Sharemax: The Villa may be saved

Jan 16 2011 12:32
David van Rooyen
Johannesburg - There may eventually be some good news for investors in The Villa, the biggest Sharemax Group investment scheme.

The developer of the Capicol massive shopping centre is apparently on the point of reaching an agreement with the contractor that built the centre, GD Irons, which will lead to the contractor not taking legal steps to collect the R300m it is owed for work to the Villa – for a period of two years.

This reduces the possibility of The Villa soon finding itself in the process of liquidation, which may mean that investors would lose most of their money.

The Villa is being built with money raised by Sharemax from shareholders, which money should have been paid to the developer. Of the R1.6bn-odd that investors have already invested in The Villa, only R1.05bn has been paid over to Capicol.

After the South African Reserve Bank placed Sharemax under statutory management last year, investments in The Villa dried up and construction came to a standstill.

At that stage the contractor was still owed some R150m. This amount has now increased to almost R300m as a consequence of penalty clauses and interest.

GD Irons has, as with most contracts of this nature, retention rights over the project and has now assumed management of the premises, which means that no one can do anything before it has been paid.

The big threat is, of course, that GD Irons could have Capicol, which owes it the money, liquidated, meaning that The Villa could also find itself involved in liquidation.

At this stage the incomplete The Villa still belongs to Capicol and not to the investors.

This could mean that investors in The Villa could lose practically all their money because at such sales in liquidation properties are sold at a huge discount and after the liquidators and GD Irons have taken  their share, almost nothing could remain.

In fact GD Irons has already lodged such an application against Capicol, and the return date is later this month.

According to Bert Smith, Capicol’s lawyer, an agreement is being finalised in which Capicol is handing GD Irons another debt-free property worth R80m.

In exchange GD Irons has agreed to withdraw the application for liquidation and refrain from instituting any legal action for the next two years.

This means that the threat of liquidation has been warded off, giving Capicol, the board of The Villa and even Sharemax’s old board of directors two years to find a solution to the problem.
Capicol is in fact negotiating with the party interested in making money available to complete The Villa, after which the party and investors would become joint owners of the centre, depending on how much each had contributed.

Dawie Roodt, one of the new independent directors of the property businesses in the Sharemax stable – which includes The Villa – said there were two parties that had indicated that they wished to make presentations regarding The Villa.

But investors should not too quickly become excited, because it would cost at least R1.4bn to complete The Villa, and then the burgeoning debt also needed to be settled, pushing up costs even further.

Investors with that much money are not found behind every bush and they would demand their pound of flesh, which would not always be to the benefit of the other investors.
The Villa’s directors have even approached several of the large property groups to help complete The Villa, but without success.

Should a solution be found, investors should remember that their share of the project would be based only on the amount of money they invested in the project, and not on the amount that they invested in Sharemax.

It's therefore safe to say that at this stage at least R550m of The Villa investors' money has been lost.

This money, about a third of their investments, has been used to pay investors' interest, brokers' commissions – and whatever Sharemax has done with the rest.

-       Sake24

For business news in Afrikaans, go to www.sake24.com.




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