What a tricky (and costly?) task it will be for Cape-based banking and financial services giant BOE to extricate itself from its sizeable investment in struggling property and leisure developer Monex over the next few years.
What BOE possibly saw as an exciting investment opportunity to cash in on a unique property development in the short term is now turning into a long running saga with a price tag that seemingly grows by the year.
With hindsight it's easy to write off BOE's endeavours with Monex as corporate folly, but one must remember that only a few years ago the group's plans for a shopping and leisure complex were looking very promising.
Press cuttings from 1996/97 show Monex directors supremely confident of making a mint from its massive investment in the entertainment and shopping node contained in Century City, 13km north of the Cape Town CBD.
A cursory glance at statements from Monex's directors four years ago will reveal unbridled enthusiasm for the mega-project despite numerous criticisms at that time over the viability of building sprawling office blocks, Africa's biggest shopping centre (Canal Walk) and a theme park (Ratanga Junction).
Criticism of Monex's ambitious plans were muted when major investors like BoE, Christo Wiese and Shoprite Holdings clambered onboard.
The harsh reality is that since the opening of the Ratanga Junction theme park in late 1999 Monex has basically lurched from crisis to crisis. Ratanga never came up to spec in terms of revenue projections, the casino bid through Tsogo Sun was unsuccessful, financing costs from the Canal Walk development tearing into Monex's operating profit and the mooted sale of 58% of Century City to Richway Retail fell through at the eleventh hour.
Monex notched up a R9m headline profit in the year to March 31 2000, but the loss after abnormal write-offs was a hefty R251m. Cash flow looked anything but healthy.
The situation clearly become untenable for majority shareholder BOE, who earlier this year proposed to buy out minority shareholders in Monex and then take the company out of the public eye by delisting it from the JSE.
It seems certain institutional investors scup-pered the delisting plan and BOE were faced with the unpleasant task of underwriting a rights offer to raise sufficient capital to clear Monex's debt. After the rights isse BOE should hold more than 70% of Monex - an invidious position for a bank that clearly now is not terribly keen on long term investments in shopping centres and property.
BOE could not have been too charmed recently when the announcement of Monex's rights offer was accompanied by a (another) profit warning for the financial year to March 31 2002. If that was not bad enough, a few days later CEO Martin Wragge - the visionary behind Century City, Ratanga and Canal Walk - stepped down from the board amidst much controversy.
Cape Business News spoke to BOE executive director Paul Leaf-Wright to ascertain the mood in the camp of Monex's most important backer.
Leaf-Wright believes with the Canal Walk shopping centre up and running more people will see the benefit of the Century City complex. "There will be more interest in the (adjoining land) because of companies wanting to move their offices to a centre with plenty of parking and security. We believe there's a lot of appeal."
Given the predicted economic upswing in the next 12 to 18 months, Leaf-Wright, expects to see an increase in the level of activity in and around Century City.
Clearly the success of the Canal Walk shopping centre is central to a turnaround at Monex. Leaf-Wright points out that since last October Canal Walk has seen more than 1m visitors per month and generated total turnover for tenants of more than R1bn. "On the whole the centre is satisfactory in the current (depressed) retail environment. Canal Walk is not fully tenanted, but even at present levels the centre is giving BOE an adequate return on its investment."
He says to get "solid cash flow" income from Canal Walk is a very positive investment, with the second Christmas trading period still to come. "We're comfortable with the shopping centre."
Leaf-Wright says the marketability of Canal Walk will increase in the next year or two.
"The tenants and trading patterns will become more established, and more people will become repeat visitors to Canal Walk.You find that in the first year your bigger tenants are fine, but the smaller tenants tend to shift around."
Monex should also get an income boost from rental escalations kicking in beginning this month, as well as the recent drop in interest rates which has reduced the holding cost on the centre by 2% in the last 12 months.
While BOE is maintaining a brave visage as regards Monex, the million dollar question remains over whether BOE are ultimately sellers of its stake in the group or components of Century City.