How do you know you’re in the middle of a full-blown corporate governance crisis?
While there are many different signs, FT Alphaville would argue that an indicator is when your newly appointed chair utters the line: “the elephant in the room is named Wirecard”.
That was German real estate veteran Stefan Kirsten’s assessment of the furore surrounding his new employer Adler Group, a €1.5bn Frankfurt-listed property company that is under investigation by Germany’s financial watchdog BaFin over potential accounting irregularities.
On Thursday, another Wirecard-shaped bombshell dropped: Adler released the “preliminary” findings from a special investigation by its auditor KPMG. The summary disclosed that the Big Four accountancy firm was “not able to refute” allegations against Adler relating to “alleged related party transactions”.
Nonetheless, accusations of murky dealings with related parties have been central to the allegations issued against Adler. KPMG’s inability to easily bat away these questions matters.
For readers looking to get up to speed, we recommend reading the FT’s October interview with Cevdet Caner, the property magnate alleged by short sellers to be at the centre of a “secretive, kleptocratic cabal” pulling the strings at Adler. Caner and Adler deny the allegation and, if you read the piece, you’ll find out the 48-year old Austrian financier also does a pretty good Dr Evil impression.
One of the central companies with links to Caner is Aggregate Holdings, a Luxembourg-based investment company that, until recently, was Adler’s largest shareholder. We say “until recently” because last month German real estate giant Vonovia seized a 20.5 per cent stake in Adler from Aggregate, which the latter had pledged in return for a €250mn margin loan back in October, leaving it with just 6.1 per cent left.
But what exactly is Aggregate Holdings?
The simple answer is that Aggregate is the investment vehicle of Austrian entrepreneur Günther Walcher, who made his fortune founding a company that produces electronic barriers for ski lifts. Walcher just so happens to be a longtime associate of Caner, who described him as a “very good friend of mine” to the FT back in October.
Aggregate announced last month that law firm Hogan Lovells had “found no evidence to support any of the allegations” against it, after carrying out its own investigation into a report from short selling outfit Viceroy Research that branded Walcher’s firm a related party to Adler.
Aggregate’s connection to Adler only became widely known when it became the German property group’s largest shareholder in 2020 as part of a convoluted three way merger which drew the ire of minority investors.
Yet when FT Alphaville started digging through public records, we discovered that Walcher’s group had owned Adler shares and other securities for far longer. And while a decision to pledge its Adler stock came back to bite Aggregate in spectacular fashion last month, it turns out the Luxembourg company has a long history of lending out and pledging stock in the German real estate group to unlock financing.
These loans may be much smaller than the €250mn margin facility from Vonovia that saw it come a cropper, but the tangled web of transactions — several of which involved Azeri businessmen and companies in Adler’s nexus — shine a light on the modus operandi behind the mysterious group.
None of this is straightforward. But if you would like to come along with us for the ride, let’s first travel back in time a few years to the sunny Mediterranean island of Cyprus.
A friend in need
Walcher and Caner’s friendship stretches back decades.
Caner told the FT that he helped his fellow Austrian first start investing in real estate and that Walcher stuck by him even after losing money on his Level One venture in 2008 — Germany’s second-largest ever real estate bankruptcy.
Walcher set up Aggregate in 2015. The following year it added two subsidiaries in Cyprus: Solenti and Montarius.
At the same time, what would become Adler Group was on the rise.
Its predecessor Adler Real Estate had embarked on an aggressive acquisition spree, which would eventually transform it into a powerful landlord controlling 70,000 apartments across Germany. Cevdet Caner’s family trust had built up a significant stake in the group a few years earlier.
In one of Adler’s earlier deals, it snapped up a significant stake in rival real estate company Conwert in 2015. The seller was Teddy Sagi, the Israeli businessman best known as the founder of gambling software firm Playtech, who had bought the Conwert stake some months earlier for an undisclosed amount.
There appears to have been an element of vendor financing to the transaction: Adler issued €175mn mandatory convertible bonds to a BVI company called Longway Trading Limited, whose owner was a trust with Sagi as the beneficiary.
Then, nine months later, Aggregate’s Cyprus subsidiary Solenti bought what appear to be these same €175mn mandatory convertible bonds in Adler for €142.8mn:
The money to buy the securities came from parent company Aggregate Holding:
Why did the money flow this way? Aggregate told the FT the investment was made via Solenti “for tax structuring reasons, for which it received advice”.
