The Nova Property Group might have considerably overstated and misrepresented the values of its property portfolio for a number of years, which now results in the conclusion that debenture holders might by no means be repaid in full.
Nova auditor Geyser & Du Plessis states in its audit report, forming a part of the corporate’s newest annual monetary statements (AFS) to finish February 2022, that Nova’s valuation of its funding properties of R2.17 billion may very well be overstated by as a lot as R1.48 billion. This means the portfolio may very well be value solely round R712 million – a far cry from the R2.2 billion Nova discloses as owing to debenture holders.
In a scathing audit report, the auditors slapped a second consecutive adversarial audit opinion on the AFS, which suggests they imagine it comprises materials misstatements and doesn’t mirror the corporate’s precise monetary place.
The auditors additionally issued a fifth consecutive warning that “significant doubt” exists as as to whether the corporate can proceed to function as a going concern.
Nova CEO Dominique Haese rejected the auditors’ opinion within the board report, stating that the valuations are “reasonable, appropriate” and in compliance with the accounting requirements.
Charl Kocks, a number one company governance professional and CEO of CA-Tech, mentioned in response:
“I struggle to find a word other than ‘breath-taking’ to describe my level of shock at the stated differences. I have not seen this magnitude of disagreement in an audit report in my 41 years as a chartered accountant.”
Nova chair Connie Myburgh (left) and CEO Dominique Haese. Image: Moneyweb
He mentioned it means that Nova’s disclosed valuations in its monetary statements have for years been “unreliable and represent intentional misrepresentation”.
“This signifies that debenture holders might by no means be repaid. Nova ought to have used the proceeds from the sale of the properties to repay debenture holders.
“If the properties are not worth the values Nova disclosed, they have run Nova into the ground and have achieved nothing to unlock value for debenture holders. The Nova board have dismally failed to implement the Section 311 Schemes of Arrangement, which explicitly tasked Nova to repay debenture holders [former Sharemax investors].”
If Kocks and the auditors are appropriate, Nova’s administrators could also be responsible of a felony offence by way of Section 214 of the Companies Act, in the event that they knowingly printed false or deceptive monetary statements.
Furthermore, the AFS exhibits that Nova is dealing with determined money circulate issues and solely stays in enterprise by utilizing the proceeds from the sale of properties to fund operational bills, together with lavish salaries for administrators.
It’s unclear how lengthy Nova will proceed to function, because the Companies and Intellectual Property Commission (CIPC) lately issued it with a compliance discover prohibiting the corporate from promoting extra properties. Nova is taking this discover on evaluate.
Nova’s board denies it’s dealing with monetary issue and asserts that the corporate is financially sound.
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Overvaluation of properties
Geyser & Du Plessis, Nova’s fourth auditor in six years, primarily based its opinion on the valuations it acquired from an unbiased valuer it appointed to worth Nova’s properties.
The half-constructed Villa Retail Park in Pretoria. Image: Moneyweb
The unnamed valuers’ valuations of Nova’s two largest property – the non-income-producing, half-constructed Villa Retail Park and Zambezi Retail Park in Pretoria – have been considerably decrease than the values Nova disclosed.
Nova valued The Villa at R750 million and Zambezi at R539 million.
However, the auditor’s valuer valued the Villa at R80 million and Zambezi at R0 – mainly stating that it’s nugatory.
The unbiased valuer additionally believes Nova overvalued its flagship income-producing asset, the Waterglen Shopping Centre in Pretoria, by R177.5 million, and Cold Creek Developments by R70 million. (Nova purchased Cold Creek in 2012 for round R43 million and prevented Nova chair Connie Myburgh from a doubtlessly enormous monetary loss – an occasion Nova by no means disclosed.)
