Years later, PIC is still chasing billions lent to Allied Mobile
The state’s asset manager has been in a court battle with a now-defunct cellphone company since 2019 to recover a huge sum it lent the group in 2015. Its chances of getting the money back are slim
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The commission of inquiry into governance at the Public Investment Corporation (PIC) and alleged corruption at the state-owned asset manager ran for nearly eight months in 2019, with live-streamed testimony from 77 witnesses about deals that turned sour.
Among the questionable deals the inquiry focused on was the PIC’s backing of firms linked to businessman Iqbal Survé and investments into Steinhoff and VBS Mutual Bank.
Two years after the inquiry concluded its work and published a report that details how the PIC lost billions of rands in ill-fated investments – implicating former executives including Dan Matjila and Matshepo More in wrongdoing – some industry players say the inquiry didn’t go far enough.
Some questionable investments were not part of the inquiry’s scope of work, including the PIC sinking more than R1-billion into Allied Mobile, a now-defunct company incorporated in the Bahamas with operations across South Africa, Zambia, Kenya, Rwanda, Namibia, Mozambique and Botswana.
Allied Mobile, which was founded in 2003, was a significant shareholder in Virgin Mobile South Africa (which is also defunct) and a large distributor of mobile handsets in South Africa and the rest of Africa, doing work for big international brands such as Samsung, Apple and BlackBerry.
A nasty court dust-up
The PIC has been embroiled in a court battle with Allied Mobile since 2019 in an attempt to recoup the more than R1-billion it lent to Allied Mobile in 2015 – funds apparently used to drive the company’s expansion in South Africa and the rest of Africa. At the time, the PIC signed strategic finance and partnership agreements to provide Allied Mobile with a funding facility of $55-million (about R800-million when the deal was concluded eight years ago).
The funding facility was structured in two ways. The PIC entered into a senior loan facility agreement and a mezzanine loan facility agreement, each worth $27.5-million.
These types of agreements are common in the investment community and enable borrowers to receive money from lenders to fund their operations, with strict repayment terms. In some instances, the agreements also detail what happens when a borrower defaults on debt repayments, including provision for attaching the borrower’s assets as collateral security and allowing the lender to be first in line for repayments if the borrower’s operations are liquidated.
The funding agreements essentially enabled Allied Mobile to receive $55-million in funding from the PIC. They also gave the
PIC a voice in how Allied Mobile ran its operations as it had to seek approval from the asset manager on pursuing growth opportunities or introducing investors in its ownership structure.
But, years later, the PIC’s backing of Allied Mobile has soured.
In various court papers and supporting documents obtained by DM168, the PIC says Allied Mobile has, on several occasions, defaulted on loan repayments, breaching the terms of the funding agreements. By November 2020, the PIC had informed Allied Mobile that it owed more than R1.2-billion, including accrued interest. Under the senior loan facility agreement with the PIC, Allied Mobile owed a capital amount of R588-million plus R62-million in interest, and the mezzanine loan facility agreement carried an outstanding capital balance of R627-million and interest of R70-million. Two years later, these amounts have probably increased because of interest charges.
The R1.2-billion linked to Allied Mobile is a lot of money the PIC has probably lost and written off in its financial books. But, in the PIC’s universe, it is not a lot of money – it doesn’t even make up 1% of the R2.09-trillion in funds the corporation manages on behalf of the Government Employees’ Pension Fund (GEPF), which looks after the pension savings of current and retired public servants.
Nonetheless, the PIC, supported by the GEPF, is scrambling to recover any money tied up in Allied Mobile (and its subsidiaries), which has permanently shut its doors and is being liquidated.
The High Court in Pretoria has already ordered that the bank accounts of Allied Mobile be frozen and for the company to relinquish control of its assets (mostly properties that are now safeguarded). The PIC also wants the court to recognise it as a senior creditor of Allied Mobile, which would rank it among the creditors first in line to receive monies owed once the company’s assets have been sold off as part of the winding-up process.
Allied Mobile fights back
The dust-up between the PIC and Allied Mobile returned to court in mid-August, with liquidation of the company ongoing. Allied Mobile has been fighting against the PIC’s efforts to recover the
defaulted loan repayments and for the company’s bank accounts and assets not to be seized.
In its court papers, Allied
Mobile, led by Jacqueline
Cole-Courtney before its demise, argued that freezing the company’s bank accounts would harm its operations, wiping out any chances of the company being saved.
Allied Mobile also argued that the PIC’s process to recover outstanding monies was flawed, accusing the state asset manager of not advising it ahead of time about the loan default events. This, Allied Mobile said, would not give it enough time to make payments and remedy the default events.
Allied Mobile claimed that the PIC frustrated its efforts to introduce black economic empowerment (BEE) partners that would inject capital into the company in exchange for shareholding, in the process shoring up its balance sheet.
Francois van Eyssen, the former CEO of an Allied Mobile subsidiary, says the PIC “unreasonably refused” to accept the identified BEE partners.
Red flags were not spotted
A lawyer involved in the court proceedings says the Allied Mobile matter calls into question the PIC’s due diligence and investment processes, which failed to identify red flags around the company’s financial sustainability profile.
Four years after the PIC concluded the loan agreements with Allied Mobile, some of the company’s creditors raised concerns about the company not being able to pay its debts, worth millions of rand.
Companies that did business with Allied Mobile ended up being owed by it. Vodacom has a debt claim of at least R19.5-million against Allied Mobile, Vida Resource (supplier of mobile devices) is owed $1.2-million (now worth about R20-million) and R&R Wholesalers (airtime distributors) is owed R1.78-million. These companies approached the courts for Allied Mobile to go through either a business rescue or liquidation process because it was financially distressed.
In a short statement to DM168, the PIC says the investment case into Allied Mobile was “compelling” in 2015 as determined by its “internal investment process”.
“Over time, the company experienced challenges, which necessitated the PIC to institute legal action to recoup its investment. The PIC is hopeful that outstanding aspects of the investment can still be recovered.”