Later that year, Solenti’s Cyprus sister company Montarius also bought shares and bonds in Adler Real Estate worth a combined €32.3mn. But Aggregate was not only investing in Adler securities: it was also receiving financial support from the German real estate company too.
In 2016, Adler Real Estate provided a €15mn loan at a 10% interest rate to an Aggregate subsidiary, whose shares were then pledged back to Adler.
Aggregate’s CFO told the FT he was unable to find out the purpose of this loan, but said that the share pledge demonstrated that it was an arms-length transaction. He added that because all of Aggregate’s subsidiary’s shares were pledged, the loan was “over-secured on this basis”.
Keeping it in the family
With this circa €200mn war chest of Adler securities, Aggregate’s Cyprus subsidiaries went on to not only deploy them as collateral for financial transactions, but to also lend out the shares to other shareholders of the German real estate company.
Take Chelmer GmbH.
Run by a man called Richard Bunning, Chelmer GmbH is a shareholder of Mezzanine IX, a Luxembourg-based investment vehicle that back in 2017 was Adler’s largest shareholder. Bunning, a longstanding associate of Caner, invested in Mezzanine IX alongside the Austrian property investor’s family trust.
In 2017, Solenti lent €22mn of Adler stock for three years to Chelmer GmbH — so it could use it as security on the company’s bank account, while also entering into a profit sharing arrangement:
Richard Bunning confirmed the details of the loan to FT Alphaville and said it had been repaid in 2020.
“That one company borrows from another company assets or shares in order to use them as a security for a loan and gets in return a consideration is nothing illegal and does also not violate any laws,” Bunning said.
“The fact that the assets used in the transaction you mention were Adler shares, does not involve Adler as an entity and therefore does not make this transaction under [any] circumstances a related party transaction.”
FT Alphaville did not suggest the transaction was illegal nor ask any questions about its legality. Bunning did not respond to a follow up inquiry asking why he appeared to have an active email address for Cevdet Caner’s company Green Bridge Capital.
Solenti carried out a similar deal with another entity called Uccelini, which obtained a bank loan using the shares:
If the name rings a bell to Adler watchers, it’s an entity through which Caner’s wife acquired Adler stakes earlier this year.
A spokesperson for Gerda Caner confirmed that she was a shareholder of Uccelini, but said she “cannot and must not give any comments” on behalf of the company.
“Our client fully trusts that Uccelini Limited had good reasons to use shares that were available and have been made available by Solenti for being used as a collateral for a bank loan,” the spokesperson said, adding that the transaction was “completely in line with the laws and with banking standards and compliance rules”.
Aggregate told the FT the deals were done to provide financing to Solenti and that the company and its owner Walcher “believed strongly in the investment case and growth story of Adler”.
Aggregate added: “As a private company focused on real estate investments, Aggregate has naturally had business relationships over the years with other real estate businesses and projects that were well known to the company, including Adler.”
Enter the Azeris
So far, we have Walcher’s company entering into a series of transactions involving Adler and its shareholders.
Around the same time, Aggregate’s Cypriot subsidiaries started to engage in similar transactions with other players that hail from a former Soviet republic with a strongman ruler.
In January 2017, Solenti issued €20mn worth of securities that could be exchanged into Adler Real Estate shares to an Isle of Man vehicle, called Allston Limited Partnership. Solenti also pledged up to €25mn worth of Adler convertible notes as collateral for this investment:
Allston is an investment vehicle linked to Anar Alizade, an Azeri entrepreneur and founder of energy company Union Grand Energy. A longtime business associate of Azerbaijan’s state oil company Socar, Alizade has also invested in construction and real estate.
Alizade previously went by the name Alijev, but for the avoidance of doubt, he explains on his website that he is not related to the Aliyev family that has ruled Azerbaijan for three decades.
Aggregate’s told the FT that the Azeri entrepreneur was “not known” to the company, even though the group entered into the transaction with his Allston investment vehicle.
Alizade’s lawyer told the FT that the investment was introduced to him by Natig Ganiyev, a fellow Azeri businessman “who is neither employee nor an associate of our client, but is an independent, professional investment adviser”. Alizade’s lawyer added that the Allston vehicle was liquidated when the transaction was completed and that he has “no interest in any other project or transaction involving Mr Ganiyev or anyone else named in your article”.
The Azeri Triangle
Ganiyev’s name will already be familiar to those who have followed the twists and turns of the Adler saga.
A Harvard-educated Azeri businessman, Ganiyev has bought numerous assets from Adler and its subsidiaries over the years, from a majority stake in listed residential real estate company Accentro to a substantial group of real estate development projects.
