In January the Financial Mail named its 16 “hot” picks on the JSE for 2011. In the property sector, the FM’s hot choice is a property fund called Resilient, which “has had the highest distribution growth in the sector” and, in the FM’s estimation, “now probably has the best management team in the sector”.
Maybe. And maybe not.
The FM forgot to mention the ghost that haunts Resilient’s hallowed, small-town malls: an apparition from the past that should send shivers down the spines of many an investor.
Roque Hafner, a Swiss national, has for some time been playing a major, even critical, role in many of the Resilient property group’s multi-billion-rand property- and share-related deals, yet nowhere is he officially associated with the JSE-listed company. In fact, rarely does his name appear in any of the transaction documents. The reason for this may have something to do with his role, 20 years ago, as financial director of Supreme Holdings, a scandalous corporate collapse that, in its public impact, was second only to that of Masterbond.
In an article published in Auditing SA (Summer 2007/8), a well-remembered journalist, the late Deon Basson, wrote of Supreme: “It was impossible to gauge the liquidity of the [Supreme debenture scheme] accurately because the company refused to make available financial statements... the directors were initially reluctant to make available their debenture registers for inspection...
“In 1994 the liquidators exposed the scheme for what it really was. Supreme’s overheads and interest payments had long exceeded its revenue... the group survived for more than six years because it kept issuing debentures. Supreme did business as an insolvent company... the directors knew about it but kept investors in the dark. They showed very little respect for the law, their responsibilities in terms of the Companies Act, or the regulatory authorities... Substantial amounts were transferred to secret accounts for the benefit of directors.”
A report in Die Burger on May 13, 1993, refers to the arrest of Roque Hafner the previous day on charges related to the issuing of debentures to the value of R280m and preference shares for another R40m to members of the public, while Supreme had, to his knowledge, long been insolvent. He was released on bail of R130,000.
Noseweek has been unable to trace how the criminal case was concluded – if it ever was. But by the time the Appeal Court gave its judgment in the civil matter of (Valerie) Durr vs Absa Bank four years later, the generally held view that Hafner was a sly crook and a rogue had not changed. In the case before the Appeal Court, Durr was suing Absa for the bad advice its broker had given her – to invest in Supreme debentures. The appeal judgment neatly sets out the facts:
- “The affairs of Supreme Holdings and Supreme Investments were inextricably interwoven. Neither was a listed company. The moving spirits behind them were one Ronbeck, an attorney, and one Hafner [our Hafner], an accountant.
- “They raised large sums of money from the public. At the time of liquidation they owed debenture holders some R280m (on what were described on the certificates as “secured debentures” but which were, in fact, not secured). So-called preference shareholders were owed another R40m. ...The means employed to raise money were... to offer a return of some one- and-a-half to two percent above the fixed-deposit rate... while holding out to the world that Supreme had a sound financial base.
- (Which lends a potentially chilling echo to that bit about Resilient having “the highest distribution growth in the sector”, what?)
- “During the course of the 1990 audit the auditors [finally] realised that Supreme was insolvent. In order to prevent this being reported, an increase in capital was fabricated retrospectively. After January 1989, not a single prospectus was issued, although money was being raised from the public wholesale. ...Again deceit was involved, but mainly of a kind that only a detailed investigation would reveal.”
All this raises the question: Why would Desmond de Beer, MD and “moving spirit” of the Resilient group today choose to associate himself so closely with Hafner, given also that De Beer, a former Nedbank and Syfrets Properties employee, is known to have been involved with Hafner from early in his banking career and cannot therefore claim not to know about Hafner’s role in the Supreme scandal?
A closer look at some of the Resilient group’s accounts and activities in recent years suggests some answers. (This is quite apart from noting that several directors of companies in the Resilient group were formerly executives in the Nedbank group – suggesting that the whole Resilient scheme of business might be yet another “creative product” of the Nedbank school – rather like the sadness that was Acc-Ross, where, as it happens, one of the leading rogues was also a De Beer.)
On page 42 of the Resilient Property Income Fund’s annual report for the year ended December 2008, it is recorded (in note 8) that the company has lent R86.3m to an entity called Amber Peek Investments (Pty) Ltd, that the loan is unsecured, is for 10 years, and bears interest at prime- minus 1% – all of which suggests a “most favoured son” relationship. So who might that favoured son be?
Amber Peek has one director: Roque Hafner.
And what was the purpose of the loan – or, rather, how was it supposed to advance the interests of Resilient’s shareholders? Why, otherwise, is the MD’s friend and associate favoured with a large, unsecured, long-term, low-interest loan from a public company? And, finally, were Resilient’s non-executive directors fully aware of all the circumstances of the loan to Hafner’s company, and did they approve its purpose?
Then again, some of the latter directors might have had personal reasons for not wanting to rock the boat with unnecessarily provocative questions. But more about that later.
Meanwhile, a bit of sleuthing by some smart investigators has turned up some facts which give a fair indication of what the most likely purpose of the loan was. But it’s a purpose most directors would not want to be seen approving, assuming they wish to stay out of jail.
