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

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