HIGHVELD SYNDICATION NO 15 ‐ 22 LTD Dear Financial Advisor, We as the directors of the public companies had several meetings this week in an attempt to get more information regarding the interest payments to the shareholders. We will also address some questions sent to us by the financial advisors’ network. First of all we would like to clarify some of the role players. Who is Bosman & Visser (B&V) B&V is a private company owned by Mr Rikus Myburgh, who uses this company to buy the properties from the seller (Zephan Properties), and sell these properties to the Highveld Syndication (HS) public companies. Thus the HS companies do not buy any properties directly from Zephan properties, but from B&V. Who is Zephan properties? Zephan Properties was previously known as Zelpy 2095 (Pty) Ltd. Zelpy explained that they decided to change the name as there are other “Zelpy” companies registered and they wanted to avoid any confusion to their identity. We would like clear the air regarding the media statement that Zephan Properties defaulted on the head lease agreements. We had a meeting with Zephan and took the issue up with them, and demanded a proper explanation from Zephan’s action regarding the head lease agreements. Zephan stated that they had not defaulted on the head lease agreements, but rather rightfully cancelled the head lease agreements. There are two reasons which led them to the cancellation of the head lease agreements. First of all, it is the fact that PICvest and the public companies might be in contravention of the Bank Act and that these companies are indeed taking deposits. We saw a letter from Adv. Michael Blackbeard where he stated that he was of the opinion that PICvest and the public companies were in contravention of the Bank act and were taking deposits. This letter to Mr Myburgh was dater 23 February 2011. We requested a copy of the letter, but Mr Myburgh refused to provide us with one. Please note that this is only the opinion of Mr Blackbeard and he has not made any decisions yet as to what the public companies should do regarding this opinion. There is a scheduled meeting with Mr Myburgh and Adv. Blackbeard regarding this opinion, and we hope to
T (012) 342 9061 / 4 F (012) 342 2522 E
[email protected] www.pic.co.za Postnet Suite No. 281 Private Bag X15 Menlo Park 0102 875 Schoeman Street Arcadia 0083
HIGHVELD SYNDICATION No. 20 Limited Registration No. 2005/029425/06
Directors: BS van der Linde WM Steyn
bring you more information after this meeting. We have asked Mr Myburgh for us to be included in the scheduled meeting as this affects us as directors of the public companies directly. Zephan properties indicated that they cannot do business with a company that does the business of a bank, and therefore cancelled the head lease agreements and the buyback agreements. We consequently had a meeting at Monday afternoon with the two inspectors appointed by the Reserve Bank, Mr Jaco Spies and Mr Neels Alant. We addressed the letter from Mr Blackbeard to them and asked them how they think we should react. They did not express any opinion regarding the validity of a head lease agreement. According to them a buyback agreement might be a contravention of the Bank Act because the agreement is interpreted as “an undertaking to repay”, and that might be seen as unlawful. They did not express any other opinion but if the Reserve Bank would decide to act on the matter, they could order the public companies to repay investors’ funds. At this point in time this action will most probably lead to capital losses for the shareholders, because in the current economic conditions the properties will most likely be sold at stress sale values and at prices far less than the syndication values. This is why we must act pro‐actively to prohibit any such possible action. The second is that there is currently a dispute between Zephan and B&V in terms of the sale agreements. Zephan has underlying head lease agreements with B&V in terms of a payment of interest to B&V for monies received from B&V for the purchase of the properties. We do not know the detailed contents of the dispute, but Zephan argues that there is sufficient reason for them to have cancelled the head lease agreements with the Highveld Syndication companies as the agreements between Zephan and B&V have a direct effect on the performance of the head lease agreements with the public companies. If the offer from Orthotouch is not sanctioned by the SRP and the shareholders, the status quo will revert back and we will act with diligence and pursue B&V to transfer the properties paid by the public companies and demand the reinstatement of the head lease agreements between the public companies and Zephan properties. Who is Orthotouch? Orthotouch is a public company owned by Mr. Nic Georgiou. HS15 to HS22 is currently 100% encumbered by the shareholders’ loan accounts and most of these companies have shareholders loans greater than the current open market values of the companies. Therefore it was decided to use a new public company called Orthotouch. The offer from Orthotouch Limited came as a solution to the dispute between Zephan properties and B&V. This offer comprise of the following information.
All the properties of the HS companies from HS15 to HS21 will be bought by Orthotouch at the syndication values irrespective of the current open market values.
HS22 will be bought at R1,4 billion, which will provide the shareholders with a total capital growth of approximately 57%.
T (012) 342 9061 / 4 F (012) 342 2522 E
[email protected] www.pic.co.za Postnet Suite No. 281 Private Bag X15 Menlo Park 0102 875 Schoeman Street Arcadia 0083
HIGHVELD SYNDICATION No. 20 Limited Registration No. 2005/029425/06
Directors: BS van der Linde WM Steyn
The date of final payment for the properties will be on the fifth anniversary of the purchase, where the effective date will be the first month after the ratification of the shareholders at an AGM.
