Lan­caster loan ‘gave PIC an ally’ on Stein­hoff board

Business Day - - FRONT PAGE - War­ren Thomp­son Financial Ser­vices Writer thomp­[email protected]­

Pub­lic hear­ings into al­le­ga­tions of gov­er­nance fail­ures at the Pub­lic In­vest­ment Cor­po­ra­tion (PIC) came to a close on Wed­nes­day, af­ter seven months of tes­ti­mony by dozens of peo­ple seek­ing to shed light on the in­vest­ment de­ci­sion-mak­ing process at the state-owned as­set man­ager.

The com­mis­sion of in­quiry, headed by jus­tice Lex Mpati, wrapped up with tes­ti­mony from busi­ness per­son Jayendra Naidoo, who cor­rob­o­rated for­mer PIC CEO Dan Matjila’s tes­ti­mony on the think­ing be­hind a sub­stan­tially writ­ten down R9.35bn loan the PIC ad­vanced to his com­pany, the Lan­caster Group, to buy Stein­hoff shares.

The loan, along with in­vest­ments in an ini­tial pub­lic of­fer­ing of Iqbal Survé’s Ayo Tech­nol­ogy Solutions and pri­vately held in­vest­ments un­der its R45bn Isi­baya Fund, is one of the high­pro­file deals that crit­ics have said war­ranted a broader scru­tiny on how the PIC de­ployed some of the R1.8-tril­lion of pub­lic ser­vants pen­sions.

Both in­vest­ments in Stein­hoff and Ayo Tech­nolo­gies are un­der wa­ter, with the for­mer hav­ing shed more than 95% of its value af­ter un­cov­er­ing an ac­count­ing fraud that left it on the brink of col­lapse. Ayo stock has dropped more than 80% since de­but­ing on the JSE in 2017.

Naidoo told the com­mis­sion that the PIC fig­ured it would have an ally on the Stein­hoff board fol­low­ing the in­vest­ment.

“It was a point of in­ter­est to the PIC, if I could call it, to have a ‘friendly’ on the board,” he said.

“There was a meet­ing point be­tween the PIC’s phi­los­o­phy and my own. I was not to be a for­mal rep­re­sen­ta­tive of the PIC but there was an align­ment in think­ing.”

The PIC ar­ranged the loan from the Gov­ern­ment Em­ploy­ees Pen­sion Fund (GEPF), which ul­ti­mately lent a sub­sidiary of Lan­caster R9.35bn to buy the Stein­hoff shares. That came with a de­riv­a­tive struc­ture to pro­tect the loan against a de­cline in the value of the shares.

The pro­tec­tion would later be sold to Citibank in an­other trans­ac­tion that saw Naidoo acquire shares in Stein­hoff Africa Retail, which changed its name to Pep­kor, when the com­pany listed on the JSE in Septem­ber 2017.

For the financial year ended March 2018, the GEPF has writ­ten off R4.275bn of the orig­i­nal loan. The pen­sion fund is ex­pected to im­pair the bal­ance of the loan plus ac­crued in­ter­est of a fur­ther R7.3bn for the year end­ing March 2019, given that Stein­hoff’s shares are now trad­ing at R1.28.

Naidoo, who bought into Stein­hoff just over a year be­fore the com­pany picked up a mas­sive hole its ac­counts, is seek­ing com­pen­sa­tion from Stein­hoff, join­ing a host of ag­grieved in­vestors seek­ing resti­tu­tion for be­ing fed mis­lead­ing in­for­ma­tion about the financial health of the com­pany. He filed his R9.35bn claim in April.

Naidoo said his com­pany would vig­or­ously pur­sue the claim against Stein­hoff de­spite be­ing un­sure whether there was any value left in the com­pany. “It’s un­likely you will see a lot out of there [Stein­hoff], but we will be pur­su­ing our claim vig­or­ously,” Naidoo said.

The com­mis­sion, which heard from 77 wit­nesses, was ap­pointed by Pres­i­dent Cyril Ramaphosa in 2018 to in­ves­ti­gate al­le­ga­tions of gov­er­nance fail­ures at the PIC, which man­ages more than R2-tril­lion in gov­ern­ment em­ploy­ees’ pen­sion money and other gov­ern­ment funds.

The com­mis­sion now has un­til the end of Oc­to­ber to com­plete its in­ves­ti­ga­tion and sub­mit a re­port to the pres­i­dent.

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