Embattled luxury property developers the Pinnacle Point Group hoped for a further injection of the clothing workers’ pension money, after R260-million of their retirement funds had already been sunk into the listed company.
This is revealed in the court application for the liquidation of Pinnacle by Atvantage, a company that claims it is owed about R1.2-million for project management work on Pinnacle’s Lagos Keys golf-estate development in Nigeria.
The investment vehicle, Trilinear Empowerment Trust, with the authorisation of a linked-asset management company, Trilinear Capital, sank R460-million of clothing workers’ provident fund money into various investments, but principally into Pinnacle. The money belonged to members of the South African Clothing and Textiles Workers Union (Sactwu).
According to correspondence in the application, Stefan Braun, Pinnacle’s former chief operating officer, wrote to Atvantage in November last year saying that the group found itself in a “most unenviable position” as the Financial Services Board (FSB) had stopped further investment by its majority shareholders, who represented pension funds.
Braun, explaining why Pinnacle could not pay the money it owed to Atvantage, said the FSB had stepped in because the group had already exceeded its prudential limits.
“Not all is lost, however, as there are a number of deals being finalised that will put us in a position to meet our obligations, as and when those deals are concluded,” he wrote.
Braun left Pinnacle in December last year and could not be reached for comment this week.
Jurgen Boyd, the FSB’s deputy chief executive, said it had not been informed about the flow of clothing workers’ provident funds into Pinnacle.
“We could not have intervened because we did not know about these investments,” said Boyd. “The money was in the hands of the Trilinear Empowerment Trust, which had not registered with the FSB.”
This week Atvantage’s application to liquidate Pinnacle was held over in the Western Cape High Court until July 12, when an intervention application will be heard. Cape Point Vineyards, which has its base in Noordhoek and is a major shareholder of Pinnacle, is now asking for a business rescue of the cash-strapped group.
Pinnacle is vigorously opposing the liquidation application. David Miller, the group’s national sales manager, said this week that it supported the business rescue option, as it made “commercial sense to stop the attack on the group”.
“Pinnacle’s assets far exceed its liabilities and, if the banks had continued to support the developments, the group would not be under pressure,” Miller said.
The business-rescue option is available for the first time under the new Companies Act, which came into effect last month. It provides mechanisms to assist companies in financial distress, including the appointment of business managers and temporary supervision.
Kotze van Wyk, Atvantage’s attorney, said his client was now considering whether to proceed with its liquidation application, or to allow the business-rescue to proceed. Barnabas Xulu, an attorney at Xulu Liversage, which is representing the trustees of the trust, said his clients also supported the business rescue application.
“We are studying it at the moment to see whether we will join in this business-rescue application by Cape Point Vineyards,” said Xulu.
A director of Cape Point Vineyards, Sybrand van der Spuy, said in court papers that he was a chartered accountant and had been a private equity investor for the past 25 years. The Pinnacle Point Group was not “at this stage insolvent, either in the balance sheet, or in the cash flow or liquidity sense”, he said.
If Pinnacle was permitted to continue to trade under business rescue, Van der Spuy said he believed that it would be in a position to derive substantial profits from the sale of properties, and from its investment in the Lagos Keys.
Van der Spuy said that the largest shareholder was the trust, which had more than R260-million invested in Pinnacle on behalf of clothing workers’ provident funds. If Pinnacle was liquidated, these shareholders would not be in a position to recoup any of their investments, said Van der Spuy.
“It is therefore apparent that this application and the business rescue will, if successful, avoid many interested parties suffering any losses,” he said.
Behind the high-risk, high-return investments
The reason for the initial investment of clothing workers’ funds in the Pinnacle Point Group is still a contentious issue — the company was floundering and was listed in the Sunday Times 2009 Top 100 Companies survey as the fifth worst performer. Pinnacle had been “whacked” when the property bubble popped and values dropped, the survey said.
But, in 2009, the Trilinear Empowerment Trust invested R100-million in Pinnacle Point and in February last year bought Absa’s stake in the development for R150-million, which was considered a giveaway price.
Jurgen Boyd, the Financial Services Board deputy chief executive, has grilled the trustees of five provident funds to find out why the risky investments were made.
“Some claim they were misrepresented by Trilinear over the investments, while others say they placed their trust in Trilinear, which was given a mandate for the collective investment scheme,” he said.
He had not been made aware of any corrupt relationships that might have existed when the investments were made, he said.
About R93-million of pension fund money was also invested in Canyon Springs Investment 12, a company co-owned by Enoch Godongwana, the deputy minister of economic development, which has now been placed under provisional liquidation.
With concerns growing about the pension-fund investments, the Mail & Guardian interviewed Sam Buthelezi, the owner of Trilinear Capital, at its Cape Town offices two weeks ago. Buthelezi said an empowerment fund trust was a typical investment vehicle, which also had attractive tax benefits.
“It is not something completely unique to Trilinear. It is a widely used instrument. Our clients, the provident fund trustees, were involved in a dying industry because of the flooding of imports in the clothing and textile space. In a situation like that, the members have only one way of ensuring their survival and that is to have a generous retirement kitty,” Buthelezi said. “Our brief was to find them a strategy of high-risk, high-return, to make sure that the members have a bigger kitty upon retirement.”
The investment with Canyon Springs was expected to remain for 15 years and this would have been enough time to make high returns, he said.
Buthelezi said the increased subscription – when it bought Absa’s shares – was part of a bid to protect its previous investment in the group. Its main purpose from a fund-management point of view was that it saw a good future from the property market over a long-term period, Buthelezi said.
Pinnacle’s national sales manager David Miller said the Trilinear Empowerment Trust had first invested in Pinnacle when Absa was “firmly in the driving seat”.
“We cannot speak for the Trilinear Empowerment Trust, but investing in a property company at the low end of the property cycle at 15 cents per share, when the shares had been independently valued for Absa at over 60 cents on a conservative basis, must have seemed like a good investment at the time.”
When Absa bailed out, the trust had to “save its initial investment” and it bought Absa out at what was considered to be a bargain price, Miller said. “That is why they landed up with the additional shares they have today [55%],” Miller said. “The Trilinear Empowerment Trust is in a difficult position as they are now the major shareholder and stand to lose a lot if the business does not succeed.”
The Pinnacle Point Group was now a broad-based-black-owned property development company, Miller said, and could recover all the funds invested in the Trilinear Empowerment Trust by the pension and provident funds.
Although Pinnacle had been trying to sell some of its property to stave off an application by Investec to liquidate some of its assets, Miller said the group continued to have the support of its controlling shareholders. Its directors were negotiating with existing and new debt-funding providers to allow the company to realise the potential of its property assets, he said.