Luxury resort development group to explain what happened to millions of clothing workers' pension money after it was liquidated.
It was a luxury golfing resort development group that catered for the affluent, yet R250-million of clothing workers’ pension funds was mysteriously sunk into the AltX-listed Pinnacle Point Group before it was liquidated last year.
It is hoped that the riddle of how pension-fund money placed in the Trilinear Empowerment Trust came to be invested in Pinnacle Point—and was later used to buy Absa Bank’s shares in the group—will be unravelled during the Pinnacle Point insolvency inquiry in Cape Town when it reopens in April.
Leonard Katz, a director of law firm Edward Nathan Sonnenbergs, which is running the inquiry for the liquidators, said he was hoping to recover R150-million for the workers’ pension fund from an insurance policy taken out by the Pinnacle Point Group to protect its directors and officers.
Katz, whose firm previously represented Pinnacle Point, said that when the inquiry reopens the focus would be on reckless trading and not on “gunning for the banks” because of the limited resources available and the fact that it was not a general inquiry. But he said the main aim was pecuniary recovery for shareholders and creditors and that although no bank officials were on the list of witnesses to be called, it was “early days”.
‘Absa’s de facto control’
The inquiry, which was held last week in the offices of Edward Nathan Sonnenbergs law firm in Cape Town, heard how Pinnacle Point directors alleged that they were not to blame for the downfall of the group.
Some of the directors of Pinnacle Point attributed the collapse of the business to the fact that they were unable to access credit when Absa Bank allegedly assumed “de facto” control of Pinnacle Point. This allegedly occurred after Absa acquired a 27% interest in the group because of a single-stock futures debacle in 2008, itself the subject of litigation between the banks. But Absa’s head of group legal, Marthinus van Rensburg, said Absa denied these allegations and would deal with these issues “in the course of the litigation”.
An aggrieved Pinnacle Point director compared the inquiry last week to a “kangaroo court”. “We were supposed to give evidence as to what happened as witnesses, but we were not given the opportunity to give the complete picture the way the questions were asked,” said the director. “You would think we were on trial the way we were being treated.”
In early 2009 Pinnacle Point’s assets were valued by independent experts Moore Stephens and audited by Deloittes, both reputable firms, and these valuations were later confirmed by Absa, he claimed.
“So the statements being made at the inquiry that the directors overvalued the assets is outrageous,” said the director. “The key factor to make a property development company such as Pinnacle Point Group successful is access to credit and capital at the right time. It is a capital-intensive business with long lead times to generate cash. Nedbank’s and Absa’s actions cut off this vital ingredient to make the business successful.”
According to a Financial Mail report following the single-stock futures debacle, written in July 2010 and titled “Nedbank’s Pinnacle Mess”, almost all of Pinnacle Point’s share base ended up being consumed by futures trading.
“Since the denouement of the single-stock futures mess in late 2008, Pinnacle’s share price has been in freefall, from a high of R1 to just 4c,” journalist Stuart Theobald wrote.
“Some of the shareholders in the company believe the price depreciation has a lot to do with futures trading in the shares, rather than the dismal prospects for property developers. “In the wake of the share trading debacle, Absa was forced, as the clearing bank, to acquire a R931-million Pinnacle stake from Nedbank, which it later sold to the Trilinear Empowerment Trust.
Asked by the Mail & Guardian this week whether it had known it was selling its shares to clothing factory workers when it did the deal with Trilinear Empowerment Trust, Absa’s Van Rensburg simply responded: “Yes.”
Absa has now launched its own claim, allegedly to compensate for damages following the single-stock futures debacle, and is suing Nedbank for R773-million for losses it said it suffered due to its financial exposure to the Pinnacle Point scheme.
Before its collapse, Pinnacle Point specialised in developing luxury golfing estates and hotels in South Africa, the Seychelles and Nigeria.
Among the shareholders who lost “a lot of money” in Pinnacle Point was current chairman of Telkom Lazarus Zim, who spearheaded investment in the group and was instrumental in taking it into Nigeria. Pinnacle Point was dual listed on the AltX in South Africa and on the Nigerian Stock Exchange, and the inquiry heard how its golfing resort development, Lagos Keys in Nigeria, was “the jewel” in the group’s crown.” This week Zim declined to comment on his losses, but it is known the collapse of Pinnacle Point was as painful for him as it was for other key investors.
