Deaths expose troubled business at Basileus Capital
The empire of slain businessman Julian Williams appears poised for collapse, following the announcement that his Basileus Capital group has initiated "business rescue proceedings".
Business rescue is an alternative to liquidation provided for under the updated Companies Act.
Also at risk are investors in the JSE-listed BK One, a capital-raising vehicle for Basileus.
Williams was shot dead at the Basileus offices on July 26, apparently by former business partner Herman Pretorius, who apparently then turned the gun on himself.
At the time, Williams's colleagues said he was leaving behind "a strong team of nearly 50 experienced people" who would continue to run Basileus projects. But an investigation by the Mail & Guardian suggests that Williams's business, mostly run in partnership with former ANC heavyweight James Ngculu, was teetering at the time of his death.
There is a trail of related party transactions, comprising intercompany investments, loans and write-offs, which raise questions about how much of the cash Basileus was able to raise from investors actually made its way into the project "pipeline" of which it boasted.
Pretorius raised similar concerns earlier this year about investments in a Basileus subsidiary, SA Superalloys, a shareholder in specialised alloy producer Avalloy. He wrote to Williams in June to complain that money invested in SA Superalloys had been intended as working capital to ramp up Avalloy's operations, but the money had been funnelled into Basileus.
Pretorius ran an unorthodox investment scheme and there are suggestions it was a pyramid scheme – new investors' money was used to pay interest to earlier investors and create the impression of high returns.
It appears the collapse of the Pretorius scheme's investments in SA Superalloys – Williams's company stopped paying interest to its investors – was going to cause a chain reaction for Pretorius, which led to his fatal confrontation with Williams.
Following Pretorius's death, one of his investment schemes, the Relative Value Arbitrage Fund, was placed under curatorship, owing a staggering R1.8-billion to about 3000 investors, it has been reported.
It appears that Basileus is similarly vulnerable and there are likely to be knock-on effects. According to a well-placed source, aeroengine builder Rolls-Royce, which has a 13% shareholding in Avalloy and is the alloy-maker's primary customer, stopped taking the company's product in March. This could not be independently confirmed and Basileus declined to answer questions this week, pending the business rescue proceedings.
An Avalloy representative confirmed the Rolls-Royce supply was "on hold" while the companies "renegotiate their long-term agreement".
The Industrial Development Corporation also invested R35-million in Avalloy for a 10% share.
BK One raised about R200-million when it listed on the JSE in December last year, but nearly all of that came from institutional investors, who took up shares in an initial public offering ahead of the listing.
The money has gone into Basileus subsidiaries, according to the BK One annual report issued at the end of February, but there are questions about both the source of the R200-million and how it has been spent. For example, of the R65-million purportedly invested by BK One in Avalloy, almost nothing appears to have gone into Avalloy itself.
The February report discloses that R52-million was used to buy shares in Avalloy from SA Superalloys and from a mysterious Mauritian investment fund called Four Elements. A further R11.6-million was spent in taking over a loan to Avalloy that Four Elements had extended. Part of the loan had been converted into shareholding, meaning BK One had bought an effective 10.5% shareholding in Avalloy at a cost of R65-million. In contrast, the Industrial Development Corporation got its 10% in effect for free – a bonus for providing a R35-million loan.
Even more curious is that an associate of Four Elements was the major subscriber to shares in BK One, accounting for nearly half of the R200-million raised. The second-biggest shareholder in BK One, with 17%, is another Mauritian entity, Two Seasons, which shares the same management team as Four Elements: Ken Maillard and David Cosgrove of Belvedere Management, Mauritius. A message left on Belvedere's automated answering service went unanswered.
The rest of the cash BK One raised went into other companies controlled by Basileus, mainly in what appears to be unsecured loans.
According to the BK One report, the listed company used R56-million to take over a shareholder loan in fish-farming start-up Pure Ocean East London. The shareholder is not disclosed, but Pure Ocean is in effect a subsidiary of Basileus.
BK One also provided a loan of R35-million to construction firm Tor Holdings and a loan of R33-million to Cash Connect Management Services, both Basileus subsidiaries.
BK One chief executive Dean Richards said he was reluctant to comment on the Basileus business rescue before he had spoken to investors, but added: "We are applying our minds and working really hard to ensure our shareholders' interests are looked after."
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