The peculiar case of the Picvest billions: Part 6

The sale of 31 Orthotouch properties to the Accelerate Property Fund in 2013 marked the crescendo of the fire-sale of properties in the aftermath of the collapse of the Highveld Syndication (HS) schemes.

These transactions represent the single largest sell-off of the HS properties after the HS companies were put into business rescue. And despite assurances that it would benefit investors, the sell-off amounted instead to the effective looting of the historic HS assets.

A Moneyweb follow-the-money investigation has found that with the exception of two properties, virtually every single one of the 79 former HS properties have been sold to third parties and that not a single property was ever transferred to the so-called business rescue vehicle of the HS companies, Orthotouch.

The sale of the 31 properties to Accelerate also led to Orthotouch suffering an accounting loss of around R782 million, while only R30 million of the R1.323 billion proceeds flowed to Orthotouch. The balance was used to settle mortgage bonds, not only on the 31 properties themselves but also on other properties linked to Orthotouch and the Georgiou family.

Included in the 31 properties were 16 extremely controversial developments. They formed part of 42 properties that Nic Georgiou sold to HS investors in the late 2000s for R3.4 billion, but which were never transferred to the HS companies. They were also supposed to be transferred to Orthotouch in terms of the business rescue plan, but never were. The sale of these properties to Accelerate therefore means that Georgiou sold the properties twice, first to the HS investors and then to Accelerate, which was a venture led by his son Michael.

The non-transfer to the HS companies is currently the subject of a criminal investigation. To date, the R3.4 billion remains unaccounted for.

From the Moneyweb investigation it is clear that HS investors received no benefit from the sale of the properties to Accelerate. It was just a continuation of the sell-off of former HS properties linked to Orthotouch to third parties, and the significant losses suffered by Orthotouch suggest investors were severely harmed financially.

This article and the next chapter focus on the sale of the 31 properties to Accelerate and how the proceeds were used.

For a full background regarding the history of the HS companies, read the following articles:

The peculiar case of the Picvest billions (Part 1) (Background)

The peculiar case of the Picvest billions (Part 2) (Background)

The peculiar case of the Picvest billions (Part 3) (Overvaluation of properties)

The peculiar case of the Picvest billions (Part 4) (Property transactions prior to HS companies being put into business rescue)

The peculiar case of the Picvest billions (Part 5) (Disposal of properties contradicts the intent of the business rescue plan)

The Accelerate Property Fund

The Accelerate Property Fund listed on the JSE on December 12, 2013, with a portfolio of 51 properties valued at nearly R6 billion. Nic Georgiou’s son Michael Georgiou was and still is the company’s CEO and largest shareholder.

Tito Mboweni blows the horn at Accelerate’s listing on the JSE. Image: Supplied

At the time of listing, Michael Georgiou and entities related to him owned around 50% of the company.

Some noteworthy asset managers such as Stanlib (13%) and Coronation (30%) also bought a significant shareholding in the company.

Accelerate boasted an impressive board. Tito Mboweni, former SA Reserve Bank governor and current finance minister, was the chair. He resigned late last year following his appointment as finance minister. (Moneyweb put questions to Mboweni regarding the content of this article, and although his office acknowledged receipt, he did not respond.)

Other prominent members included Dr Gert Cruywagen, a member of the King Committee on Corporate Governance. Cruywagen is currently interim chair of the company.

The ‘Orthotouch Properties’

The comprehensive 162-page Accelerate pre-listing statement described the portfolio of 51 properties as the “Georgiou’ family’s unique property portfolio”. The official press release announcing the listing also said the portfolio was “built up by the Georgiou family over the preceding 46 years”. The flagship properties were identified as Fourways Mall in Johannesburg, the Loch Logan Waterfront shopping centre in Bloemfontein and the Parow Centre in Cape Town.

Of particular interest are 31 of the 51 properties labelled the “Orthotouch Properties”. These properties were valued at nearly R1.5 billion and represented approximately 24% of Accelerate’s portfolio at the listing. What the pre-listing statement and the press release did not disclose was that the majority of these properties were syndicated to the 18 000 HS investors during the late 2000s, but were never transferred by Nic Georgiou or his related companies to the HS companies.

It was also not disclosed that these properties were to be transferred to Orthotouch, the rescue vehicle set up by business rescue practitioner Hans Klopper in his business rescue plan. Klopper was also a director of Orthotouch at the time. The pre-listing statement merely states that Accelerate procured the Orthotouch properties for R1.323 billion, which was R165 million less than the independent valuation.

In response to Moneyweb questions, Accelerate said via attorney firm Glyn Marais that this information was not disclosed “as the board had been advised that valid and binding sales agreements had been entered into between the various parties, agreeing [to] the sale of these properties to Orthotouch and that Orthotouch was lawfully entitled to sell and transfer these properties to our client [Accelerate].”