Amber Peek, it appears from an analysis of net monthly share trades published by I-Net Bridge, used the money it borrowed from Resilient to trade – furiously – in Resilient’s own shares and those of three other JSE-listed companies in the Resilient group: Capital Property Fund, Pangbourne Properties and the since- delisted Monyetla.
Between June 2008, when it traded its first R112m-worth of Resilient units, and February 2010, when it sold the last R68m-worth of Resilient units, Amber Peek traded these shares back and forth, generating a turnover in Resilient shares of over R530m.
In the same period and in similar fashion it traded Capital shares worth over R213m, Pangbourne shares worth R435m and Monyetla shares worth R13m.
Based only on month-end balances (there might have been many more trades within a month), Amber Peek succeeded in moving or “churning” a gross trade of at least R1.2bn-worth of Resilient group shares through the market, using just the R86.3m it had borrowed from Resilient for that purpose. (No evidence was found of it having traded in any shares other than those of companies in the Resilient group.) For Resilient’s 2008 financial year, Amber Peek’s trades accounted for a substantial 14.1% of total volume traded – all of it in the second half of the year. In the following financial year the trades accounted for nearly 12% of total volume of Resilient shares traded on the JSE.
The Resilient group’s leading stockbroker is said to have been BoE Stockbrokers in Durban. If so, Nedbank would do well immediately to investigate the goings-on there, too.
Maybe the independent directors of the affected companies did not notice what was up – or maybe they didn’t care to notice. Consider the circumstances of Dr Iraj Abedian, former Standard Bank chief economist and independent non-executive chairman of Pangbourne Properties Ltd, one of the shares involved in the Amber Peek trades. On page 34 of Pangbourne’s 2008 annual report, it is noted that a loan to Pan African General Equity Properties (Pty)Ltd has been impaired by R11.5m (effectively this amount of the debt has been written off) as a result of “doubts regarding recovery”.
Pan African General Equity is, of course, a company in which Abedian has a major personal interest. That’s not all: a loan to a Pan African General subsidiary company, Aspire Financial Services, was also written off for an additional R9.2m. Given that impairment, how independent could the good doctor afford to be? (Resilient’s own attorneys, Fluxmans, too, we are told, can find nothing untoward about the Amber Peek loan and share dealing – but how independent are they paid to be?)
In the real world the overwhelming suspicion must remain that the purpose of the loan by Resilient to Amber Peek was to facilitate manipulation of the market in Resilient’s own shares. These and other factors which we will discuss in due course must call into question the true value of Resilient’s shares, which have, inexplicably, maintained a premium rating in the listed property sector and typically trade on a yield comparable to sector heavyweight Hyprop – this, despite the fact that its assets bear no comparison to Hyprop’s.
Also of concern is the growth in distributions that Resilient has shown two or three times higher than the sector average. Should we be recalling the words of Appeal Judge Schultz in his judgment in Durr vs Absa, where he recorded how Supreme had attracted investments from ignorant members of the public by offering “a return on debentures some one-and-a-half to two percent above the fixed deposit rate”?
On the same day in October 2009 that the Fortress Income Fund – a new member of the Resilient Group – was listed on the JSE, it purchased a “B grade” property in Pretoria North known as Shoprite Mayville for R196m, making it by far the most expensive property in the fund’s portfolio of over 100 properties.
The seller, who was paid R100m in cash and the balance in Fortress units, was not named in the official transaction announcement – for good reason, it now transpires.
|Des de Beer|
A Deeds Office search reveals that the seller was a company called New Heights 471 (Pty) Ltd – and that New Heights had bought the property for the Sasol Pension Fund in 2003 for R97m (with bond finance from Nedbank). Sole director of New Heights, as at the date of sale to Fortress, was Des de Beer’s close friend and business associate Roque Hafner. In fact, until just seven months earlier, De Beer himself had been the sole director of New Heights.
Which raises the question: Had Hafner deliberately been interposed as a front for De Beer in order to evade proper “related party” disclosure, as well as all the necessary approvals required for such a deal?
More than a year after De Beer resigned as sole director of New Heights, and had been replaced by Hafner, the company had still not changed either its registered address or its auditors, lending credence to the suspicion that no real change of ownership had taken place – or that they are partners acting in concert.
On the other hand, once the cash was in the bag, New Heights might simply have been discarded as an empty shell by a director who cares little for legal formalities. Here it is worth noting that while Fortress bought the Shoprite property from New Heights, it somehow contrived to transfer the R9.8m Fortress A and R9.8m Fortress B units offered in part-payment for the property, not to New Heights, but to RCG Trade & Finance, another entity of which Hafner is a director.
There’s lots more. Noseweek’s next issue will expose the role secretly played by Hafner in all those private placements of Resilient shares, some great property deals done by Resilient directors for their personal profit and follow the remaining six tentacles of the octopus all the way to some of its offshore hiding places. In the meantime, watch out for those “hot” picks – you might just get your fingers burnt!
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Des De Beer
Failure To Regulate
Related Party Deals
Amber Peak Investments
Pangbourne Properties Ltd
Pan African General Equity
Capital Property Fund
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