Lancaster loan ‘gave PIC an ally’ on Steinhoff board
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.