Governance? What governance?
A hasty and mysterious settlement between the PIC and Iqbal Survé’s Ayo is a stinging slap in the face for transparency
Remarkably, for an institution that claimed it was in the public interest for it to pursue court action against Ayo Technology Solutions, the Public Investment Corp (PIC) is not prepared to disclose any of the terms of its settlement with the Iqbal Survé-controlled listed company, revealed on Friday.
Equally remarkably, given that Ayo is a listed company, those terms are known to only a few lucky insiders. Andre Visser, director of issuer regulation at the JSE, tells the FM it’s been engaging with the company to determine whether a Sens notice must be published.
The PIC’s pithy announcement of March 24 contained no clues as to what persuaded the warring sides to seek peace. “The parties have sought to resolve the long-running litigation in a manner that best protects the interests of their stakeholders, in the circumstances, and with a view to giving the business of Ayo a chance to create growth and value into the future.”
Questions to the PIC the corporation that controls more than R2.5-trillion of public servants’ pension funds have, as usual, gone unanswered.
Ayo’s Sens announcement was no more informative. It said the legal proceedings have ceased, after “the amicable conclusion of a settlement agreement between the parties”, and confirmed the terms of the agreement are confidential.
When pressed, a spokesperson for Ayo said: “The agreement has a confidentiality clause agreed to by both parties and it was presented accordingly to the judge and made an order of court, and as Ayo is abiding by that agreement, it cannot comment except for that which was contained in the statements released by both parties.”
As it happens, there’s been little action in the share since the unexpected announcement of the settlement, just three weeks into what looked like being a long court process.
Ayo’s share price did move up from R3 in mid-February to a recent high of R4.70 the day before the announcement. It has since drifted back to R4.55. So, news of a settlement evidently hasn’t persuaded the market that Ayo is now an exciting investment prospect.
It’s likely anyone with even the slightest inclination to invest in it has already got wind of the speculated terms of the agreement. Just hours after the announcement, Daily Maverick reported the guts of the deal was that Ayo would buy back 4.99% of its shares from the PIC for R600m.
This is in line with earlier reports from Ayo sources that it had approached the PIC on a number of occasions recently, with a two-phased buyback proposal involving a total of about 10% of Ayo’s shares.
If Daily Maverick’s account is accurate, Ayo looks to be paying a hefty R35 for each of the shares it plans to repurchase. Of course, it’s not hefty in the context of the R43 a share the PIC paid for almost 30% of the company at the time of its rushed listing back in December 2017.
But it is remarkably hefty compared with the less than R5 at which Ayo has traded over the past four years.
Ayo shouldn’t have too much trouble coming up with R600m almost immediately. But the PIC might want to hurry. At end-August 2022 Ayo had bank balances of R1.1bn, which had dropped from R2.1bn a year earlier, and from R3.2bn in August 2020 and R3.7bn in 2019.
Of course, all of this cash was courtesy of the R4.3bn gifted by the PIC in December 2017. But at this rate of depletion, it’s probably not safe to assume there’ll be R600m in the kitty by the end of August 2023.
Other than dividend payments of well over R1bn, it’s difficult to determine precisely where all the money has gone. Difficult, but probably not impossible for anyone with the resources to plough through the group’s annual reports, including such challenges as the five pages of notes in its 2022 annual financial statements dealing with “related parties”.
With little cash left after the R600m payment to the PIC, it’s hard to imagine how Ayo will be able to create the “growth and value” referred to in the PIC’s statement either.
It could of course be that, with the shadow of the PIC litigation lifted, the many
and varied businesses in the Ayo stable will be able to blossom, along the lines the PIC was promised back in 2017. But the PIC action isn’t the only cloud hanging over the group.
This time around, a relationship with British Telecom (BT) is not on the cards. In 2017 the company, through its local operation British Telecom South Africa (BTSA), was the basis for what one accounting expert described as “fanciful forecasts” contained in Ayo’s prelisting statement. At the time Ayo’s controlling shareholder, African Equity Empowerment Investments (AEEI), had 30% of BTSA, but in June 2021 BT initiated the process of terminating its relationship with the Sekunjalo group, the controlling shareholder in AEEI. That process is still under way.
Since the beginning of 2021, Ayo has been working on a seven-point plan to restructure the group into an IT investment holding company, which it says will involve a significant reduction in operational costs. This may include cutting back on its hefty executive salary bill.
Howard Plaatjes, who recently resigned as group CEO, was awarded R15.8m in 2022, which is remarkably generous for a loss-making company with a market capitalisation of just R1.6bn.
Meanwhile, the AyoPIC settlement looks likely to have ramifications across Survé’s broader Sekunjalo group
Ayo’s majority shareholder as the main source of cash is on the verge of drying up.
It was hardly a coincidence that on the same day the settlement was announced, a detailed email was sent by Independent Media CEO Takudzwa Hove to employees, informing them that 25% of their March pay would be docked and that from now on the Sekunjalo media business was on its own.
“Our shareholders have advised us that they will no longer be supporting Independent Media financially. As you know, it is only through their support that we have been able to keep heads above water over the past few years.”
Hove referred to mounting cost pressures and the increasing difficulty of “honouring our obligations”, including paying salaries and “meeting our basic operational needs”.
The PIC might be buying into another big growth story from Ayo and is happy to hold on to a negative controlling 25% stake, just in case. Or it believes that banking R600m, on top of R400m of dividends, will be the best it can hope for. A dismal return on the R4.3bn it invested six years ago.
But it does sometimes seem that the PIC’s mega-lottery win on Naspers has encouraged it to be phlegmatic about its losses on a slew of listed industrials such as Steinhoff, Murray & Roberts, Tongaat Hulett, PPC, AfriSam and now Ayo.