The inquiry was informed that the directors’ concerns were highlighted in a claim letter sent last year by Pinnacle Point chief executive George Johannes, South Africa’s ambassador to Switzerland, for the attention of Absa chief executive Maria Ramos.
The R2-billion claim was made on behalf of the Pinnacle Point Group and the Trilinear Empowerment Trust. The inquiry was told that the reasons for the claim included the damages allegedly incurred at Pinnacle Point when Absa became involved in the single-stock futures transaction. It also allegedly centred on Absa’s conduct after it allegedly took “de facto” control of the group.
Absa’s dismissal of the claim is revealed in court papers handed in to the inquiry. “It is denied that the facts set out in the letter are correct. To the contrary, the letter contains a myriad of scurrilous, false and defamatory allegations against Absa and various individuals formerly and currently in Absa’s employ,” attorney Trevor Versfeld of Webber Wentzel responded. “Such allegations have clearly been made with the malicious intent of improperly influencing our client to accept the settlement proposal contained in the letter. Our client has no intention of succumbing to such pressure and the settlement proposal is rejected.”
The Pinnacle Point directors told the inquiry that things went downhill for the company after the single-stock futures debacle.
Hennie Pretorius, the former chief executive of Pinnacle Point, who was sought for the job by Absa, explained he had taken up the hot seat after Absa acquired its stake in the company in 2009. His role was largely to protect Absa’s investment in the property group, he told the inquiry.
Pretorius came with extensive experience in the development of the Arabella SA Group and his appointment was approved by Gill Marcus, who was then chairperson of Absa, he said.
What came as a surprise to the inquiry was Pretorius’s confirmation that he had been earning R500 000 a month from Absa. The M&G has further established that Pretorius was also earning R500 000 a month from Pinnacle Point.
Pretorius said he was expected to implement a business plan that would steer the company out of its cash-flow crisis. The view at the time, he said, was that R500-million would be made available from Absa and he would receive assistance in accessing the credit.
But, Pretorius said, when Absa chief executive Steve Booysen retired, the plans appeared to change. “Maria Ramos took over and she made it clear that she was opposed to providing funding to Pinnacle Point. I think the company had great assets but had liquidity problems.”
A lot of time was spent at Pinnacle trying to justify the funds needed to get the group afloat, he said, because the funding had to receive the approval of the Absa board.
Pretorius said he believed Absa had breached its contract regarding an underwriting agreement to recapitalise the group. “We believed they breached. I have no problem calling a spade a spade.”
The inquiry was informed that Pretorius took office on May 7 2009 and was fired in December 2010 because the Pinnacle Point board felt that he had a conflict of interest as a representative of Absa.
A founder member of Pinnacle Point, director David Mostert, told the inquiry that before the October 2008 listing there had been great plans for the group.
However, Pretorius and financial director Steven Kruger had had to sort out a gigantic mess with “a totally unwilling participant” in the form of Absa, he said.
Bank ‘held the cheque book’
Absa came under the spotlight when Pinnacle Point financial director Steven Kruger took the stand at the property group’s insolvency inquiry and explained that Absa had “de facto” control after the single-stock futures debacle of 2008.
The 49-year-old chartered accountant has more than 15 years’ experience as a financial director of large corporations, including Irvin & Johnson and Pep Group, but he refused to clarify how Absa’s subsequent control of the group had affected business at Pinnacle Point.
“They held the cheque book—,” he said, before breaking to consult with his attorney.
The inquiry’s commissioner, retired Judge Meyer Joffe, was then asked if he could leave the room to discuss the matter with Kruger’s lawyer.
“It was agreed there was no need to note anything in regard to our discussion,” said Joffe when he returned. However, the Mail & Guardian was reliably informed that discussion outside the inquiry had centred on a letter sent to Kruger by Absa, threatening to sue if he said anything it considered defamatory.
Absa’s head of group legal, Marthinus van Rensburg, said he could not comment on this matter as “we have no knowledge of this speculation”.