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Property Syndication

Author: Julius Cobbett|

02 December 2011 09:22

R4.6bn Pickvest rescue hinges on property billionaire

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Rescue practitioner says the choice is simple: Accept Georgiou’s deal, or liquidate.

Pickvest investors stand to lose an estimated R3.8bn, or 81% of their capital, unless they accept a rescue offer proposed by controversial billionaire Nic Georgiou. This is the message from business rescue practitioner Hans Klopper who filed his plan to save the Pickvest property syndications on Wednesday. The rescue plan can be downloaded here.

It was Georgiou who, through his companies, “guaranteed” the generous returns offered by Pickvest syndications. But these guarantees turned out to be worthless when problems started to emerge at the syndication giant earlier this year.

Klopper was appointed to the eight Pickvest schemes in a bid to prevent their liquidation. His appointment provides the syndications with temporary protection from their creditors. This protection gives Klopper time to decide if the syndications can be saved.

In the 62-page rescue document, Klopper effectively tells investors they can choose Georgiou’s offer, or face the liquidation of their investments. Says Klopper: “It is evident that the prospects of the investors recovering their capital without the [Georgiou] offer being accepted are bleak whereas the recovery prospects, should the offer be accepted, are considerably improved.”

Klopper adds that the Georgiou proposal, known as the Orthotouch offer, is the “only realistic opportunity” for investors to recover their capital.

The Orthotouch offer is nothing new. It was proposed to investors in April. The deal would see Orthotouch, a company controlled by Georgiou, buying all of investors’ buildings, and paying for them after five years. They will also earn an income, starting at 6% in year one, increasing to 7% by year five.

However, Klopper has renegotiated the original transaction with clauses and safeguards that he says are to the benefit of Pickvest investors. He says the deal will be underpinned by property worth more than R4bn, and that investors can appoint two directors to the Orthotouch board. Further, Georgiou’s company, Zephan, will transfer buildings worth approximately R1.5bn into Orthotouch for added security. Orthotouch may not lend any money to or invest in third parties while investors remain unpaid.

Klopper says there has been a “groundswell of optimism” from financial advisers, some of whom were steadfastly opposed to the Orthotouch offer in its original form.

Investors are scheduled to meet on December 14, where they can propose amendments to Klopper’s plan and vote to approve it. The plan amounts to the acceptance of the renegotiated Orthotouch offer.  

A key feature of the Orthotouch deal is that it is dependent on its acceptance by investors in all eight property syndications. Those in the Highveld 19-22 might feel they have nothing to lose by voting for Georgiou’s proposal. But those invested in the healthiest syndication, Highveld 18, may be less inclined to invest another five years with Georgiou. 

Bleak liquidation scenario

Klopper provides investors with estimates of what they can expect to receive in the event of liquidation. It is no surprise that those invested in the older syndications, Highveld 15-18, are expected to fare considerably better than the others. This is because the older syndications actually own property. The others do not.

In April Moneyweb reported that Highveld 18 is the healthiest of these four syndications, and that 16 was in the most trouble. Klopper arrives at the same conclusion in his business rescue plan.

According to Klopper’s estimates, an investor in Highveld 18 might hope to recover 61% of their capital. An investor in Highveld 16 might get 35c. Klopper’s estimates are based on the orderly sale of assets at market value. He estimates that the return could even be 50 percent lower if the assets are sold at auction prices.  

For the investors in the newer syndications, Highveld 19-22, the situation is considerably bleaker. These syndications do not own any property. Their only asset is a claim against a company called Bosman & Visser, which has no assets to speak of. For more on this perilous situation, see this article

Klopper describes the difficulties of pursuing the claim against Bosman & Visser (B&V) in his rescue plan. He says that at least R10m will be needed to sue B&V. In turn, the liquidators of B&V would need money to sue Georgiou’s company Zephan, which has so far failed to deliver investors’ buildings.

Klopper says that Zephan “will undoubtedly defend such action and institute a counterclaim for damages against B&V.”

If the syndications Highveld 19-22 are liquidated, Klopper expects investors to recover no more than R250m out of a total of R3.5bn invested. He also warns that this recovery could take years. Investors in Highveld 21, the largest, are the worst off, with an expected recovery of only 2% of their capital. The best is Highveld 22 with an expected recovery of 17.6%.

A summary follows:

Syndication name

Expected distribution to investors (Rm)

Cents in the Rand

Highveld 15

98.96

37.08

Highveld 16

145.37

35.39

Highveld 17

149.58

60.01

Highveld 18

218.51

60.89

Highveld 19

24.22

4.01

Highveld 20

22.10

3.40

Highveld 21

26.00

1.97

Highveld 22

156.40

17.61

841.15

Topics: Nic Georgiou, Hans Klopper, Pickvest, Picvest, PIC Syndications, Highveld Syndication, Zephan, Orthotouch
Who's Who
JOURNO PROFILE

NAME:  Julius Cobbett
BIO: Moneyweb’s investigations journalist and cycling fanatic.
EMAIL:  julius@moneyweb.co.za

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