Investigations: Cobus Kellermann and the mysterious Stellenbosch property

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28-05-2015
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Moneyweb
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CAPE TOWN – On the winding Helshoogte Pass, just a few kilometres outside of Stellenbosch on the way to Franschhoek, lies a property that has become a key part of the investigation into the allegations against Cobus Kellermann and David Cosgrove.

The 32 hectare plot sits in an elite neighbourhood. Across the road lies the Tokara estate owned by the co-founder of Rand Merchant Bank and Chairman of RMB Holdings GT Ferreira; and just next door is Delaire Graff, the plush estate owned by billionaire jeweller Laurence Graff.

The property in question is however not a wine estate itself. It is not even a farm. It is an undeveloped piece of land on the slopes of Botmaskop, bordered by municipal blue gum and pine plantations.

The plot has been part of the allegations against Kellermann and Cosgrove from the start.

Last month when the Guernsey Financial Services Commission (FSC) successfully applied to have two funds managed by Lancelot Management placed under administration, it was a prominent part of their case.

The FSC’s application to the court was supported by an affidavit sworn by a senior analyst in its enforcement division, Paul Yabsley. It contained details of what the FSC believes are suspicious trades that took place within the Strategic Growth Fund cells that sat under the Global Mutual Fund PCC.

The information contained in the Guernsey FSC’s affidavit paints a very unsettling picture of extensive conflicts of interest in the transactions around the property. It alleges that Kellermann’s links to it began in 2008 when it was purchased by a company called Lancelot Stellenbosch Mountain Retreat from Queensgate Property Group for R28.52 million. Lancelot Stellenbosch Mountain Retreat had clear links to Kellermann’s Ankh Analytic.

At the same time, the Achilles High Yield Fund, a Mauritius-domiciled sub-fund of the Two Seasons PCC, made a loan for R43.5 million to Lancelot Stellenbosch Mountain Retreat. Another loan of R28 million was made two years later.

Two Seasons and Achilles have close links to Cosgrove and Kellermann. Furthermore, The Strategic Growth Fund was the primary, if not only, investor into Achilles.

Less than a month after the second of the loans from Achilles was written, however, Lancelot Stellenbosch Mountain Retreat sold the property to Transholding Invesment for R72.81 million. Transholding was owned by the Distressed Property Fund, another Mauritian fund into which The Strategic Growth Fund was invested.

This more than doubling of the sales price of the property, the affidavit alleges, was not accompanied by an independent valuation.

The affidavit states that: “It appears that at all stages of the transaction Mr Kellermann has declared conflicts to a degree, but not to a level necessary to fully expose the true level of conflict.” It adds that: “In the case of both the Achilles loan and the Distressed Property Transaction there appears to be no degree of independence, at any stage, to ensure the transaction was carried out at arm’s length, this includes the absence of an independent valuation of the Stellenbosch Property”.

Furthermore, it points out that: “The funds paid to Lancelot Stellenbosch Mountain Retreat by way of a loan from Achilles were intended to be used to develop the property. It is suspected that little or no development was actually undertaken.”

A blog post from July 2013 that still appears on the agent’s website reads:

“Executive corporate lodge units are now selling in Stellenbosch Mountain Retreat, a new development situated on the upper-slopes of Helshoogte Pass, Stellenbosch. All lodges offer privileged views of Simonsberg and the Cape Winelands and will be tastefully furnished and fully serviced. When not used by either yourself, your staff or clients your lodge can be professionally managed and operated in a revenue-generating model. Residents will also have access to the on-site fully equipped corporate executive business hub with modern facilities and comprehensive professional services. Prices range from ZAR4.6 million.”

The individual responsible for the blog post is no longer working as an estate agent, but confirmed to Moneyweb that the project had “started, and then just died”. No units were ever sold.

He also indicated that there had been plans to build a hotel on the property. The intention was to sell the rooms individually as investments.

This type of property investing is gaining traction in different parts of the world, and even to some extent in South Africa. However it remains largely untested, with many potential risks, and there have been instances of these kinds of arrangements ending with investors losing large sums of money as the hotels never get built.

The only sign of activity on the plot now, however, are arrows that appear to frame a mountain bike route.

In previous communication, Kellermann confirmed to Moneyweb that he had visited the property, so he was familiar with it. One must also assume then that he was aware that no development had taken place there.

Independent property experts have told Moneyweb that undeveloped property such as this around Stellenbosch is unlikely to attract a price of more than R1 million per hectare. Nearby a 14.79 hectare piece of undeveloped land is currently selling for R8.9 million.

The price tag of R72.81 million is therefore more than twice what one could reasonably expect to pay for this plot, no matter how well situated it may be. That suggests that at least R40 million of this transaction can be called into question.

What then becomes important is whether this transaction is an anomaly or part of something much broader. There is less than $4 million in question here, but was this kind of activity systemic?

The transactions within the Strategic Growth Fund are at the centre of the investigations because Kellermann and Cosgrove were involved at almost every level. These conflicts of interest are what the Guernsey FSC is most concerned about.

However, these do not exist to the same extent in many other funds that are are linked to Lancelot, RDL Management or Belvedere. What the Guernsey and Mauritius regulators are faced with therefore is sorting through this web to determine how deep any problems might lie.