The thing is, Ganiyev doesn’t appear to have fully paid up for them. An Adler corporate presentation shows that, as of the middle of 2021, his companies still owed the group €249mn (Ganiyev did not comment on FT’s question on whether this debt had since been paid).
Adler’s mounting pile of uncollected bills from Ganiyev and others caught the eye of short sellers last year. Rising receivables are often cited as an accounting red flag, for example in Howard Schilt’s classic book Financial Shenanigans.
As well as introducing Alizade to an investment opportunity with Aggregate, Ganiyev entered into his own deals with Günther Walcher’s company.
In 2017, Solenti pledged up to €6mn in Adler Real Estate convertible notes — plus future shares in the company — to an offshore partnership called Aspro Limited Partnership. That entity was established by Vestigo Capital GP, a partnership related to Ganiyev’s investment company Brookline.
That’s not all: the same year Solenti also lent €2mn to another Ganiyev vehicle named Newton Investments Limited:
Aggregate’s CFO said he was not able to find any information on the purpose of this loan, which preceded his tenure at the company. Curiously though, this amount happens to closely match an initial down payment Brookline made to Adler for its purchase of Accentro days earlier:
Asked about the transactions, Ganiyev told the FT he couldn’t comment on specific details of commercial transactions as it was “confidential and even more importantly potentially market sensitive”.
Aggregate’s dealings with Azeri counterparties are particularly interesting in light of a recent Bloomberg article, which connected the dots between some of its property deals and entities that The Organized Crime and Corruption Reporting Project has flagged as linked to Azerbaijan’s president Ilham Aliyev.
In response to the piece, Aggregate said there was “nothing untoward” about the transactions, that a UK law firm had carried out extensive due diligence and that it had been unaware of the allegations regarding the Azeri businessmen’s links to the Aliyev family until Bloomberg’s queries.
(On the subject of due diligence, FT Alphaville notes that a Google search of some of the players involved might have yielded this 2015 OCCRP story.)
One of the entities mentioned in Bloomberg’s report is Triangle Group. The OCCRP, drawing on a massive leak of millions of corporate records known as the Pandora Papers, found that two of Triangle’s directors had also been directors of offshore companies that had snapped up properties across London for the Aliyev family, including for the president’s then 11-year-old son.
Ganiyev’s LinkedIn account used to list his role as a managing director of Triangle Group, between late 2011 and early 2013, although this has now been scrubbed.
Ganiyev told the FT that he had never been involved with any property transaction of Triangle Group. He also emphatically rejects any ties to the family of Azerbaijan’s president.
“I have never had any business relationship with the First Family, or any high ranked officials from Azerbaijan”, Ganiyev said.
An enigma wrapped in a riddle wrapped in a bunch of share pledges
When you start pulling on a thread, you never know where it might take you. FT Alphaville’s efforts to untangle Aggregate’s relationship with Adler has taken us from Luxembourg to Azerbaijan via Cyprus.
But after unpicking this intricate tapestry of securities lending transactions, have we got any closer to answering our central question: what is Aggregate?
There is a lot of money riding on answering that question: Aggregate has over €4bn of net debt and its bonds are now trading at just 42 cents on the euro, indicating that the recent loss of a chunk of Adler’s shares is a potentially critical blow.
Nowadays, Aggregate describes itself as a “predominantly German-focused real estate investment company” with former UBS and Deutsche Bank executives in senior management roles. Yet when you go back to its early years, the Luxembourg investment vehicle appears to be something far more byzantine.
At times, Aggregate looked like a piggy-bank, lending out its Adler shares to companies in its nexus, enabling them to obtain bank loans.
At other points, Günther Walcher’s company has engaged in seemingly circular transactions, snapping up Adler securities while also receiving a loan back from the company — and pledging it owns shares back as collateral.
Then, when you look again, you see Aggregate providing financing to a man who built up a lot of unpaid bills while buying assets from Adler.
Even Aggregate’s current CFO is unsure of the purpose of some of these transactions.
From all of this, however, one thing is clear: Aggregate’s past is inextricably interlinked with Adler’s. Now the investment group has been unceremoniously stripped of the majority of its Adler shares, Aggregate’s future looks exceedingly unclear.
KPMG ‘not able to refute’ allegations against Adler Group — FT
Vonovia seizes a fifth of rival Adler after failed margin call — FT
New chair of Adler points to Wirecard as ‘elephant in the room’ — FT
Villain or victim? The mysterious Mr Caner steps out of the shadows — FT