Read: How former Sharemax traders ‘saved’ Connie Myburgh
The valuations of a number of different properties have been additionally a lot decrease than Nova’s.
|
Property valuations |
|||
|
Per Nova monetary statements |
According to unbiased auditor | Overvaluation | |
| The Villa Retail Park | R750m | R80m | R670m |
| Zambezi Retail Park | R539m | R0 | R539m |
| Waterglen Shopping Centre | R233m | R55m | R178m |
| Del Judor Mall/Witbank Highveld | R182m | R165m | R17m |
| Cold Creek Development | R101m | R30m | R71m |
| R1 805m | R330.2m | R1 475m | |
Nova’s response
In response, the board took exception, stating that the unbiased auditor didn’t think about IFRS 13 valuation necessities, “resulting in creating a disagreement with management and leading to an adverse audit opinion”.
The board report states that the Nova-appointed unbiased valuers are registered with the SA Council for the Property Valuers Profession and are members of the SA Institute of Valuers.
“The board of administrators are of the opinion, guided by IFRS 13, which requires ‘Highest and Best Use’ values, that each one judgments, estimates and methodologies utilized by each the unbiased exterior valuers and administrators’ valuations are affordable, acceptable and in compliance with the International Financial Reporting Standards.
“The values disclosed of the investment properties in the group’s financial statements fairly represent what willing market participants are willing to pay at arm’s length.”
The auditor additionally identified that the board elevated the valuations it acquired from its personal valuers for The Villa and Zambezi – by R85.7 million and R76.9 million respectively.
In response, Kocks mentioned “it’s crystal clear that the auditor has fashioned an opinion, primarily based on what its chosen property valuation specialists have discovered, of property values which are materially (if not grossly) decrease than what the administrators of the corporate and group regard as acceptable values to current on the AFS …
“Overall, I regard the disclosed differences, as well as the manner wherein the company board brushes them aside, to be utterly deplorable. And I use this word in its strongest sense.”
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There was an enormous turnout by former Sharemax traders on the Nova debenture holders’ assembly in 2017. Image: Moneyweb
Cash circulate and monetary efficiency
The AFS, which the auditors imagine is just not well worth the paper it’s written on, nonetheless reveals the extent of Nova’s monetary woes.
Despite the group’s income rising by 25% to R64.3 million, it suffered an operational lack of R295 000 (2021: R6 million revenue) and a internet lack of R14.8 million (2021: R15.4 million revenue).
The money circulate assertion reveals operational actions burnt money of R16.3 million (2021: R10 million consumed). Nova funded this shortfall with the R21.5 million proceeds from the sale of Amogela Mall in Welkom. (Nova has not had a optimistic operational money circulate since inception.)
At the top of February, Nova solely had money within the financial institution of R6.3 million.
The stability sheet reveals Nova has whole borrowings of R117 million (2021: R123 million), of which it should repay R32 million earlier than the top of February subsequent yr. This quantity considerably exceeds the R27.6 million it acquired from the sale of Athlone Park Centre in Amanzimtoti in March.
According to Moneyweb calculations primarily based on the money circulate assertion, since 2012, Nova has offered 19 of the 28 former Sharemax properties, yielding R611 million money. During this era, solely R177 million was paid to debenture holders.
Geyser & Du Plessis additionally flagged that Nova had not paid its full worth-added tax (VAT) dues throughout the interval.
Yet the board nonetheless believes Nova’s monetary place is tip-prime. The board report states: “The board of directors have satisfied themselves that the group is in a sound financial position and that it has access to sufficient resources to meet its foreseeable cash requirements.”
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Remuneration
Despite the corporate’s dire monetary place, the administrators proceed to earn exorbitant salaries.
