Pinnacle Point’s convoluted saga will occupy the courts for some time

Posted On Tuesday, 28 February 2012 02:00 Published by eProp Commercial Property News
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While the liquidation will lead to the winding up of the company, a long list of other court processes and investigations are trying to get to the bottom of the mess

Enoch GodongwanaWho knew the arcane world of derivatives could provide so much intrigue? But intrigue is being delivered in bucket loads as the Pinnacle Point saga lurches from one court session to the next.

Last week, an insolvency hearing began in Cape Town into the one-time luxury property developer. Directors are blaming the banks, Absa in particular, for the company’s travails. The banks, along with a good whack of the shareholders and other creditors, are blaming the directors.

And while the liquidation process will lead to the winding up of the company, there is a long list of other court processes and investigations that are trying to get to the bottom of the mess. Someone, eventually, will have to pick up the multi billion rand tab.

A brief synopsis of the story. A major shareholder in Pinnacle Point, one-time pyramid scheme operator Jac de Beer, switches his direct holding into futures in the company. In so doing he frees up much cash, which he uses to buy more futures.

So big does his exposure become to the company that he has to keep on buying any shares on the market to prevent the share price from sinking.

Absa is unknowingly financing him to do it (quite how a bank puts about R1bn at risk without realising it is a tale all of its own). When the bank wakes up to its liability, in late 2008, it puts its foot down, causing the share price to go into free fall.

Absa ends up owning a good chunk of the company as well as having provided it with much debt (alongside Investec ).

In an effort to salvage what it can, it rolls up its sleeves to try to rescue the business. But when Maria Ramos is appointed CE of Absa, she becomes concerned the bank is throwing good money after bad and wants out of Pinnacle as quickly as possible.

The story takes another curious twist when an asset manager called Trilinear, using clothing workers’ money, agrees to buy Absa out of its pickle. Trilinear, it turns out, was not exactly on top of its game.

It was under investigation by the Financial Services Board (FSB) and, in a separate saga, had lent R100m of workers’ pension money to a company that benefited the recently departed deputy minister of economic development, Enoch Godongwana. The clothing workers’ union is trying to figure out what on earth motivated Trilinear to hand over more of its cash to buy into Pinnacle, which is now pretty much worthless. Shareholders will not see a cent, and other creditors will be getting pennies.

Absa is suing Nedbank , which it alleges knowingly and illegally put it on the hook for the whole mess. Some Pinnacle shareholders are also suing Nedbank, while others are suing Absa.

The FSB has withdrawn Trilinear’s licence and its head is facing criminal charges.

While its liquidation may be Pinnacle’s swan song, its foetid rump will be flogged for some time to come.

ABSA still has its sleeves rolled up when it comes to its own business. Last week it told 1600 workers in its IT division to reapply for their jobs, or find positions elsewhere in the group. It is a strategy Absa has made much use of. It is as near as you can get to retrenching people without technically doing it.

Staff have to choose between accepting another position in some office that may be far away (Absa has mentioned positions are available in subsidiaries in Mozambique and Tanzania), or packing their bags. This all in an effort to save costs.

On the same day, FNB was advertising 40 new posts in its IT department. That, it says, was coincidence, though no doubt many Absa CVs will be heading its way. But it highlights the different strategies of the two groups.

Absa is doing a good job of slashing costs, but it is trimming the business along with it. Market share is sliding in many key areas. FNB, on the other hand, is hiring, while its market share is growing. Both strategies can boost the bottom line, so shareholders should be happy either way.

The problem is that there is only so far you can go on cutting costs. And if you’re losing market share at the same time, when you run out of costs to cut you suddenly find there’s no way to grow the business.

That’s the predicament Nedbank found itself in a decade ago, and it has taken it years to recover. If Absa is to avoid a similar fate, it has to think up a credible growth strategy now.

Last modified on Friday, 08 November 2013 20:16

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