‘I don’t think it’s fair to be requested to adhere to King III’ – Nova CEO

Dominique Haese, CEO of Nova Property Group, in discussion with Ryk van Niekerk. See Dawie Roodt’s comments.

 

This transcript is of a live radio interview between Moneyweb Editor Ryk van Niekerk and Nova CEO Dominique Haese on RSG Geldsake.

It followed the publication of the following articles about Nova’s shareholding:

Part 1: ‘Corporate capture’ of Sharemax rescue vehicle

Part 2: Shareholder structure hides how directors’ acquired 87.1% of Nova shares

 

RYK VAN NIEKERK: The four directors of the Nova Property Group, the rescue vehicle of the failed Sharemax property syndication scheme, managed to acquire 87.1% of the issued shares and 91% of the voting rights of the company.

This may be why the directors aggressively fought Moneyweb’s legal efforts to access the group’s shareholder registers for more than three years, after former Moneyweb journalist Julius Cobbett applied for access in terms of Section 26 of the Companies Act.

After three years the Supreme Court of Appeal found that the directors have no choice but to open their registers, and the Constitutional Court denied them leave to appeal against this judgment.

The directors recently gave Moneyweb access to the registers and it revealed that the Nova directors Connie Myburgh (chairman), Dominique Haese (CEO), Rudi Badenhorst (financial director) and Dirk Koekemoer (operations director) have an absolute equity and voting control of the company.

See the shareholder structure

On the line is Dominique Haese. She is the CEO of Nova. Dominique, is it not a conflict of interest for the four Nova directors – the only directors on the board – to own 87.1% of the shares and 91% of the voting rights?

DOMINIQUE HAESE: Good evening, Ryk, and thank you for the opportunity. It is definitely not a conflict, it is in accordance with the scheme of arrangement, it was disclosed like that in the scheme of arrangement. The scheme gave the three directors at the time, who were Dirk Koekemoer, Rudi Badenhorst and myself, the right to nominate the seven people who would ultimately hold the balance of the shares, not so elected by the converting debenture holders, whatever that balance might have been, if there was to be a balance. Nobody would have anticipated who would have converted and how many or how little would have converted. In our instance the conversion process was even extended by four months to give people additional time to consider such a conversion because ultimately it would be better for the Nova Group to eliminate the liability that comes with the debenture holder.

RYK VAN NIEKERK: The allocation of the B shares were never disclosed, you refer to the A shares that were disclosed in the scheme of arrangement document but the 2.2 billion B shares that were available to debenture holders but were not taken up by the debenture holders were issued to the directors and the other founding shareholders. Why was that never disclosed?

DOMINIQUE HAESE: It was, in fact, disclosed, it was disclosed already in the scheme documentation as an annexure to the documentation, with reference to the annexure explaining exactly the conversion process, the effect thereof should you decide to convert or not, and also what happened to the leftover shares not taken up by converting debenture holders. So it was at all times explained, it was discussed even at the roadshows before the scheme conversion process took place. So I’m not quite sure where one could say that everything was under wraps or that it’s…

RYK VAN NIEKERK: Well, it’s quite simple because 2.2 billion shares were issued to the founding shareholders, 87.1% were issued to the directors. That percentage and the shareholding was supposed to have been disclosed in terms of the Companies Act and it wasn’t done. Have you ever disclosed that the directors collectively own 87.1% of the shares?

DOMINIQUE HAESE: We have discussed it at AGMs because shareholders, who attend our AGMs, obviously ask the questions and they’ve been informed of this. We don’t need to disclose issues of shareholding in annual financial statements in any year unless there was an issue. There has been no issue of any shares to any director or related company since 2013 after the election process.

RYK VAN NIEKERK: But Nova Property Group is a public company, it represents the investments that 33 000 investors made in the old Sharemax scheme, it amounts to about R5 billion, don’t you think it’s good corporate governance to disclose who actually owned the shares of the company that manages the assets, the buildings, which their initial investments financed?

DOMINIQUE HAESE: Ryk, we do disclose it, we disclose it to relevant stakeholders at relevant times. The fact that we didn’t disclose it to Moneyweb is a separate argument. But all our stakeholders, including financiers and banking institutions, know exactly who the shareholders are. There’s nothing sinister about it, there is nobody who is negatively impacted by the fact that the non-converted debentures are held in a nominee company for an investor or an equity partner or funder to come in to possibly fund the group at a later stage, take up the shares and help pay the debenture holders, which is the primary goal of this scheme of arrangement.

RYK VAN NIEKERK: Let’s talk about the payment to debenture holders. Since there are only four members on the board, they own 91% of the voting rights, the salaries they have approved to pay themselves amounts to a lot more than what is paid out in interest to 31% debenture holders. For example, in the 2015 and 2016 financial years the four directors paid themselves R16.7 million and R19.6 million. In the same period the board paid interest to debenture holders of R10.5 million and R14.1 million. Is that not a serious result of the dominant shareholding of the directors?

