Asleep at the wheel

In­victa’s fail­ure to come clean over a ‘re­portable ir­reg­u­lar­ity’ in share buy-backs by its top brass raises prob­lems for share­hold­ers. Marc Hasen­fuss re­ports

Financial Mail - - ON MY MIND GILAD ISAACS -

Some un­com­fort­able ques­tions have arisen over an ir­reg­u­lar deal at In­victa Hold­ings, a well-oiled in­dus­trial gi­ant chaired by re­tail ty­coon and SA’s wealth­i­est man, Christo Wiese. In­victa, once a ris­ing in­dus­trial star, has fallen on hard times lately, its share price shed­ding 47% in the past three years — an op­po­site tra­jec­tory to the over­all JSE, which has climbed 23% over that time.

It’s an un­for­tu­nate sit­u­a­tion, made worse by the de­ci­sion by In­victa’s board to keep sch­tum about this “re­portable ir­reg­u­lar­ity”, al­low­ing sus­pi­cion to sour what has tra­di­tion­ally been a solid re­la­tion­ship with in­vestors.

In these en­light­ened cor­po­rate times, listed com­pa­nies should be en­gag­ing frankly and openly with share­hold­ers — es­pe­cially around prickly is­sues such as breaches of cor­po­rate gov­er­nance.

It’s also an un­wel­come dis­trac­tion for Wiese, a lawyer by train­ing who has climbed to the apex of the cor­po­rate lad­der from the hum­ble be­gin­nings of a failed chicken farm in Uping­ton in the 1960s.

Wiese is now ranked the 169th wealth­i­est per­son on the planet, with a net worth of R102bn thanks largely to his 17.8% of re­tail pow­er­house Stein­hoff, 34% of Brait and 15.3% of Sho­prite.

While Wiese also owns 38% of In­victa, it’s a far smaller chunk of his port­fo­lio con­sid­er­ing In­victa is only val­ued at R5.5bn. It owns build­ing sup­plies (in­clud­ing Tile­to­ria), engi­neer­ing com­pa­nies (in­clud­ing Hyflo and Mandirk), and an agri­cul­tural ma­chin­ery di­vi­sion, Cap­i­tal Equip­ment Group.

The prob­lem arose when the com­pany’s au­di­tors de­tected a “re­portable ir­reg­u­lar­ity” in In­victa’s ac­counts for the year to March.

In ac­count­ing terms, it’s a pretty big deal, de­fined in the Com­pa­nies Act as an act by man­age­ment that “un­law­fully” causes ma­te­rial fi­nan­cial loss, or is re­lated to fraud, causes the com­pany to trade un­der in­sol­vent cir­cum­stances or rep­re­sents a breach of any fidu­ciary duty.

One fund man­ager says that when such an ir­reg­u­lar­ity is found, share­hold­ers get ex­tremely con­cerned “about what pos­si­ble mis­de­meanours might have tran­spired”.

In this case, In­victa’s au­di­tors Deloitte & Touche raised a re­portable ir­reg­u­lar­ity around the re­pur­chase of shares by the com­pany on the open mar­ket.

But In­victa has re­vealed lit­tle de­tail about that ir­reg­u­lar event.

Some share­hold­ers now feel the mat­ter has been un­sat­is­fac­to­rily glossed over, which could throw a span­ner into the works at a tough trad­ing junc­ture when the com­pany hardly needs a cor­po­rate con­tro­versy to bother in­vestor sen­ti­ment.

than just a gov­er­nance de­bate. Two In­victa ex­ec­u­tives lost a fortune on lever­aged po­si­tions in the com­pany’s shares. In one in­stance, Wiese had to cough up mil­lions of rand to ex­tri­cate a fel­low ex­ec­u­tive from a nasty fi­nan­cial squeeze.

Some in­vestors are will­ing to give man­age­ment the ben­e­fit of the doubt — which is un­der­stand­able, since the man­age­ment (see box on the board shake-up) are highly re­garded for a su­perb long-term-growth track record and for hav­ing gen­er­ated ex­cep­tional re­turns.

But other share­hold­ers in­sist Wiese’s board, in terms of trans­parency and ac­count­abil­ity, needs to openly ad­dress events that trig­gered the ir­reg­u­lar­ity.

In­victa direc­tors must be deeply em­bar­rassed by this turn of events, but surely know the con­se­quences of not prop­erly grasping this par­tic­u­lar net­tle. Wiese is adamant the board dealt swiftly and ef­fi­ciently with the

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