Where are the student rooms and returns investors were promised?

A Moneyweb subscriber has raised an interesting question: What happened to the Inkunzi Student Accommodation Fund (ISAF)) Ithubalethu investment opportunity that was promoted some five years ago?

“In 2019, I and other South African individuals invested in a company ISAF Ithubalethu promoted by Owen Nkomo during their initial public offering. It was broadcast [on] talk radio stations and other forms of media.

“We were promised mouthwatering returns or dividends after 5 years of a lock up period, something which has not materialized to this day. I can provide documentation to this claim,” the subscriber writes.

“Owen Nkomo keeps changing addresses without informing us as investors. The company is not operational with no address. He refuses to give us financial reports. We have never held an annual meeting ever,” the reader claims.

“He lied about some of the information in the prospectus, like claiming Computershare will do the administration of the IPO. When I called Computershare to verify what was written in the prospectus, they denied ever working with him or ISAF Ithubalethu.”

The disgruntled investor adds that he checked and can confirm that ISAF Ithubalethu is not registered with the Financial Sector Conduct Authority (FSCA).

However, registering as a financial services provider is not necessary when a company raises equity capital.

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Big plans

Nkomo, founder and CEO of ISAF Ithubalethu, had a good idea back in 2019. And he had big plans. He aimed to raise R1.4 billion to list a property company on the Johannesburg Stock Exchange. He planned to build – or buy and renovate – buildings near universities to rent the rooms to students.

It was a good plan and would have generated good returns for investors, as any parents paying eye-watering rent for a small apartment for their studying children can attest to.

Unfortunately, large institutional investors were not convinced and none committed to big money.

Undeterred, Nkomo adjusted his aim and decided to start with a smaller amount. He targeted individual investors in a bid to raise R250 million.

ALSO READ: Nsfas payment delay puts student accommodation at risk

Investor roadshow

Nkomo printed a prospectus and travelled SA to solicit funds from people.

The prospectus stated that ISAF Ithubalethu had been set up to give ‘the man in the street’ an opportunity to participate in a formal capital raise, where the proceeds will be deployed in investments linked directly, or indirectly, to purpose-built student accommodation facilities.

“A Johannesburg Stock Exchange listing will be considered once the portfolio has reached a reasonable scale, and more capital is required to expand the asset base of the business. Prior to that, a listing on a smaller exchange could be done to provide liquidity to investors seeking to buy in or trade out of the investment.

“The initial investment will be locked in for five years, to allow management to grow the fund, create a track record and deliver consistent returns to initial investors,” the prospectus said.

“Having experienced the challenges of raising capital to buy targeted assets, and entering into exclusivity arrangements with owners of student assets during the process of listing ISAF, management of ISAF Ithubalethu decided to use the unlisted special purpose acquisition company route,” it added.

“This means that despite having a pipeline of potential assets worth over R1.8 billion to buy, ISAF Ithubalethu will raise cash first, and only after the capital raise will transaction legalities be entered into. This will strengthen the buying power position of the entity since a ‘balance sheet’ will already be in place.

“It is this ‘journey to the balance sheet’ that the founders and promoters of ISAF Ithubalethu are inviting the public to join in,” Nkomo said at the time.

The minimum investment was set at R5 000 with the promise that income returns would be between 8.5% and 10% per annum.

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Gearing

Old Facebook posts still showcase Nkomo’s investment proposal.

These promise larger returns, in that an investor’s investment will be bulked up with debt to enhance returns. The company proposed leveraging an investment of R10 000 with a loan of another R20 000 for total capital of R30 000, which could earn a net return of 10% per annum.

It shows a dividend of R3 000 per annum – a return of 30% on the original investment.

The promise was: “After all debt paid off, target dividends due to you (dividends will be paid every year).”

The prospectus stated that the opportunity was huge.

“With SA clearly miles behind the developed world, it is believed that the addressable market value of the opportunity is between R75 billion and R125 billion and growing at 5% per annum,” it said to entice investors.

The reality turned out to be different.

Nkomo conceded to Moneyweb that there have been difficulties and that the company was not able to raise enough money to invest in big buildings.

He did not answer the question about how much ISAF Ithubalethu actually managed to raise.

“I got your email. I’ve been back in there with retail investors not understanding how things work. And most of the issues they’re raising, they’ve been raised and handled by our call centre. I’m not the one that’s supposed to deal with them, but I do take their calls now and again.

“But we have a full-time call centre and we’re actually releasing communication by end of this week to all the shareholders,” said Nkomo.

“The one thing that I’m battling with is getting them to understand that there has to be processes that are followed so that we get to a point where we say we’re paying the dividend.

“Results are being prepared right now,” he claimed. “We’re going to announce the results and the dividend payment soon. We’re testing systems for them to be able to do transactions between each other if they want to exit the scheme.”

ALSO READ: Where are the ‘ghost students’? Concerns over housing changes

Smaller than envisaged

Nkomo admits that the project is much smaller than promised.

“It became a very small scheme. We were looking for R1.4 billion. We could not list because in 2018, because the property sector crashed.

“So it became a very small scheme, which I was preparing for the BEE (Black Economic Empowerment) participants to buy into the entity we were going to list. So in that, we raised, I think, about R5.5 million because the minimum on that ticket was R5 million.

“So it’s a small ticket, and we are going to be paying dividends out. And we have actually started doing the test runs on that,” he said.

The company did not buy rental properties.

“Because of the amount of cash that we raised, we decided to not buy properties, but invest in some of the ancillary stuff that happens in the real estate space. For example, financing small refurbishments and things like that. And doing normal residential stuff,” according to Nkomo.

He said investors don’t understand the investments they made. “They think that they can just liquidate their investment, but you can’t because it’s a share.”

ALSO READ: ‘No evictions of any student’, says Manamela on Nsfas accommodation

He elaborated on this: “The peculiar thing about a share is that it’s not a listed share. It’s a public share, but it’s not listed. And it was a SPAC [special-purpose acquisition company] as well. We are going to be giving them 10.2% as a dividend, but I’ve got processes that I’ve got to go through.

“People pass away, they lose their phone numbers, you don’t get the certificates or the latest FICA. You know how the authorities are trending down on transactions that are not FICA compliant,” he added.

“I am getting that in place. I need to get that to 70% compliance in terms of getting everybody’s latest document coming in and then taking the processes forward. It’s just a matter of continuing to educate the guys and communicating in a language they can understand. I need to do a test run of dividend payments. You need to test out these things be[fore] we do the full payment,” said Nkomo.

He noted that this will be the first dividend.

“Remember, we had a lock-in for five years. So we can’t have been paying dividends in that period. And then there was the two years that we lost to Covid, right? So we effectively worked for only three years,” he added, confirming that ISF Ithubalethu is operating and making a profit.

He promised to supply more information by email, which will be added to this article once received.

This article was republished from Moneyweb. Read the original here.