Professional Investment Services (PIS) has commissioned a report examining a proposed takeover of the Opus 21 property fund by Century Funds Management — a report Opus has branded as “disgraceful”.
Last month Century announced that major unitholders in the troubled Opus fund had requested Century propose itself as the new responsible entity for the fund, as it successfully did for the Becton Office Fund No. 2 in the middle of 2010.
PIS commissioned the report from Adviser Edge/SQM Research because it has clients who are invested in the Opus 21 fund, which has also been on the PIS Approved Product List, according to PIS group managing director Grahame Evans (pictured).
Speaking on behalf of Opus Capital, financial adviser Claude Santucci (who is himself a unitholder in the Opus 21 fund) said an adviser who saw the list of disclaimers at the start of the report would dismiss it as a joke.
These include acknowledgements that researchers had not inspected any of the properties within the fund, not had access to Opus staff, not had access to Opus’ updated financial position, not assessed the corporate governance of either party involved and not assessed potential conflicts of interest involved in the proposal.
But Evans said that even prior to the report, one of the main reasons PIS had been concerned about how the fund was being managed was a related party loan from the Opus 21 fund to the Opus Capital Growth Fund No.1 for $17.3 million, which suffered a 90 per cent write down to just $1.7 million. PIS would be supporting the Century proposal, Evans added.
The report also pointed to a decision by the Australian Securities and Investments Commission (ASIC) to cancel Opus Capital Group’s Australian Financial Services Licence (AFSL) in August last year due to alleged breaches.
Although the licence was reinstated on appeal, ASIC has filed an appeal in the Federal Court with the finding due in May. Century believes that with the uncertainty about the Opus AFSL, investors would be better served by a responsible entity that was not facing conflict with ASIC, the report stated.
Other issues facing the fund include its 76.7 per cent gearing ratio (as at 30 June, 2010) and a number of other related party transactions, according to the report.
Century chairman John McBain, who is also chief executive of Century’s parent company Over Fifty Group, said that if Century was installed as responsible entity, it would completely waive the first year’s management fees, estimated at about $1.3 million.
Century would then undertake a rights issue of $20-$30 million to immediately reduce the debt in the fund, then work on the property holdings within the fund to improve valuations, further reducing the gearing, McBain said.
Santucci described the related party loan to the Opus 1 Growth fund that suffered a $15.7 million write-down as a “very poor investment decision” but said nothing about the loan was illegal or against the fund’s constitution. A new board had been installed and independent auditors contracted to investigate all related party loans, he added.
Santucci said Century’s proposal to pay the debt down with a convertible rights issue would dilute unitholder value and amounted to throwing more money down the drain.
Opus had also received legal advice that it had nothing to be concerned about regarding its AFSL, Santucci said.