DOMINIQUE HAESE: Not at all. Ryk, your figures are unfortunately incorrect, even after we have sent you numerous communications over the last couple of weeks since we engaged with you. The directors have not paid themselves the quantum of R66.2 million that you that you allude [to] in your report. In fact, we paid ourselves a lot less, the quantum is around R51 million and it includes bonuses accrual. We won’t be paying ourselves exuberant amounts of money because simply the scheme won’t allow for it.

RYK VAN NIEKERK: But those numbers were disclosed in the annual financial statements.

DOMINIQUE HAESE: Yes but your figure includes an accrual, so it wasn’t paid out physically, also we paid debenture holders far more than the R86.6 million that you referred to. We, in fact, paid them R167 million. Your reference to R86.6 million is merely the interest that we’ve paid investors or the returns that we’ve paid them. While we’ve paid capital, which is the ultimate goal of the scheme, to people 100 cents in the rand, which would be another R80 million. So if one looks at industry norms and market-related salaries, our salaries, if you do the calculation properly, is 70% of what an industry norm salary would be, taking all the risk, taking the responsibility of this group.

RYK VAN NIEKERK: But you not only earn these massive salaries – and I dispute the fact that they are market-related – but you also earn 87% of the issued shares. If the company would go into liquidation tomorrow, according to your latest financial statements that ended in February this year, there would be a net asset value of R1.2 billion and that would give the four directors a claim on the net asset value of close to R280 million each.

DOMINIQUE HAESE: Ryk, if one assumes that you could presently turn the assets into cash [9:58] disclosed valuations on the assets in terms of best estimate use, if we can achieve that then we did a great job. Should there be any such cash left then it is fully justified I think.

RYK VAN NIEKERK: Just lastly, Dominique, does the Nova board run the company according to the King III guidelines?

DOMINIQUE HAESE: We try our absolute best to do it in terms of everything that’s going on. Remember, this is governed by a scheme of arrangement, a court order, so it makes it difficult. We are aware of certain things, which in terms of the King [guidelines] of a listed public company we try to adhere to but won’t be able to. It is a very high-risk job with a lot of negative publicity, nobody will take all these obligations, risks and signing suretyship and be a non-executive director involved, it simply isn’t that simple to find people who would want to serve on the board. So we are tasked with this job, from the beginning in 2010 when we put this together, to avoid liquidation and we sit with it and we have to see it through. I am comfortable that we are doing a very good job applying King in whichever format we can, as an unlisted company, to procure value to the group, which we’ve done since 2012 when the value of the accumulated profit was zero, we’ve increased in 2016 to R1.1 billion. We’ve increased the share value for these converted shareholders by 50%. So I think we’ve done a very good job and we’ve paid people R167 million over the last four years. I don’t think it’s really fair to be requested to adhere to King, it’s simply not possible under a restructured scheme of arrangement of this nature.

RYK VAN NIEKERK: But surely you can comply to the disclosure of the directors’ shareholding in the company in the financial statements in public, the composition of the audit committee, which is not compliant to the [guidelines], not only the King Code of Governance but also the Companies Act, and why there is not a representative of the 31 000 debenture holders on the Nova board, it is simple governance, which does not seem to be done according to good accepted guidelines.

DOMINIQUE HAESE: Ryk, we are still taking legal advice in terms of the Companies Act disclosure back in 2012. If it is an oversight and should have been disclosed then, there were only eight shareholders in 2012, namely the seven of us plus Nova nominees. It is definitely not a concern to us, we adhere to corporate governance, the Companies Act on many, many levels, in fact, on all levels. I have no concern that we are not doing the best for the ultimate benefit of repaying these people.

RYK VAN NIEKERK: Why is there not a representative of the 31 000 debenture holders on the Nova board?

DOMINIQUE HAESE: That would be in direct conflict of what King actually prescribed.

RYK VAN NIEKERK: Why?

DOMINIQUE HAESE: Because there’s an interest, you’d have to get a completely non-connected, non-involved person. So it can’t be a debenture holder or a shareholder, it has to be somebody completely independent. We have approached people in the past, over the last year, to serve on the audit committee and the remuneration committee but there’s nobody who wants to do that. The risk is too high, the reputational risk, the signing of suretyship, the continuous bombardment of press, negative press. People don’t want that, so nobody will serve on the board.

RYK VAN NIEKERK: Thank you, Dominique. That was Dominique Haese, she is the chief executive of Nova Property Holdings.

 

 

Ryk van Niekerk and Dawie Roodt interview 

Dawie Roodt, Economist at the Efficient Group  and a key player in this whole saga, is on the line. Dawie was also initially involved with the acceptance of the scheme of arrangement.

RYK VAN NIEKERK: Dawie, you listened to what Dominique said. What are your thoughts? 