Hans Klopper, director of Orthotouch and business rescue practitioner of the HS Syndication companies. Image: Supplied

Glyn Marais also confirmed that the Orthotouch board, and specifically Klopper in his capacity as director of Orthotouch, had the authority to approve the transactions.

In response to questions sent to Accelerate in 2018, Glyn Marais stated: “The consideration paid by our client for the Orthotouch Properties was agreed with Mr Johannes Frederick Klopper, the Business Rescue Practitioner, who, at the time of the listing, was a director of Orthotouch. In the three-year period between the date upon which the Orthotouch Properties were valued for the purposes of the Business Rescue Proceedings and the date of listing, there would necessarily have been a change in the valuation of the Orthotouch Properties.

“This resulted from a number of factors including but not limited to the state of the buildings, vacancies, the amount of capital expenditure required, differences in rental profiles and the like. For the purposes of the listing therefore, an independent valuation process was undertaken to establish the fair market value of the Orthotouch Properties and the letting enterprises conducted thereon.” (Author’s emphasis)

The statement is not entirely accurate as the HS properties were never independently valued by Klopper in the business rescue process. In the business rescue plan (paragraph 5.1.4.3.3) Klopper stated that an unnamed source “advised” him of the values of the properties and that he did not have the time or the resources to have the properties independently valued.

Moneyweb corresponded with Accelerate on two occasions.

Read the full sets of questions and answers:

Questions, November 2018

Questions, September 2019

A summary of the properties appears in the table below:

* Only 30 properties are listed, since 9 and 11 Melville Main Road were consolidated into one property.

** The Eshowe Mall was also sold to Accelerate, but was not included as part of the “Orthotouch Properties” as defined by the pre-listing statement. Accelerate acquired the mall directly from HS 18 for R47.2 million.

Nic Georgiou, or other members of the Georgiou family, own or control all the companies other than the HS companies. The Georgiou companies are Zephan, SalesTalk 231, Fourways Precinct, Basfour 2296, Kia Joy Trust and the Schaeffer Technologies Trust. Georgiou also owns and is a director of Orthotouch.

A total of 25 of the 31 Orthotouch Properties were originally syndicated for R1.7 billion to investors as part of the various HS schemes. The remaining six did not form part of the 76 syndicated properties but were also included in the business rescue plan to be transferred to Orthotouch.

Revaluation of properties

It is also interesting to note that after its listing, Accelerate revalued its property portfolio less than four months later at the company’s financial year-end. This revaluation saw the portfolio value increase by R425 million. In response to a Moneyweb question related to whether the Orthotouch properties were revalued, Accelerate stated that it did not have the information at hand and would send it to Moneyweb at a later date. At the time of publication, no such information had been forthcoming.

Sale transactions

The Moneyweb investigation, which is based on the sale transactions in the properties’ title deeds, found that Orthotouch suffered a loss of approximately R782 million as a result of the sale of the properties to Accelerate, while Georgiou-linked entities profited to the tune of R881 million.

The nature of the transactions is also interesting, especially the transactions involving the 16 properties Nic Georgiou syndicated to the HS companies, but which were never transferred. The properties were sold in back-to-back transactions. The nature of these back-to-back transactions is explained by looking at the transaction details of one property, 1 Charles Crescent. The transactions appear in the table below:

As the table shows, Zephan, a company Nic Georgiou owns, acquired the 1 Charles Crescent property in 2006 for R41 million. (It was never transferred to HS 22 despite investors paying R206 million cash for it.)

In 2013, shortly before the listing of Accelerate, Zephan sold the property to Orthotouch for R216.4 million. Orthotouch, in turn, immediately sold it to Accelerate for R110.8 million, without taking ownership.

The result of these transactions was that Zephan earned a profit of R175 million, while Orthotouch suffered a loss of R106 million. It is unclear whether Orthotouch had the cash to pay Zephan the R175 million, but as explained later in this article, the R110 million was not paid to Orthotouch as compensation, but rather to settle mortgage bonds.

The table below shows similar transaction details for all 16 properties:

Disclosure of transaction details

Glyn Marais, on behalf of Accelerate, in response to a question as to whether the Accelerate board was aware that these properties were not transferred to the HS companies and are the subject of a criminal investigation, stated as follows:

“The board of directors of our client took advice and received legal opinion that the properties syndicated by the Highveld Syndication Companies must not be purchased directly from these companies and that all transactions relating to the Highveld Syndication properties must only be transacted through Orthotouch, as the Business Rescue vehicle. In accordance with the legal advice that the Board received, it dealt with the court approved Business Rescue Practitioner, who had the requisite legal authority and responsibility of implementing the Business Rescue Plan, in respect of the Orthotouch Properties. Our client purchased the Orthotouch Properties at fair market value in terms of arm’s length transactions, which were viable and lawful business opportunities for our client to pursue.”

