Telkom retirement investment 'overstated'

JSE-listed Telkom's retirement fund is probing a R60 million investment it made in Rockland, which has been placed under curatorship for breaches of the laws governing financial investments and collective schemes.

The retirement fund invested the bulk of the R60 million into a proposed development that the Financial Services Board (FSB) says would appear to have been overvalued, as no work has been done on the property since it was acquired in the middle of 2007, yet its worth shot up considerably.

The FSB found the land had increased dramatically in value, from R40 million in mid-2007 to R890 million in 2010. However, the fund values its 80% stake at R622.4 million, which is inconsistent with the valuation report and has “dire investment consequences for the investor retirement funds”.

According to the FSB's inspection report, there is no basis for the fund's reported value of the land of R622.4 million, which it says “is clearly unreliable”. It also cites concerns over conflicts of interest and the 2 125% increase of the value of the land, from R40 million in mid-2007 to R890 million in December 2010.

The Oakland development, according to Rockland's overview document cited by the FSB report, will comprise about 21 000 houses, several schools, a private prison and other related public facilities as well as retail, commercial and industrial properties.

According to the FSB's report, the Rockland Targeted Investments fund owns 485 hectares of land within the urban edge of the Cape metropole. The development was expected to attract R27 billion in fixed capital investment in 10 to 15 years. It is the largest investment asset in Rockland, at 73.42% of assets under management.

The Rockland entities were placed under provisional curatorship on 20 August by the Western Cape High Court, and Pierre du Plessis Kriel was appointed as curator. Under the order, all actions, proceedings, summonses and other processes against the entities are stayed.

The order was granted against Rockland Asset Management and Consulting, Rockland Group Holdings and Rockland Targeted Investments. Telkom is one of six investors in Rockland Targeted Investments.

The FSB's report says it is of the view that the fund's assets are not properly accounted for and a sum of R151 million is also unaccounted for. It says some of the assets appear to be overstated, including the property into which Telkom invested.

Telkom's investment into the fund accounts for 0.2% of the Telkom Retirement Fund's (TRF's) assets, which were worth R30 billion at the end of July.

The FSB says Rockland conducted an “unauthorised business of collective investment scheme” relating to Rockland Targeted Investments, which leads it to the conclusion that it sought to “obviate the necessary checks and balances”.

According to the FSB's report, there are no checks and balances in the management of the fund, and there is a conflict of interest in that Wentzel Oaker, CEO of Rockland Group Holdings, bought and invested in land that was also offered to other investors as an opportunity, but did not disclose Rockland's stake.

Telkom started investing in 2009 as it was attracted to the Oakland City Development and allocated a total of R60 million, most of which went into the development. At the end of April, Telkom's total investments were valued at R72.3 million, the bulk of which was in the development.

TRF chairperson Lavinia Khangala says the fund has decided to launch an independent investigation so that it can obtain a clear understanding of why Rockland has been placed under provisional curatorship.

“We want to avoid ambiguous reporting and speculation on this complex matter. We are also working closely with the FSB in this regard,” says Khangala. She adds that the TRF wishes to assure it members that the fund's trustees take their responsibilities towards its members very seriously.

Khangala says “the fund follows a stringent due diligence process when considering any investment, no matter how big or small the investment is in relation to the total assets of the TRF”.

“In this particular case, the due diligence was extended even further, which confirmed that Rockland's auditor was reputable and that the valuator of the investment asset with Rockland had the correct credentials. Furthermore, a deeds office verification process showed that the investment asset existed, and in fact still exists today,” says Khangala.

“It is important to understand that Rockland has been placed under provisional curatorship, and has not been liquidated. This means there is an investigation into the current value of the assets and the structure in which they are held. It does not mean that the assets no longer exist,” says Khangala.

The TRF is considering the report and the potential impact on the fund, it says.

The court return date is 9 October, at which time the court needs to hear why it should not grant an order staying all claims, actions, proceedings, summonses and other processes.