DAWIE ROODT: Good evening. Today I’m a director at a listed company, I have been for a couple of years now and I’ve been a director prior to my involvement with Sharemax. And I can definitely tell you about the type of checks and balances that are present in the board when it comes to shareholding, when it comes to management – there are a lot of conditions and requirements that must be met. When I found out about the directors at Nova today, the old Sharemax, who owns around 90% of the shares, I was completely stunned. I just cannot understand how employees – remember, it’s employees – managed to become shareholders to such an extent. I think it’s a massive conflict of interest. Back in the days, when I was still a director at Sharemax or Nova, as it’s known today, the scheme of arrangement was still in process – I cannot remember exactly when I left, and whether the scheme of arrangement has already been approved or not – but during that stage, as director of the company, I was never aware of any shares that would have been carried over to the directors.

To tell you the truth, if there were any talk of shares that would have gone to the directors and the interest the directors would have gained in the company, I would have only allowed it if it was presented at an annual general meeting where all interested parties were involved. I think it’s a massive conflict of interest, and I wouldn’t have allowed it under any circumstances. To tell you the truth, there was a stage where there were talks of director compensation, and that’s where the troubles between most of directors who are still at Nova and me, started. During that stage, I said that I wouldn’t approve any director compensation unless it has been presented to the interested parties. So I’m in absolute shock about what happened.

RYK VAN NIEKERK: We’ve written a letter to BDO, Nova’s auditors, asking several questions. They’ve released a holding statement and will investigate the accusations and false allegations that we’ve made. But I would just like to confirm: you were an advocate of the scheme of arrangement, and you were involved during the time the Sharemax scheme failed. Were you ever under the impression that the directors would gain such a massive interest in the company through the scheme of arrangement?

DAWIE ROODT: Absolutely not. I wouldn’t have allowed it under any circumstances. To tell the truth, I don’t know when the scheme of arrangement was approved, but under no circumstances. I wouldn’t have granted even the salary increases unless it has been properly approved by the interested parties at the annual general meeting. So a change in shareholding which the directors are benefitting from, I wouldn’t have allowed it under any circumstances.

RYK VAN NIEKERK: What are your thoughts on the fact that there isn’t an independent director on the board to promote the interests of the debenture holders?

DAWIE ROODT: Well, if a company is properly managed, there are a lot of institutions – like the Institute of Directors in Southern Africa for instance – who would queue to propose independent directors willing to serve on the board. I think the reason why the directors aren’t keen to serve on this specific board, is simply – and here Dominique is absolutely correct – the potential risk involved in serving on this board. And this is the reason why I left as director at Sharemax. So I don’t think it’s a valid excuse. If someone doesn’t want to serve on a board, then there must be a very good reason behind it. 

RYK VAN NIEKERK: Thanks Dawie. That was Dawie Roodt from the Efficient group.

 

 

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Haese talks about “reputational risk” without a hint of irony. It seems to escape her that the directors, two of whom are ex-Sharemax, are the primary reason reputation risk exists.

Myburg and Haese et al – GOOD NEWS – ZUMA will create places for you in his cabinet.
Your actions/failures and attitude is in line woth what he requires

So she thinks 51 mil is a lot less than 66? sure but its more than the interest paid out and they put up more than R10 in capital!

Haese’s comment that “Nobody would have anticipated who would have converted and how many or how little would have converted” is, in my opinion, dishonest. The process of playing to peoples’ fears remains a path to financial success. I guess so long as money and influence can be harvested from fear, it will live on.

We have discussed it at AGMs because shareholders, who attend our AGMs, obviously ask the questions and they’ve been informed of this. We don’t need to disclose issues of shareholding in annual financial statements in any year unless there was an issue. There has been no issue of any shares to any director or related company since 2013 after the election process.” Nova is a role model for financial narcissism.

Nova’s responsibility was always to advise full risk before a Scheme of Arrangement could be negotiated. This obligation included an advisement that the “founding” shareholders stood to gain an unfair advantage. This disclosure alone would have altered course and influenced the redress landscape.

You are right, Mr Cobbett. Your comment brings to mind my 5-pager communique to Nova some months ago. My request for clarification was ignored—

REPUTATION—RISK OF RISKS

NOVA PROPERTY GROUP is largely responsible for what its clients think of it. Clients are human—they have a natural tendency to make assumptions about NOVA PROPERTY GROUP’s abilities that will be tough to change. If current clients have limited views of NOVA PROPERTY GROUP’s abilities, the odds are that NOVA PROPERTY GROUP is the one who provided the evidence they needed and NOVA PROPERTY GROUP must take responsibility for its image.

Building an image in the marketplace is like tiling a kitchen floor. Those first few tiles are critical and any misalignment will be magnified later. Unfortunately, it is much more difficult to change perceptions than to inform them in the first place. NOVA PROPERTY GROUP has lost respect and it needs to keep perceptions in line with reality—sanity in the present, so-to-speak. Sell problem-solving—NOVA PROPERTY GROUP must figure out how to deliver on the promise that it made! and recognise that clients smell lack of confidence.

End of comments.

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