From this answer, it can be deduced that the board was aware of the nature of the non-transfer of the properties, and that the 16 properties were effectively sold for a second time by Nic Georgiou to his son’s company.

Non-disclosure of amounts Orthotouch paid

The pre-listing statement also did not disclose the significant losses Orthotouch suffered. The statement only listed the acquisition prices the entities related to Nic Georgiou and the HS companies originally paid for the properties (third column), and the amount Accelerate paid (fifth column). It was therefore totally unapparent that Orthotouch – the rescue vehicle defined in the business rescue plan – suffered a loss of R782 million in the process.

Glyn Marais said in response that: “The prices at which Orthotouch acquired the Orthotouch Properties, and which is reflected in the title deeds referred to in your letter under reply, were in accordance with the prices offered and accepted pursuant to the Business Rescue Plan, in which process our client was not involved. The reference to the ‘current owner’ disclosed in Annexure 16 of the Pre-Listing Statement refers to the then registered owner of the Orthotouch Properties.”

Accelerate also “disagreed” with Moneyweb’s calculation that Orthotouch suffered a loss of R782 million, but did not provide any additional information to substantiate this disagreement.

Klopper’s response

Klopper refused to answer specific questions from Moneyweb related to the sale of the properties to Accelerate. However, he has referred to the disposal of the properties to Accelerate in various letters to investors.

In a letter dated as recently as August 3, 2018, Klopper responded to allegations made in a newsletter published by the Highveld Syndication Action Group. In this letter he confirmed that the properties were sold for R1 323 440 540 and added: “Orthotouch received a total of R1 707 545 560,00 from the Accelerate Property Fund transaction, an amount more than R157 million in excess of what it was contractually entitled to receive. In short, the disposition of assets was to the direct benefit of the investors.”

This ‘benefit’ did not flow through to investors. Less than a year after the Accelerate transaction, the business rescue plan failed and was restructured through a Section 155 Scheme of Arrangement. In this plan Nic Georgiou pleaded poverty and payments to investors were reduced further.

One of the reasons for this failure must be that investors did not receive the proceeds from the sale of the 31 properties. The R1.323 billion proceeds were used to settle the mortgage bonds of the 31 properties, as well as other properties not forming part of the Orthotouch properties but owned or controlled by entities with links to the Georgiou family.

This happened only a few years after the HS investors invested nearly R5 billion to procure 76 unencumbered properties. In one transaction, nearly half of the properties were sold and the proceeds used to repay mortgage bonds that were never supposed to be there.

No intention for Orthotouch to ever hold Accelerate shares

The pre-listing statement also reveals that there was absolutely no intention from Accelerate to issue shares to Orthotouch as payment for the properties. Despite frequent references in the pre-listing statement that Accelerate would issue shares and cash to Orthotouch to settle the R1.323 billion acquisition price, the pre-listing statement also made it clear that there was never any intention for Orthotouch to receive any shares.

Hidden away on page 128 in Annexure 12 of the pre-listing statement it states that Orthotouch will renounce any shares it would receive through the transaction to the Michael Family Trust. No additional information is provided.

In response to Moneyweb questions regarding the number of shares that were issued to Orthotouch, and why these shares were promptly renounced to the Michael Family Trust, Glyn Marais reveals that not a single share was transferred to Orthotouch, and that therefore, not a single share was renounced. (However, Glyn Marais did not answer the question of why Orthotouch renounced the shares in the first place.)

Glyn Marais stated: “The reason for this is that Orthotouch’s existing financiers would not agree to release the Orthotouch Properties from the operation of their respective mortgage bonds unless and until all of the amounts then owing to the existing financiers had been paid in full, including the settlement of amounts secured under the mortgage bonds passed by Orthotouch over land and letting enterprises which did not form part of the Orthotouch Properties purchased by our client for the listing.

“As a result, the balance of the properties forming part of the Orthotouch portfolio, which did not constitute the Orthotouch Properties forming part of the listing, received the benefit of having their loans to the aforesaid banks paid in full and being unencumbered. If Orthotouch was issued shares in our client’s company, then Orthotouch would not have had the cash resources to settle the amounts due to Orthotouch’s financiers and/or to cancel the existing mortgage bonds registered against its properties, including the Orthotouch Properties.

” For this reason, the Michael Family Trust agreed to make payment to the financiers of the full amount required to settle the Orthotouch facilities. Shares in our client’s company were then issued to the Michael Family Trust in exchange for making this payment.” (1st letter, paragraph 2.7.2).

Glyn Marais also disclosed that an additional amount of approximately R157 million was paid by the Michael Family Trust to settle the outstanding mortgage loans. Interestingly, despite stating in the answer above that shares were issued to the Michael Family Trust in lieu of the R157 million, Glyn Marais denied that such shares were issued in a subsequent letter to Moneyweb.