Myburgh and Haese, who’re majority shareholders and have 100% voting management, every acquired salaries of R4.5 million for the interval, which included will increase of two.6% and a pair of.7% respectively. This means Myburgh and Haese have earned R41.5 million and R40.5 million respectively for the reason that scheme launched in 2012.
| Director salaries | |||
| 2022 | 2021 | Total since 2012 | |
| D Haese | R4 485 655 | R4 369 205 | R41 491 260 |
| C Myburgh | R4 476 721 | R4 364 752 | R40 482 843 |
| MJ Osterloh (appointed in 2018) | R3 313 338 | R3 231 064 | R14 639 036 |
| R12 275 714 | R11 965 021 | R96 613 139 | |
The salaries of the manager administrators amounted to R12.3 million within the yr to end-February 2022, representing 30% of the R40.6 million money Nova acquired from prospects.
Nova has all the time contended that the board’s salaries are market-associated.
CIPC
Nova’s monetary place can be related for all debenture holders: the previous Sharemax traders. The authentic Section 311 Schemes of Arrangement explicitly tasked Nova to repay traders inside 10 years, which expired in January this yr. However, Nova failed to take action, citing that the board has the discretion to delay compensation past 10 years.
The CIPC doesn’t share Nova’s interpretation.
In the AFS, Nova states that the CIPC compliance discover prohibiting the corporate from promoting properties will trigger the corporate and debenture holders “immeasurable prejudice” and is taking it on evaluate. The firm says the CIPC’s interpretation is flawed and it’s “certain that it will be successful in having the compliance notice set aside”.
No date has been set for the listening to earlier than the Companies Tribunal.
The CIPC believes Nova ought to have repaid traders by January this yr and acknowledged in documentation accompanying the compliance discover that it thinks the Nova board might not have the capability or intent to repay former Sharemax traders.
The CIPC additional believes the board, below the management of chair Myburgh and Haese, are not directly winding the corporate up by means of the aggressive selloff of properties.
Read the total report right here.
Read:
Nova board might not have ‘capacity or intent’ to repay former Sharemax Investors
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Theresa Park
An fascinating revelation is that Nova is outwardly in talks with an unnamed investor to fund R400 million to develop the Theresa Park Retirement Village in Pretoria North. Nova states {that a} remaining deal stays topic to “finalising certain security arrangements” which had not been fulfilled on the time of the publication of the AFS.
Moneyweb has realized that Nova approached the CIPC to amend the compliance discover forbidding it to eliminate any extra properties – to permit it to promote plots or items within the growth.
Regulatory course of
Moneyweb may verify that the CIPC is on the verge of making use of for a excessive courtroom declaratory order as as to whether the South African Reserve Bank (Sarb) choice that Sharemax and a number of other property syndication schemes contravened the Banks Act within the late 2000s was actually appropriate.
This course of might open a Pandora’s field if a courtroom finds that the Sarb’s ruling was incorrect, as traders would then have a possible declare in opposition to the financial institution.
The CIPC has already interacted with a number of regulators and related events to compile the applying over the previous few weeks, and it must be submitted early in 2023.
These regulators embody the Sarb, the Financial Sector Conduct Authority (FSCA), the National Prosecuting Authority (NPA) and the Financial Intelligence Centre (FIC).
The involvement of the NPA and the FIC at this early stage of the method might point out suspicions of potential fraud.
Harrison & White
Myburgh can be concerned in one other case, the place he stands accused of being occasion to the delay in inserting an organization into liquidation to permit for the stripping of property.
Myburgh and Hans Klopper, the pinnacle of BDO’s restructuring division, are being sued by the liquidator of Harrison & White Investments (H&W) for R110 million for delaying the “inevitable” liquidation of the corporate, permitting for the stripping of property. Klopper can be one of many two receivers of the Nova Debenture Trust, Myburgh being the opposite.
Furthermore, the Master of the High Court referred the report back to the NPA to research potential fraudulent conduct on Myburgh’s half.
Myburgh and Klopper vehemently deny any wrongdoing and accused Moneyweb of illegally publishing a Section 417 report associated to H&W. (Klopper issued a press release relating to the report, which will be accessed right here.)
Nova didn’t reply to Moneyweb’s questions.
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