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The pyramid-scheme

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The pyramid-scheme

The Albanian government entrusted the English firm Deloitte & Touche with the investigations on the albanian get-quick-rich-firms. Beneath some extracts of the Press Release by the administrators of VEFA Holding, Silva, Cenaj, M.Leka and Kamberi about their findings and recommendations

The findings show that none of the companies has sufficient profits or assets to be able to pay back the capital invested by the public. The figures show that a total of US$ 347,900,000 of capital is still outstanding. This figure excludes any accrued interest which could more than double the outstanding amount. The maximum estimated sales value of the assets is only US$ 50 million. This amount could even be less if the Administrators are not able to get full control over the operations of the companies.

The Administrators have recommended that the assets of all the companies be sold in a controlled manner. Business operations which are generating cash will continue to operate until they can be sold provided that proper control can be exercised over them.

The public has been victim of a mass disinformation programm. Since that time VEFA Holding has continued to loose money. This is money that should have been available for the creditors. Even prior to the riots, VEFA never made profits and the income statements of the company did not include large personnel expenses or interst paid to the creditors.

Financial Summary
The Table summaries the financial position of the companies. It shows clearly that:

  • Not one of the Companies at present has assets of sufficient value to repay the liabilities.
  • Not one of the Companies at present has cash flow, which would be sufficient to repay their depts.
  • The maximum estimated realisable value of the assets as determined by ourselves differs significantly from book value of assets as given to us by the Companies.

Financial Summary in US$
Company Creditors balances as given to us by company (excluding accrued interest) Book value of assets as given to us by the company Maximum estimated realisable value of assets Monthly operating cash profit/(loss) in recent past Estimate of maximum potential future cash flow in / (out) per month
VEFA Holding 255 000 000 338 000 000 33 000 000 (300 000) (200 000)
Silva 22 200 000 14 400 000 5 800 000 9 000 67 000
Cenaj 46 800 000 81 000 000 5 000 000 - -
Kamberi 42 200 000 20 500 000 3 500 000 - 50 000
M. Leka 11 700 000 13 400 000 2 500 000 - 20 000

VEFA Holding
The VEFA Holding is unable to repay its dept to the public. The management is not able to show any significant profit history in either 1996 or 1997. The operations are generally poor run and inadequately controlled. Significant investments were made into assets, which do not produce a satisfactory return on investments. The damages occured during the riots of March 97 have further reduced the value of assets.

Some operations could benefit from further investment to enhance value and short term cash flow prospects. Certain operations need to be continued to preserve value and reduce monthly overhead costs.

Strategies to be adopted recommended by Deloitte & Touche: Sell VEFA's assets in the most appropriate manner in order to ensure the best return to creditors within a reasonable period of time. In order ro achieve this, the Administrators will have to gain control over VEFA by means of legal proceedings, supported by the government. In additon a concerted public relations effort will be required to manage public perceptions of the expected dividend.

Silva Company is unable to repay its debts to the public. The company's Mangement is relatively sound and there is a reasonable possibility of meaningful cash generation from certain business activities in the future.

Strategies to be adopted recommended by Deloitte & Touche: Attempt to restructure the company's core business operation while selling surplus and/or non profitable assets in the most approriate manner in order to ensure the best return to creditors within a reasonable period of time. Operate Sand and Gravel and minig operations for 12 months - if major profits are obtained use these to make a second interim payment. Invite debt for equity swaps.

The future
There are significant issues, which need to be addressed in a second phase to enable the above recommendations to be implemented (see Table).

