represents profits, and a portion of this profit being paid out to investors takes the form of interest.

The interest comes from Capicol, which is a company on its own, said Botha.

Sharemax does not question Capicol about the money that it uses to pay investors.

All that Sharemax is doing is to control the flow of money into Capicol and monitor progress with construction, said Botha.

Theo Lagonikos of Capicol, to whom enquiries were referred because the chief executive was on leave, told Sake24 that part of the money raised was being retained to pay the interest until the building was completed and itself generated income.

After Lagonikos heard from Sharemax that questions were being asked about the funding model, he wrote to ask that his remarks on the funding model, based on his limited understanding of it, be scrapped by Sake24.

In the letter Lagonikos said that as leasing agent he was responsible only for the lease agreements at The Villa. He referred the enquiry about funding to Sharemax or a colleague.

The payment model will probably also be subjected to scrutiny once a decision has been made about possible contravention of the Banks Act.

 - Sake24