Settlement of mortgage bonds

The use of the proceeds of the sale of the 31 properties to Accelerate to settle the mortgage bonds of the 31 Orthotouch Properties, as well as other unnamed properties, deserves further analysis.

From Glyn Marais’s response, it is clear that the proceeds were used to settle the mortgage bonds of many Orthotouch Properties, as well as the mortgage bonds of “other” properties not forming part of the transaction.

Glyn Marais later, on behalf of Accelerate, confirmed that it did not know the identity of the other properties, but said these properties were linked to Orthotouch.

In response to questions, Accelerate attributed this to banks demanding full repayment of all mortgage bonds due to them, even mortgage bonds related to properties that did not form part of the Orthotouch Properties.

Glyn Marais confirmed that Accelerate paid R1.3 billion to Rand Merchant Bank and Investec to settle mortgage bonds, as well an additional R332 million to Investec to settle the bonds linked to properties that did not form part of the Orthotouch Properties.

Klopper alluded to the settlement of mortgage bonds in a letter to shareholders dated February 14, 2014 (paragraph 19). In the letter, Klopper confirmed that the listing “enabled Orthotouch to clear substantially all bank debt over all the properties earmarked for transfer to the Orthotouch portfolio and, pursuant to the listing, the value of the portfolio of unencumbered properties that Orthotouch has the right to take transfer of, is approximately R3 billion. The process of registering the portfolio in the name of Orthotouch will now be embarked upon, bearing in mind that only such properties that Orthotouch wish to retain in the long term, will be transferred”.

However, since Accelerate’s listing and the settlement of the mortgage bonds, no properties have ever been transferred to Orthotouch. In fact, virtually all remaining properties were sold shortly thereafter to unrelated third parties, including the Delta Property Fund. It is not clear how these transactions benefitted investors.

Properties remaining after Accelerate’s listing

The Moneyweb investigation set out to establish which properties destined to be transferred to Orthotouch were not acquired by Accelerate. The following properties were identified:

Another 27 properties not originally syndicated to HS investors valued at nearly R1.2 billion – which were included in the business rescue plan and were supposed to be transferred to Orthotouch – were also sold. The majority were sold to the Delta Property Fund in 2016 (these transactions will be the topic of another chapter of this investigation).

Independent forensic investigation

The events described above clearly show that an independent forensic investigation is needed to investigate the nature of the sale of the 31 properties to Accelerate and how this benefitted the Georgiou family and the 18 000 former HS investors.

From Moneyweb’s perspective, and based on opinions from several property attorneys, accountants and forensic accountants, the loss of R782 million Orthotouch suffered would leave the company insolvent.

The transactions also clearly benefitted the Georgiou family, especially as the 16 properties that were never transferred to the HS investors were sold for a second time by entities linked to Georgiou to Accelerate via Orthotouch. The elaborate process whereby the HS investors were bypassed, and never received transfer of the properties that they paid for, nor the proceeds of selling them, raises serious questions.

The proceeds were also used to settle the outstanding mortgage bonds on the properties. Even mortgage bonds on properties not included in the Accelerate transactions were settled and were sold later to third parties with no apparent benefit to investors. It is also concerning to note that Nic Georgiou has terminated all interest payments to investors who support legal challenges against himself and Orthotouch.

The sell-off of the properties to Accelerate may also be seen as effectively the looting of the property assets of the HS companies and their business rescue vehicle, Orthotouch, prior to Orthotouch itself being put into liquidation.

The only losers are the 18 000 hapless HS investors who bought and paid for properties but have nothing to show for their money, while Nic Georgiou and Accelerate have benefitted from the sale by Georgiou to Accelerate “of the Georgiou’ family’s unique property portfolio … built up by the Georgiou family over the preceding 46 years”. Intervention is desperately needed to save at least some of the monies owed to the HS investors.

Section 417 report

Connie Myburgh, corporate lawyer and chair of Nova Property Group. Image: Supplied

It is also critical to note the identity of the persons who served as directors of Orthotouch and who would have had to approve the conditions of the sale of the properties. Apart from Klopper, corporate lawyer Connie Myburgh, the current chairman of the Nova Property Group, Nic Georgiou himself and Panagiotis Kleovoulou were directors.

Both Klopper and Myburgh were recently cited in a Section 417 report for misconduct during the period prior to the liquidation of a company called Harrison and White. The main premise of the report was that the liquidation of the company was delayed and this allowed the looting of assets, leaving very little for creditors post-liquidation.

Klopper has indicated in a communication to family and friends that he will take the Section 417 report on review, while Myburgh claims he has not seen the report as it is regarded as confidential.

Read: The dark underbelly of the business rescue industry

Read Moneyweb’s questions and the full responses from Accelerate:

Questions, November 2018

Questions, September 2019