Proudly sponsored by

Ecsponent’s preference shareholders fear losing everything

Concerned investors speak out, while the group’s CEO says a new hybrid share plan is aimed at avoiding this.
The Pretoria-based offices of financially strapped Ecsponent Limited. Image: Moneyweb

Having lost out on their high-yielding dividends, many of Ecsponent Limited’s 2 800 preference shareholders are now worried they may lose the more than R2.1 billion that they’ve invested in the small-cap private equity and financial services group.

Pretoria-based Ecsponent hit financial trouble last year and announced in February (2020) that it will default on paying out around R188 million in dividends, due in March to preference shareholders. The scale of its financial woes was revealed last month, when it reported a R1.98 billion loss for its half-year to December 31, 2019.

Read:

Embattled Ecsponent reports record R1.98bn half-year loss

FSCA inquiry into Ecsponent Financial Services

Adding to Ecsponent’s woes, Moneyweb also reported last month that its subsidiary, Ecsponent Financial Services, is facing a Financial Sector Conduct Authority (FSCA) inquiry. The subsidiary stands accused of marketing “high risk” preference shares in its holding company to unsuspecting pensioners.

Moneyweb has been contacted by several concerned preference shareholders, most of whom are pensioners, since first reporting on Ecsponent’s default in February. In recent weeks, Moneyweb has received more correspondence, via email and even via social channels, from worried shareholders who seem to have realised that they may lose out not just on dividends, but potentially the initial capital invested in Ecsponent.

‘Angry’

Many have been wary to comment on the record, but now for the first time two have decided to tell their story.

This comes as they, together with the other preference shareholders, have a tough decision to make on Wednesday, May 27, on whether to vote in favour of amending their shares into “hybrid preference shares” or allowing a default conversion of their preference shares into ordinary shares in the group.

Andries Roets, a Nelspruit pensioner who turns 75 later this year, tells Moneyweb he is “angry and worried” not only about not getting the preference share payouts he is dependent on, but the prospect of losing a significant portion of his life savings.

“I have worked for 60 years and don’t need this stress, especially now, being a pensioner and reliant on the payouts from my Ecsponent investment,” says Roets.

“I have not received payouts since March, and it has affected me badly. I can’t even afford to pay levies on my house and for my medical aid now.”

Read: Ecsponent’s default puts R2bn in preference shares at risk

Roets made the investment through Ecsponent Financial Services after hearing about it on a local radio station.

“I hope something can be done, but I am very worried that I will end up with nothing,” he says.

“Speaking to other preference shareholders [following an Ecsponent webcast meeting this week], many of us share similar concerns.

“Personally, I don’t have the means now to get a lawyer to look into this and I don’t know what to do.”

Between Thursday last week and Tuesday this week, Ecsponent has held nine webcast meetings with preference shareholders explaining the hybrid preference share option. This it says is being offered to affected preference shareholders as an alternative to their shares automatically being converted to ordinary shares.

The conversion to ordinary shares, in the event of a default, is in line with the group’s current Memorandum of Incorporation (MoI).

Roets was one of around 2 000 preference shareholders who participated in one of the webcasts, but he is sceptical and has not decided how to vote. This comes as the value of the group’s ordinary shares have plummeted 70% on the JSE over the last year and currently trades at a nominal 6 cents a share.

At a loss …

Kobie van der Walt, a resident of Zeerust in the North West, is another Ecsponent preference shareholder who has expressed anxiety to Moneyweb about the group’s financial situation.

He is also in his 70s and says “a substantial amount” of his retirement savings has been invested in Ecsponent’s preference share scheme.

“I took part in the webcast, but really don’t know what I am going to do,” he says.

“I have not received any dividends since February, so this whole situation has severely affected me financially and emotionally,” says Van der Walt.

“My investments into the company were made specifically to benefit from the monthly income.”

Van der Walt invested through a financial intermediary and not via the Ecsponent Financial Services subsidiary. However, he says he was never told about how risky the investment could be.

Read:

Red flags as Ecsponent faces ‘default event’

The company behind the preference shares offering 14.5%

“The Ecsponent portfolio was marketed to me, and as far as I understand, to many other pensioners, as a safe and stable investment,” he adds. “Many of us have invested our life savings into this. It was never communicated to me that Ecsponent was operating a very risky business model, investing in start-up companies.”

Subsequent to the webcast, Van der Walt says “things don’t look good”.

He points out that both the hybrid share option and ordinary share conversion option will still mean that current preference shareholders are unlikely to receive dividend payments over the next few years.

“From what I understand, as per the [proposed] MoI amendment document, should investors vote for hybrid shares, one has to forfeit a monthly income for four years or more.

“In addition, it is only at the discretion of the board to pay dividends, and this will be in the form of equity,” he notes.

“The options offered still put us pensioners in a very tight spot.”

Other nervous preference shareholders, who have reached out to Moneyweb to convey their situation on condition of anonymity, talk of investing between R1 million and up to R7 million in Ecsponent.

“We desperately need help,” reads a message sent to Moneyweb via Facebook.

“We invested R4.3 million with them and our advisors knew that was the only money we had.”

“We both (are) not working and have no other income, (which was) known by our advisor… We are now told that he is also without a job,” says the individual.

“Every time we ask where’s our money, we get told it’s there. (But) we are also told that we cannot get it. I’m so desperately in need of help as that is all our money. Waar toe van hier? [Where to from here?]… We are now asked to lock-on and vote, (but) we don’t understand what to vote for,” the shareholder adds.

CEO believes turnaround is possible 

Meanwhile, speaking to Moneyweb on Tuesday, Ecsponent Limited CEO George Manyere reiterated that he believes the group is solvent and can turn things around.

