The Public Investment Corporation’s (PIC’s) loan to former trade union leader and businessman Jayendra Naidoo to buy shares in Steinhoff, which ultimately led to the asset manager losing nearly R12bn, was conceived to influence governance at the global furniture manufacturer and retailer.
This is according to the PIC’s former CEO, Dan Matjila.
Steinhoff’s shares crashed in 2017 after the retailer revealed a multibillion-rand account fraud that wiped out more than R200bn of shareholder equity and left it scrambling for working capital.
"We had concerns about governance, and we couldn’t find a way of getting heard, and when we got this opportunity we thought we could be heard.
"We had demanded a board seat and we failed, so we saw this as an opportunity," Matjila told the PIC inquiry on Tuesday.
He said the PIC was unhappy about the independence of certain nonexecutive directors who had served on the board for long periods of time.
The PIC lent R9.4bn to consortium Lancaster, led by Naidoo, to buy a stake in Steinhoff in August 2016, an amount which included R300m to create a derivative structure that would provide the PIC with protection should the Steinhoff share price decline. A further R100m was earmarked for transaction fees.
Matjila admitted that in the initial approach, there was no consortium, just Naidoo.
But the PIC later requested that the Government Employees Pension Fund become a 50% shareholder in Lancaster 101, while the other 50% comprised Naidoo and BEE groups that were yet to be identified.
Matjila confirmed that the loss to the PIC from this transaction now stood at R11.6bn, comprising the original loan plus interest. The collateral underlying the loan — the Steinhoff shares — has collapsed by more than 95% since the accounting fraud came to light.
The transaction inserted a BEE consortium of meaningful size into Steinhoff, allowing Lancaster to acquire 3.5% of the issued share capital of the furniture retailer, which was in need of capital to pay for acquisitions, including the $3.8bn US-based Mattress Firm.
"The shares had special voting rights, which meant we were going to get a board seat, and we saw Naidoo as a [de facto] representative of the PIC."
The substantial fees spent on a derivative structure were designed as protection against a downward movement of the share price, the only collateral the PIC had for the deal. This was later unwound and restructured when Lancaster wanted to participate in the listing of Steinhoff Africa Retail, an idea that Matjila said was partly the brainchild of Lancaster.
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