For HS15 to HS18 this seems to be a very attractive offer, since these companies’ values are far less than the syndication values. Besides the loss in value in these companies there are also loans from Zephan properties, whereby Zephan subsidised the shareholders’ income at rates greater than the actual rent received from the tenants. There were also substantial investments from Zephan in these companies to enhance and revamp some of the properties in the companies to enhance the sustainability of some properties. This was discussed with the shareholders at the previous AGM held with shareholders. The offer includes the discharge of the loan to Zephan properties. Taking this all in consideration, this seems like a very attractive offer to shareholders. For HS19 to HS22 the offer puts the dispute between Zephan and B&V aside and secures investors funds completely. To pursue B&V at this time would not be in the best interest for the shareholders, as Zephan could declare a dispute with B&V in terms of the purchase agreements and cancel all the sale agreements and stop the payment of income to shareholders completely until the dispute is resolved. This dispute might take several years to resolve and the shareholders have a greater possibility that they could not end up with all the properties. This situation would be detrimental to the shareholders and we would like to avoid any situation of such. In addition to the properties from HS15 to HS22, Orthotouch will also invest equity of approximately R500 million to bulk up the value of the company and make sure that the company will be able to pay the investors after five years. The ordinary shares in Orthotouch will also be ceded pro‐rata to the public companies as security for the shareholders, should Orthotouch default on the agreements. This default will mean that the assets invested in Orthotouch will go to the shareholders of the current public companies. We are therefore confident that a possibility of non‐ performance from Orthotouch to fulfil the agreement is small. During our meeting with Mr. Georgiou, his advisors explained that the additional bulk of properties and the offer from Orthotouch are done on an act of goodwill, to increase the sustainability of the new company and to ensure the probability of success. Have any decisions been made by the directors of the HS companies? No. The directors act only on behalf of the public companies and to the benefit of the shareholders. The offer from Orthotouch is currently only an offer on the table, and this offer is currently prepared for submission to the Security Regulation Panel (SRP). The SRP might not accept the offer and we would consequently have to amend the terms and conditions of the offer to please the SRP and make certain that the offer is a fair and reasonable offer for the shareholders. If and once the offer has been approved by the SRP, which might take several months (3‐4 months) we will then only make a full disclosure of the offer to the shareholders and invite them to vote on this offer by means of a special resolution at a General Meeting. We have therefore not made any final decisions, whether to approve this transaction or not.
T (012) 342 9061 / 4 F (012) 342 2522 E
[email protected] www.pic.co.za Postnet Suite No. 281 Private Bag X15 Menlo Park 0102 875 Schoeman Street Arcadia 0083
HIGHVELD SYNDICATION No. 20 Limited Registration No. 2005/029425/06
Directors: BS van der Linde WM Steyn
If the offer from Orthotouch is not sanctioned by the SRP and the shareholders, the status quo will revert back and we will act with diligence and pursue B&V to transfer the properties paid by the public companies and demand the reinstatement of the head lease agreements between the public companies and Zephan properties. What is the actual rental income from the public companies? The financial statements are currently being audited to determine the nett income of the properties for preparation for SRP approval. Regarding the administration fee charged by PICvest The administration of the investor base used to be administered by PIC Admin. During the past two years the personnel and CRM system was changed from PIC Admin to PICvest. This resulted in a situation where PIC Admin was no longer able to administer the investors’ base and do the payment of interest and all other administrational functions expected from PIC Admin, except collecting rent from tenants. We therefore had no other option as to accept the agreement with PICvest to do the administration. We are currently sourcing other options and investigating other companies suitable to manage the investors’ base, to do the rental payments as well as the transfer secretarial duties of the HS companies at lower rates. Resignation of the directors from PICvest We have resigned as directors from PICvest from April 2011. We confirm that we have not resigned as directors of the public companies and we do not intend to resign as directors of these companies at all. In view of the current turmoil at PICvest and new information that came to our attention regarding Bosman & Visser, we have decided that we can no longer associate ourselves with PICvest. The responsibility of PICvest In response to the CEO of PICvest’s letter sent to advisors on the 1st of April 2011 whereby Mr. Myburgh states that PICvest only acts as transfer secretaries to the various syndication companies, we find this statement very surprising. PICvest is the promoter of the syndication companies and compiled the product as such. As Mr Myburgh proudly stated several times in the previous few years, since he took PICvest over as owner and CEO in March 2008, he has made a lot of changes from the previous owner. We would like to know whether he has forgotten his responsibilities towards the investors who invested in his product as PICvest was not only the promoter, but also the product provider. The following parties were all involved in negotiations regarding the terms and conditions of the latest transaction between the various syndication companies and Orthotouch, T (012) 342 9061 / 4 F (012) 342 2522 E
[email protected] www.pic.co.za Postnet Suite No. 281 Private Bag X15 Menlo Park 0102 875 Schoeman Street Arcadia 0083
HIGHVELD SYNDICATION No. 20 Limited Registration No. 2005/029425/06
Directors: BS van der Linde WM Steyn
namely Orthotouch Limited, Nicolas Georgiou and his related companies, PICvest Investments, Bosman & Visser and all the HS public companies. To deny his involvement in this transaction is a surprise to us. Our responsibility We as the directors of the HS public companies would like to state categorically that we will endeavour to act with honesty and integrity to serve the shareholders of the public companies. In the interim, you can contact us at
[email protected] of
[email protected]. Yours faithfully Ben van der Linde
Morkel Steyn
DIRECTOR
DIRECTOR
T (012) 342 9061 / 4 F (012) 342 2522 E
[email protected] www.pic.co.za Postnet Suite No. 281 Private Bag X15 Menlo Park 0102 875 Schoeman Street Arcadia 0083
HIGHVELD SYNDICATION No. 20 Limited Registration No. 2005/029425/06
Directors: BS van der Linde WM Steyn
