The Nova Property Group intends to list the remaining Sharemax properties on the JSE before the end of the year which may provide an opportunity for around 33 000 Sharemax investors to liquidate their investments.

Nova, the rescue vehicle of the failed Sharemax property syndication scheme into which investors poured more than R5 billion, released a circular to debenture holders, the largest group of investors, which sets out the basis of the listing. 

Unfortunately, the circular is not a comprehensive prospectus and does not contain an independent fair and reasonable statement which endorses the proposal as being fair to debenture holders.

Nova CEO Dominique Haese did not respond to several requests for an interview to provide clarity on certain aspects of the proposed listing. This is not surprising as Nova suspended all communication with Moneyweb late last year claiming that Moneyweb was waging a vendetta against Nova and the directors.

This was after Moneyweb revealed that the four directors of the company collectively received 87% of the issued share capital for free after Nova fought for more than three years in various courts to keep it a secret. (Read the statement at the end of the article).

Listing information

The 61-page circular proposes a complex transaction that will see the Nova debentures being converted into shares in a new listed company. Investors will supposedly then be able to sell these shares on the open market and thereby realise at least a portion of their original investment.

The number of shares each debenture holder will receive is guided by a special formula that is linked to the underlying properties. This conversion ratio varies significantly between the different properties. Some debenture holders may receive shares to the value of more than 85% of the value of their debentures, while others will receive much less.

According to the schedule (see the bottom of the article) the holders of debentures linked to the Villa and Zambezi will take the biggest hits. Villa investors may receive shares to the value of only 15% of their original investment, while Zambezi investors should expect 20%.

Thus it is possible that these investors will not be overly excited about the proposal.

The circular also states that once the debentures are converted into shares, investors will surrender all rights and claims they had against Nova in terms of the original scheme of arrangement.

Directors are the winners

The circular also reveals a very interesting post listing shareholder structure. The 31 000 debenture holders, whose shares are valued at nearly R1.7 billion, will receive shares representing 34.45% of the new company.

In contrast, the seven founding shareholders of Nova, and specifically the four directors, will receive 43.25% of the shares.

Moneyweb has previously revealed that Connie Myburgh (chairman), Rudi Badenhorst, Dirk Koekemoer and Haese received 87% of the Nova shares for free in terms of the scheme of arrangement, which Myburgh penned.

The circular also states that the company may have a net asset value of around R2.3 billion after the listing. This means that the equity stake of the 31 000 investors amounts to around R790 million, significantly less than the R990 million the founding shareholders’ stake will amount to – assuming the listing goes ahead. 

The 2 000 former Sharemax investors who elected to convert their Nova debentures to Nova shares (which resulted in their debentures valued at around R94 million being cancelled), are set to receive a collective stake of 1.9%. This equates to around R43 million.

An unnamed corporate sponsor is destined to receive 5% of the shareholding that could be worth around R114 million for a contribution valued at only R2.59 million.

The circular also reveals that an unnamed investor is in the wings to invest R400 million of cash into the business on top of an additional R104.4 million to buy out certain classes of debentures that are due for redemption.

Proposed shareholding structure of the listed entity:

Unfortunately, the circular is not a prospectus and does not provide clear information about critical assumptions.

Some of these questions relate to the ratio in which the founding shareholders would receive shares in the new company, as they receive nearly four shares for R1, while debenture holders receive only one R1 share for every R1 debenture they own.

Liquidation

The circular also states that liquidation would not be in the best interest for investors. It states that it could take up to four years for a liquidation to be finalised. It includes a possible liquidation scenario which shows that such an action may only realise around R542 million.

In an interview with Business Day, Haese said: “We have been wanting to go into the listed environment for the longest time; it’s the only way you can really unlock value. If we had to exit [debenture holders] today, they would probably get 50c in the rand. That is the reality of where we are.”

Voting on the proposal

A special debenture meeting is planned for November 10 in Pretoria where debenture holders will have to vote on the proposal.

Response from Dominique Haese, CEO of Nova:

Dear Mr van Niekerk,

It is regrettable that our efforts in engaging Moneyweb openly, constructively and in a bona vide fashion has not been reciprocated. In response Moneyweb has chosen to publish articles without prior reference to us, and in breach of your undertaking to allow us to see and comment on the articles first, which articles twist the facts, articulate a number of inaccuracies and untruths and seek to slander and defame the Nova Group and its directorate. We are considering our position and our rights in this regard are reserved.

It has become clear to us that any information that is provided by us to Moneyweb, will be twisted and used out of context for the purpose of further negative reporting of and concerning the Nova Group and its directorate and given that no further productive purpose would be served in engaging with Moneyweb, the Nova Group has decided to break off all forms of communication with Moneyweb.

 We will accordingly no longer respond to questions Moneyweb pose to us, requests for commentary on proposed articles or for that matter to any articles that Moneyweb might publish, subject of course to a reservation of the right to deal with any matter Moneyweb might publish, in a court of law.

Please ensure, should you elect to publish anything further regarding the Nova Group and any of its functionaries, that you include in such publication our above position, verbatim.

Yours faithfully,

Dominique Haese

CEO Nova Property Group