Issues to enable the recommendations to be implemented
Issues VEFA Holding Silva Cenaj Kamberi M. Leka
1. Need to remove company's owners and managers Very critical May have a negative influence on future cash flow Very critical   May be useful
2. Need for immediate turnover to Administrators of company's books and records Very critical Required but management cooperating Critical Critical Critical
3. Need for security Very critical Desirable Desirable Nice to have Critical
4. Need to manage public's expectations re: ultimate recovery Absolultly essential Necessary Necessary Necessary Necessary
5. Need to manage expectations re: recovery of fund's overseas assets Necessary   Necessary   Necessary
6. Need for improved government cooperation Necessary Necessary Necessary Necessary Necessary
7. Creditors claims issues Applicable Applicable Applicable Applicable Applicable
8. Relationship between auditors and administrators Must have Must have Must have Must have Must have

The resulta of the valuation of the companies' assets will come as a shock to some. It is important to bear in mind that there are powerful reasons why the current values are significantly lower than the values recorded by the companies. They include:

  • the companies' values should reflect what they actually paid for the assets, but this is not always the case
  • the purchases were frequently made in 1995 and 1996 when the market was high because the companies were bidding up prices
  • the companies also do not appear to have been careful buyers. Numerous anecdotal stories suggest that assets were purchased significantly above the price on offer for similar properties in similar or nearby locations. There is evidence of sales prices recorded being different from the compensation received by seller
  • the impact of the disturbances is important: The companies's property was damanged in the disturbances ans so diminished in value, operations stopped, the companies' ownership of the assets is disputed by claimants and due to the disruption, many projects are incomplete - these partly completed projects' values are low: one should remember that a quarter completed factory does not have a quarter the value of the completed factory.

As a result one could conclude that even if there were a normal market at the moment, the values would be a lot lower than the historical costs. In reality, there is no normal market: There is very litlle domestic liquidity and very little evidence of foreign investor interest. As a consequence demand is extremly weak. If all the companies' assets are sold at once there will be an excess of supply.

The high values that have been claimed by the companies should be disregarded. In most cases these values are claimed as part of an organised campaign of disinformation. Two simple examples illustrate this:

The most dramatic example of over valuation is the VEFA bitumen mine, which VEFA claims to be over 600 billion Leke (US$ 4 billion). Upon investigations, this value is calculated as the total estimated tonnage of the deposit multiplied by the (supposed) market price. No account is taken of the cost of extraction and transportation nor of whether such volumes could be transported or sold.

Cenaj has systematically purchased a number of properties from employees, frequently at inflated prices. In at last one case the company purchased a property from one employee at an inflated price, sold the property to another employee and repurchased the same property for twice the price within less than a month.

Robert E. Cameron-Ellis, Joint Administrator, Deloitte & Touche

Aktuelle Ergänzungen zum Artikel »The pyramid-scheme«
Seit dem Erscheinen des auf Seite 8 dieses Heftes abgedruckten Berichts anfangs März hat sich einiges ereignet. Die Redaktion entschloss sich, den Bericht trotzdem in gekürzter Form zu drucken, damit sich die Leserinnen und Leser ein Bild von den Pyramidenfirmen machen können. Über den weiteren Verlauf der Ereignisse rund um die Pyramidenfirmen informieren die folgenden Ergänzungen: Der Bericht begrub die letzten Hoffnungen der 300000 Albaner, einen Grossteil ihres angelegten Geldes wieder zu erhalten. Wie der Bericht vorausgesagt hatte, waren diese Tatsachen ein Schock für viele. Die albanische Regierung musste darauf einen Weg finden, die Pyramidenfirmen zu liquidieren und das daraus erlangte Vermögen unter den Kreditoren zu verteilen. Alles muss dabei sehr schnell gehen, um das Volk einigermassen ruhig zu stimmen. Als erste Massnahme wurde schon wenige Tage später Vehbi Alimucaj, der reichste Mann Albaniens und Chef der VEFA Holding unter Hausarrest gestellt, damit er und das verbliebene Geld nicht auch noch verschwinden. Er wehrte sich aber gegen seine Inhaftierung und die Sperrung seiner Konten und gewann sogar vor Gerichten - anscheinend aufgrund guter Kontakte. Ende Juli verabschiedete das Parlament Gesetze, die den Verkauf von elf Firmen und die Verteilung der Gelder regeln. Für Investoren bietet sich so wohl die Möglichkeit, bald an günstige Objekte zu gelangen. Angestellte und Familienangehörige werden keine Gelder erhalten - für die restlichen Investoren wird mit einer Dividende von höchstens zehn Prozent gerechnet.

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