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Sharemax investors face disaster

Johannesburg - Investors in Sharemax’s second-biggest property scheme, Zambezi Retail, are facing a potential disaster – as though the fact that they are no longer earning an income on their investment were not enough.

An independent arbitrator, advocate Johan Louw, decided against Sharemax in the dispute between Sharemax and Capicol, the property developer that developed, on Sharemax’s behalf, the Zambezi Retail Centre to the north of Pretoria.

The arbitrator determined that Sharemax still owed Capicol R64.5m – and the centre which, in terms of the agreement still belonged to Capicol, could therefore not be transferred to the investors before that sum was paid.

Not only would investors have to remain without income a while longer, but the current situation could also lead to their losing some – if not all – of their capital.

The agreement between Sharemax and Capicol was that Sharemax would raise investments and advance the money for the construction to Capicol, upon which Capicol would pay the investors interest.

After the completion of the project in April, Sharemax was to have taken over the centre at an agreed purchase price based on the rental income that the centre earned. The money that Sharemax had advanced would come off the purchase price payment.

Until now Capicol has however retained ownership of the centre because the parties have been unable to agree on the purchase price. The rental income from the centre has therefore not been paid over to the investors.

The arbitrator has now determined the price, on the basis of which Sharemax owes Capicol another R64.5m if it wants to take over the centre on the investors' behalf. The arbitration order is that payment should be effected within 90 days, but it is no secret that Sharemax is in no position to pay this amount.

Capicol’s view, according to its chief executive, Paul Ky¬riacou, is that Sharemax will be guilty of breach of contract if the money is not paid, giving Capicol the right to attach the centre which means that investors will suffer serious losses.

Kyriacou said that he would prefer Sharemax to pay the money, and for Capicol to hand over the property and walk away from the project. But if his company does not receive the money this could have serious consequences for the investors.

The big problem is that Capicol still owes money to the builders, and it needs the money owed by Sharemax to settle that debt.

As long as the builders, who have waited nine months for their money, are not paid they can apply for liquidation.

It appears that Sharemax thinks it can resolve the problem by giving Capicol a stake in the centre. This would reduce investors’ share of the income, but at least they would have a stake in an asset.

Sharemax’s investors however also have a claim against Capicol for the money advanced to it for the construction work.

At this stage Kyriacou does not appear willing to take the bait.

If Sharemax fails to pay, Capicol will have to borrow money against the centre to pay the builders and it does not believe banks would advance money against the Zambezi Centre as long as there is any question of association with Sharemax.

The shortfall on the purchase price is not the only money Capicol is demanding from Sharemax. Capicol has instituted a process to determine the damage the company has suffered as a consequence of Sharemax’s failure to pay and, according to Kyriacou, the claim could be much more than the R64.5m currently owed.

Sharemax’s new board of directors has noted the arbitration order, but have yet to decide on the way ahead.

- Sake24

For business news in Afrikaans, go to Sake24.com.

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