An offer by Iqbal Survé’s Sekunjalo Investment Holdings to buy the Public Investment Corporation’s (PIC’s) stake in Independent Media would have effectively led to the asset manager funding its own exit from a deal in which it injected more than R1bn of government workers’ pensions.
The PIC, which is the biggest investor on the JSE and has more than R2-trillion in assets under management, initially invested R1.285bn in 2013 to enable Sekunjalo to buy the Independent Media group from its Irish parent, Independent News and Media plc.
Independent Media owns a range of well-known publications including The Star and Cape Argus.
Sekunjalo would later propose buying the PIC’s shares and loans in Independent Media at almost double their book value, representing a substantial premium. But there was a catch. The deal would be conditional on the PIC investing in Sagarmatha Technologies, another Survé-controlled company.
This, according to Tshifhango Ndadza, a senior market risk analyst for the state asset manager who was testifying on Monday at the Mpati commission into the asset manager, could be perceived as the PIC investing in its own exit.
"The proposal also carried with it an implicit investment consideration for PIC to invest in Sekunjalo’s listed entity, Sagarmatha Technologies Limited," Ndadza said. "This conditional exit mechanism could have presented reputational risk as the PIC/Government Employees Pension Fund (GEPF) would be perceived to be funding its own exit," Ndadza said.
The PIC, whose biggest client is the GEPF, has been the subject of an inquiry into its governance and deals. Companies linked to Survé have featured prominently, as has his relationship with former CEO Dan Matjila.
Much of the scrutiny centred on the decision to invest R4.3bn in Ayo Technology Solutions for a 29% stake, allegedly at an inflated valuation. The PIC also agreed to invest R3bn in Sagarmatha, but the listing, due for the middle of 2018, was eventually abandoned after the JSE blocked it.
"It would have been a great deal if we weren’t participating in the Sagarmatha listing. But you have an impaired asset being overvalued in the listing," said Ndadza, in reference to Independent Media being included as one of the businesses in the portfolio of Sagarmatha.
With Sekunjalo buying out the PIC’s stake at a premium, Sagarmatha would then be able to include that portion of Independent Media, with its inflated value, on its own books at a time when the company was technically insolvent.
The PIC had already begun to write down the value of the loans it had given to Independent Media.
"Independent Media had liabilities exceeding assets by about R500m-R600m," Ndadza said.
These loans have since been completely written off in the books of the PIC and the GEPF.
While the initial terms of the deal would have seen Sekunjalo offer cash to the PIC for its shares and loan claims, this would later change to exchanging shares in Sagarmatha to effect payment, Ndadza said.
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