Nova Property Group’s financial and cash flow position may be in dire straits. The company has failed to pay outstanding municipal accounts for two of its properties in Mpumalanga, resulting in the municipality cutting off electricity supply to the properties.
The properties are the Village Centre and Courtside Centre in Nelspruit, and their collective outstanding municipal bill is R6.8 million, of which R4.1 million is more than 90 days in arrears.
The electricity to Village was cut off on 15 September and Courtside’s last week, leaving tenants destitute. At least one business has foreclosed, while several others have temporarily closed until the electricity supply is restored.
Nova did not respond to Moneyweb questions about the non-payment of the municipal bill and why it could not resolve the issue with the City of Mbombela (CoM) within the three weeks since the Village was cut off.
CoM is not alone
Nova also failed to pay other creditors.
Earlier this year, a service provider, Quatro Group, applied for the liquidation of 12 Nova subsidiaries after Nova failed to pay a bill of R13.8 million. The proceedings were terminated after the parties came to an agreement.
The non-payment of operational expenses, such as municipal bills and service providers, raises serious concerns about Nova’s cash flow position and solvency.
Nova was set up in 2012 as a rescue vehicle to repay former Sharemax investors. In terms of the Section 311 Schemes of Arrangement, investors should have been repaid in January 2022, but Nova failed to do so. The board postponed repayment indefinitely beyond the date, and from its 2022 annual financial statements, it simply does not have the cash to repay them.
The non-payment of standard operational costs, such as the municipal bills and service providers, should be of significant concern for debenture holders and other creditors.
It indicates that Nova’s cash flow position has deteriorated to a point where it cannot pay creditors. However, this is not new.
Nova’s auditors for its 2018 to 2022 financial years have all expressed concern over Nova’s ability to continue to operate as a going concern. Nova’s board has always contended that the company is in a “sound financial position”.
Nova teetering on the verge of insolvency [Dec 2018]
Nova: Insolvent, or in a sound financial position? [Mar 2020]
Auditor flags Nova’s ability to continue as a going concern for 3rd year in a row [Apr 2021]
The Nova board remained operational by utilising the proceeds of the sale of numerous properties it inherited from Sharemax to fund operating expenses.
According to Moneyweb calculations, based on the cash flow statements between 2012 and 2022, Nova has sold 19 of the 28 former Sharemax properties, yielding R611 million cash. During this period, Nova only returned R177 million to debenture holders.
The Companies and Intellectual Property Commission (CIPC) stopped this in December 2021, when it issued a directive that forbade Nova from disposing of any more fixed assets. Nova is taking the directive on review.
In response to questions related to the non-payment of its CoM municipal bill, Jean Pierre Tromp, the trustee of the Nova Debenture Trust, said: “It is a huge concern that Nova’s management did not settle the debt due to the CoM as and when the debt became due. It raises questions as to the reason why this debt was not paid. Was it a bona fide management oversight or indicative of cash flow constraints?”
He added that “it naturally raises questions about the state of utility accounts of other debenture holder-related properties”.
“Trust is placed in management to ensure debts due to the respective municipalities are paid in full and on time.”
Moneyweb sent detailed questions to Connie Myburgh and Dominique Haese, Nova’s chair and CEO, respectively, but they refused to provide any answers.
However, Matthew Osterloh, also a Nova director, acknowledged to the Nelspruit-based publication Lowelder that “while the accounts have fallen into arrears from time to time, there has always been an unspoken agreement that they [CoM] would be accommodating, as accounts were always paid”.
Osterloh did not state that Nova has a dispute with the CoM.
He said: “Mbombela has now, however, taken a very hard stance on arrears and on their requirements for reconnection. It is common knowledge that Mbombela is bleeding millions of rands due to load-shedding and that they owe Eskom over R1 billion. We believe this to be the reason why they have taken this hard stance.”
He added that Nova was in discussions with senior staff in their finance department and hoped to find an amicable solution as soon as possible. “Our property managers, Centro Property Group, have kept all tenants abreast of the situation.”
Tenants left destitute
Moneyweb spoke to several tenants of the Village and Courtside centres, and they were distraught as their rent payments were up to date. One tenant even had a credit on her rent.
Mariska Muller, the owner of the Local Choice Pharmacy in the Village Centre, said the electricity was cut without warning. “On Friday, it will be three weeks that we have no electricity. We had no warning.”
She said the tenants tried to engage with the property management firm Centro and Nova directly, but very little information was forthcoming. “There is no communication from Centro about the state of affairs. We have no idea what is going on.”
The Bazaruto restaurant at the Village Centre has already closed its doors, leaving 24 employees without an income.
The restaurant’s owner, Dalene Willemse, also stated that the power was cut without warning and that Nova had not communicated with her. Her emails were only answered with out-of-office notifications.
Properties already seized
The Village and Courtside centres were also seized by the sheriff of the court in September to be auctioned off.
This follows a high court judgment which ordered Nova to pay bridging finance provider Beneficio Finance Corporation R31.4 million and interest at 1% a week after Nova failed to repay loans dating back to 2017 and 2018.
Read: Another Nova blow
Nova borrowed the money at an exorbitant interest rate as commercial banks refused to extend loans to the company.
The sale has been halted as Nova approached the Supreme Court of Appeal for leave to appeal after its earlier application for leave to appeal to the high court was dismissed.
Annual financial statements
Nova has yet to publish its annual financial statements (AFS) for its 2023 financial year, which will shed light on its financial position as of 28 February.
However, the company has failed to publish audited financial statements within the six months prescribed in Section 30 of the Companies Act, which means it is in breach of the act.
Myburgh denied in communication with Moneyweb that it was a breach at all. He said the act requires a company to prepare financial statements within six months of its year-end and that the audit process can commence afterwards. Nova’s auditors, ARC, confirmed that it received the AFS before the end of August.
Moneyweb sought extensive legal advice and stands by Section 30 of the act’s provisions and that Nova is in breach.
For full transparency, here is the email thread between the author and Myburgh: