Sharemax collapse

[Verde]

Bonatla CEO explains Sharemax listing
Julius Cobbett
01 September 2010


The proposed deal is an admission that all is not well at Sharemax.


JOHANNESBURG - Bonatla CEO Niki Vontas says that if Sharemax wasn't in some kind of trouble, it would never have entertained a deal with a tiny company like Bonatla.

On Tuesday morning it was announced that Sharemax investors will get to decide whether they want to inject their property and loan assets into Bonatla. The proposed deal, if fully concluded, would give Sharemax investors control of Bonatla.

Recently, Sharemax's business model was declared illegal by the Reserve Bank. It has also received criticism for its method of subsidising investors' income, its valuations, and its optimistic forecasts.

Vontas admits that the deal will be a tough transaction that will require a lot of work. Bonatla has experience in troubled property deals, having already been involved in the failed Bluezone property syndication scheme.

One of the challenges will be to ensure that every Sharemax investor gets a fair deal. For example, owners of healthy buildings will be unwilling to subsidise those who own duds.

Vontas says he will investigate listing two types of shares, one for investors who own income-producing properties such as shopping centres, and another for those who own land, which has holding costs, and may require extra cash to develop.

Another challenge is the completion of The Villa, Sharemax's largest and most ambitious syndication to date. So far, investors have poured more than R1.6bn into The Villa. Vontas estimates that another R1.2bn will be required to complete the first phase of the project.

Vontas says he's considering various funding options and is confident that Bonatla can raise the necessary cash. He notes that Bonatla might be a tiny company now (it has a market value of little more than R40m after selling its portfolio to Momentum), but it has concluded some big deals in the past.

By Realestateweb's count, there are 34 current Sharemax syndications, with a total amount of R4.5bn collected from investors (see table below). The Villa and Zambezi Retail Park together account for more than half of this value.

What happens if investors in only a few of the 34 syndications approve the listing into Bonatla? Will the whole deal be called off? Not at all, replies Vontas. He says Bonatla intends to house the properties of any investors who give their approval.

"If we went to Sharemax and said it's all or nothing, then we wouldn't really be serious about the transaction," says Vontas.

Last week the CEO resigned.
Now they announce this strange deal.
Rumours are flying around that they did not pay investors their income for August.
The media has been warning that Sharemax's model is not sustainable for years.
It is clear that the final collapse is imminent.
R4.5 Billion of investor money is at risk. Mostly invested by retired people.

 

[Verde]

Sorry, forgot to post the link.
http://www.realestateweb.co.za/real...ateweb/en/page197?oid=64388&sn=Detail&pid=197

 

[mika1000]

Bonatla is worth only R40mil, how do they really think, they're going to raise R4.5billion, is beyond me. This is the way the ANC thinks. Must be one of their susideries! I smell Julius Malema...

 

[Verde]

Bonatla is worth only R40mil, how do they really think, they're going to raise R4.5billion, is beyond me. This is the way the ANC thinks. Must be one of their susideries! I smell Julius Malema...

They don't have to raise the R5B, It is not a cash offer. It is a reverse takeover. Sharemax's investors will hand over their properties in return for shares in Bonatla. They will receive 99% of the shares and therefore gain full control. Then it will be up to the free market to determine the value of those shares. The market will look at the value of the underlying properties less any debt that comes with them. Sharemax's valuations are notoriously inflated, so even in the best case scenario the market value will be 20-30% lower than the R5B number mentioned in the announcement. If there is debt and other problems, which I think is the case then it will be even lower. If Sharemax's pensioner investors who depend on their investments for income sell their shares en masse in a panic, the value will go much lower. There is not R5Billion cash available to these investors, Sharemax is just buying time by confusing their ignorant investors.

I think the Sharemax directors are trying to pull off this reverse listing to hide the true extent of the losses in some syndications. There are a few good syndications, but the big ones like Zambezi mall and The Villa seem to be in a total mess. It has now been confirmed that investors in these 2 syndications did not receive their August interest payments.
http://realestateweb.co.za/realestateweb/view/realestateweb/en/page310?oid=64401&sn=Detail&pid=1

They would like to smooth out the losses by throwing the whole lot into one pot where the profits in some syndications can partly offset the huge losses in others. If the overall loss is 20-30% then they can blame the market, and maybe get away with it.
Unfortunately for them the deal has to be approved by a 75% majority in each syndication. I cannot see shareholders in healthy syndications approving the deal thereby effectively bailing out the losers.
On the one hand I hope for the sake of the pensioners invested in bankrupt syndications (who will lose most of their investment if it goes into bankruptcy) that this listing can be pulled off.
On the other hand I want these Sharemax directors and their army of brokers, who have been enriching themselves for years, knowing full well that this scheme is not sustainable, to face the music.
There are apparently 30000 investors, mostly pensioners. They need honest expert advice urgently, they will have to make huge decisions in the next few weeks to try to salvage as much as possible. They need to stop listening to the corrupt brokers who got them into this mess. Julius Cobbett on Moneyweb is a great source of cool headed info in this unfolding drama.