PIC still limping from Steinhoff blow
Underwriting a loan between the retailer and its BEE partner has cost the asset manager R3.3bn
In a week when the Public Investment Corporation (PIC) faced a grilling in Parliament about a number of recent controversies, a clearer picture has emerged about the hit it has taken from underwriting a Steinhoff International empowerment structure before the retailer’s crash.
The PIC told the Mail & Guardian it was down by R3.3-billion on the transaction it funded with a loan of R9.35-billion between Steinhoff and its empowerment partner, the Lancaster Group, led by Jayendra Naidoo.
This — plus the R16-billion in unrealised losses the PIC has made on Steinhoff’s listed shares and bonds, according to submission to Parliament earlier this year — brings its total losses, on paper at least, to about R19-billion.
Naidoo is also the chairperson of Steinhoff Africa Retail (Star), which was unbundled from Steinhoff and listed on the JSE late last year, just months before Steinhoff’s implosion. Star includes brands such as Ackermans, Pep and Bradlows and will be renamed Pepkor.
The empowerment deal consisted of two transactions, done in 2016 and 2017, which enabled Lancaster to take up a 2.75% stake in Steinhoff International with a R9.35-billion loan from the PIC. The second transaction allowed Lancaster to take up an 8.8% stake in Star.
But what is less clear about the deal is who its ultimate beneficiaries are. The PIC holds 50% of the Lancaster companies that form part of the black economic empowerment (BEE) vehicle: Lancaster 101 and its subsidiary, Lancaster 102. The Lancaster Group holds 25% and a broad-based BEE trust holds the other 25%.
The beneficiaries of the trust are “various nonprofit organisations across South Africa, with a focus on social upliftment”, according to the PIC’s head of corporate affairs, Deon Botha, although the PIC would not elaborate on who these organisations are.
But the PIC did say that the transaction was intended to promote the participation of black-owned companies in the supply chain of Steinhoff and its related companies, as well as to develop, mentor and fund black entrepreneurs.
However, the PIC’s unrealised losses on the deal would have been much larger had it not hedged the investment with a collar option (to protect its investment) that it struck with Citibank, said Botha.
Star is still majority owned (more than 75%) by Steinhoff but, because Lancaster owns a further 8.8%, Naidoo’s independence as nonexecutive chairperson of the company has been questioned.
Responding to this concern, Naidoo said the board of Star “is satisfied that there is nothing which affects my role as Star nonexecutive chairman”.
He referred all other questions about the empowerment deal to the PIC.
The PIC has faced renewed scrutiny because of some of its recent transactions. The state asset manager invests money on behalf of the Government Employees Pension Fund, which amounts to almost R2-trillion.
In a recent column, Magda Wierzycka, the chief executive of the Sygnia group, argued that the PIC “is not an ordinary asset manager”. She said the pension fund was a defined benefit fund underwritten by the fiscus, which meant taxpayers must meet any shortfalls owed to pension beneficiaries.
“The issues at stake affect every public servant and every taxpayer,” she said, adding that tougher questions must be asked about the PIC’s investment choices.
On Tuesday, in a hearing by Parliament’s standing committee on finance, the Democratic Alliance’s David Maynier asked the PIC’s chief executive, Dan Matjila, about the Lancaster deal. He wanted to know who the beneficiaries of the deal are and what the transaction fees for the deal had been.
Maynier also questioned the size of the initial investment. At just less than R10-billion, the deal did not require an extra level of oversight by the PIC’s board.
According to PIC processes, investments of less than R10-billion can be approved by its executive management without having to be authorised by its board.
But Matjila dismissed the idea that it had been designed to avoid additional oversight. He said the value of the deal was based solely on the value of the shares at the time of the transaction.
He could not immediately give the transaction costs but promised to provide the committee with them. He also did not provide any details about who would ultimately benefit from the deal.
The parliamentary hearing also zeroed in on several other controversial investments the PIC has been linked to, including the listing of technology firm Ayo and the muchhyped listing of technology startup Sagarmatha, which ended up not taking place.
It also discussed the allegations that have resurfaced concerning Matjila, relating to claims that he financially assisted an alleged girlfriend.
These emerged last year and at the time were seen as efforts to smear Matjila by interest groups aligned to the controversial Gupta family.
The PIC’s board investigated the matter and cleared him shortly afterwards. But the issue has reemerged, when United Democratic Movement leader Bantu Holomisa reportedly wrote to Finance Minister Nhlanhla Nene and threatened legal action if the investigation against Matjila was not reopened and Matjila suspended.
At the hearing, Matjila flatly denied having a relationship with Pretty Louw, his supposed girlfriend, and any associated wrongdoing.
Regarding the increased scrutiny of the PIC’s recent deals, he told the committee it was “a little bit unfair for the media to single out these few transactions”. The PIC had more than 300 securities in its portfolio, he said, adding that investment decisions were not made by the chief executive alone.
Xolani Mkhwanazi, the PIC’s deputy chairperson, said the board had dealt with the allegations against Matjila and the matter had been closed. To reopen it would require new evidence or reasons to review its decision, which the board had not been provided with.
Regarding the controversy surrounding some of the transactions, he said the board’s investment committee had revisited these “to satisfy ourselves that there was nothing untoward”.
This included examining the delegation of authority, committee approvals and other due diligence approvals, Mkhwanazi said.
“The issues at stake affect every public servant and every taxpayer”