He blamed the group’s financial woes on its former management, but said progress has been made in the restructuring the company as well as its problematic MyBucks business. Both companies have slashed around 100 staff as part of the restructuring under the new management team.

Manyere said the hybrid share offer to Ecsponent’s preference shareholders is aimed at giving them a better alternative, as opposed to automatic conversion to ordinary shares, which is stipulated in the group’s current MoI in the event of a default.

He said more than 2 000 preference shareholders participated in Ecsponent’s webcasts over the last week, which were aimed at updating them about the hybrid share offer.

A majority of Ecsponent’s preference shareholders will have to vote in favour of the hybrid offer for it to be passed.

AUTHOR PROFILE

COMMENTS   14

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

Similar to Blue Financial, Bridge and Cambist these investors will lose everything. Same model…. really sad

Pensioners getting screwed seems to be a recurring theme when it comes to high risk investments (of course, you only find out about it being high risk afterwards)

Firstly, it’s never a good idea to put all your eggs in one basket. Risk spreading is just common sense. Secondly, if somebody offers you a return greater than the prime rate, you should ask him why he wants to pay you more than he’d have to pay the bank. What does the bank know that you don’t? So while I feel sorry for pensioners, their own greed does play a role in all these cases.

How is it that a company is solvent if they haven’t paid their employees salaries for two months?? Also the retrenchment packages wasn’t paid for the employees that they have let go as mentioned in the article!! These people keep on lying to the public and shareholders.

This is unfortunately the elderly and most vulnerable. They were promised high returns, without knowing the full extend of the risk. I advised a family member to stay clear, but she invested all her money in this criminal scheme. The so called broker, convinced her, even after I spoke to him personally to ask if he can invest a portion and not be a scavenger without a conscious, just as long as he gets his commission.

These brokers (who cannot be called “Financial Advisors”) should also be investigated in terms of FAIS regulations. Maybe they can rather go and sell funeral policies, because they are killing our elderly fast.

When it sounds to good to be true, it most probably is.

GPG, I agree with you in part. I regard myself as a proper Certified Financial Planner with very good understanding about the markets and investment schemes. Having said that, it is a fact that investors investing in these schemes have to take blame themselves. I personally lost a client to Ecsponent after warning him several times. He was just gatvol for poor returns and high fees. Obviously the Ecsponent “broker” highlighted fees/commissions as many readers here do as well. I investigated Ecsponent and there fund fact sheets indicated 0% cost…ha, ha, ha! After all is said and done I know he is today in deep trouble…retired and all his investments went in there.

Hi Gordon, apologies if it came across that I blame all “Brokers” I know there are a lot with sincere intentions and the interest of their clients at heart. The thing is, I know for a fact that the said family member has or never had any knowledge of financial markets and financial terms or meanings thereof.
I also work on the “he who signs beware” principle in my personal life, but it remains an obligation of any financial advisor to ensure the client truly understands and not just see the amazing (unrealistic) returns.
Really not my intention to blame all financial advisors, hope you understand.

Thanks GPG. I agree with you.

A question for current FSCA bigwig and former Ecsponent director Brandon Topham: Why did he lend his credibility to this dubious scheme? Topham is a chartered accountant and lawyer. He must have known the probability of a bad investment result was close to 100%

That’s what happens if you have greedy Directors. Putting the money of the investors in their pockets for their own financial gains.

Is there anything that shareholders can do? Class action lawsuit? This is devastating for so many retired investors.

The fact sheets looked good and don’t tell the whole story, so I invested a portion of my serverance pay in this scheme, so yes I also stand to lose my investment. The returns looked good and obviously allowing for capital gains tax I would still have had a decent growth on my investment. My investment was done through a recognized financial broker house. My total pension is with Discovery and those investments performed dismally to say the least. I can fully understand why the pensioners who need to live off this income would invest in EFS and similar companies.

So now we are faced with the collapse of this (Edited out) scheme which was allowed to exist with tacit FCSA and/or State approval. I make the latter statement as none of the financial regulations are or were enforced by either the FCSA or the State. Any oversight by the JSE is also glaringly absent.

Of interest is that in the webcasts/webinars the investors were repeatably told that they were not allowed to exercize their rights in terms of section 164 of the Companies Act as these were specifically precluded or excluded from the MOI changes required. Why is a question that begs for an answer?

No further interest or growth is apparently payable on the investments, whether hybrid share or ordinary shares, for an indetminate period of time. The only real difference being that hybrid shareholders get preference on dividend payouts. Even a 7-12 month investment of R10 000 in SA Post Office Term Savings will net you 3.5% in interest, which is more than Ecsponent is offering.

In various other posts the following resolutions were suggested (a) a class action against FCSA for failure to perform their regulatory function with due diligence and (b) Approach the Ombudsman to pursue a claim against the Broker’s liability insurance.

I am an investor with Ecspotent. I invested a very large amount which was an inheritance from my late husband. Myself and two children relied on the monthly dividends to cover all our monthly expenses. We now have no income what’s-so-ever. Finding out about the Ecspotent’s fall in February was devastating. We are now in a predicament of losing our home and other assets, some being mementos of my late husband.
Our advisor never mentioned that the investment was “High Risk”, his words were “minimised risk”. In fact, he wasn’t transparent about Ecspotent investing in start-up companies, which would have been a red flag in itself. I would assume most advisors did the same to their clients, as they gained from the big commissions.
Where to now, as we are all still in a very high risk position.

How is this possible??? Take R2b investors money. I understand Ecsponent got a fine of R3m? Time to investigate every director, starting with the founders and so called non Executives. We all know that it doesn’t help in SA to even hope for protection from FSCA. 3000 Investors and nothing happening to the full Board of Directors. Related party investments into My Bucks, Fintech Campus.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

NEWSLETTERS WEB APP SHOP PORTFOLIO TOOL TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: