PIC takes control of Daybreak

• Africa’s largest fund manager gets go-ahead from competition authorities to take over poultry producer despite rating operation as ‘underperforming’

Troubled poultry producer Daybreak has been rescued from almost certain closure by the Public Investment Corporation in a deal in which Africa’s largest fund manager becomes its 100% owner.

Troubled poultry producer Daybreak has been rescued from almost certain closure by the Public Investment Corporation (PIC) in a deal in which Africa’s largest fund manager becomes its 100% owner. This is despite the PIC’s own rating of the operation as “underperforming”.

The Competition Tribunal said earlier this week it had approval for the acquisition of control of Afgri Poultry, trading as Daybreak Farms, by the PIC on behalf of the Government Employees Pension Fund, the Unemployment Insurance Fund and the Compensation Fund.

Neither the value of the deal nor the amount the PIC and clients had already spent on Daybreak were disclosed.

The PIC is the largest fund manager in Africa, with about R1.928-trillion under its control.

The PIC’s portfolio of unlisted investments accounts for about R67.9bn. The PIC said on Wednesday that about 30% of its unlisted investments were underperforming and about 60% of them lagged in environmental, social and governance ratings.

Under the investment rules of the PIC’s Isibaya unit, the fund undertakes to “invest in projects that offer solutions for sustainable and diverse energy sources and reduces any adverse environmental impact while delivering a real economic return”.

Deon Botha, the PIC’s head of corporate affairs, said the PIC had a turnaround strategy in place, which was already bearing fruit.

“The PIC as a shareholder has delegated management of Daybreak to a competent team of individuals and we are satisfied with the work they are doing to turn around the business.

“The PIC will use its facilitator status and Daybreak will qualify as a BEE [black economic empowerment] entity through that status.”

In 2015, the PIC funded the acquisition of 54% of Daybreak by BEE consortium AfPo from agriculture investment firm Afgri, while the PIC held 36% through its three client funds.

Management and staff held the balance of 10%.

The contracting parties said then that the acquisition represented a “landmark transaction for black ownership in the agriculture sector”, creating the first significant black-owned enterprise in the sector.

The value of that deal was not disclosed either.

When asked whether the takeover had been opposed, Botha did not reply directly, saying only that the Competition Tribunal had approved the merger and the PIC, as lender, had “followed its rights in terms of funding documents”.

AfPo, the former 54% BEE shareholder, is led by Kholofelo Maponya. When the same questions were asked of Maponya, he said the situation was not clear to him and he was taking legal advice and could not comment.

Botha said that Daybreak had underperformed under the previous management and that financial covenants and agreements had been breached and had not been remedied.

The PIC then followed its rights, which included taking over BEE shares that had been pledged as security. It changed management to preserve the value of the investment.

“The PIC is satisfied with the process followed, which was governed by funding documents signed by the PIC on behalf of its clients and AfPo Consortium,” said Botha. The business case for the PIC increasing its interest in the company is unclear, however.

In the PIC’s first detailed schedule of its portfolio of unlisted assets, it said the internal rate of return on its investment stood at -45.4%. It said the business was underperforming financially due to “the vagaries of the poultry sector”.

The poultry industry has been hit by a combination of cheap imports and an outbreak of a highly pathogenic strain of avian flu.