Despite the risk of another defamatory article by Independent Media and its owner, Iqbal Survé, I cannot resist writing about Ayo Technology.
A week ago the company’s CEO, chief investment officer and nonexecutive directors, including Khalid Abdulla, the CEO of JSE-listed AEEI (a company 40% owned by Survé), resigned. This was an event seemingly triggered by the news that sale of AEEI’s stake in British Telecoms (BT) to Ayo had been delayed indefinitely. One can only guess that everyone jumped ship to distance AEEI from Ayo and the directors from any liability.
Ayo used to be owned by AEEI. It listed very quietly on the JSE in December 2017 at a share price of R43, valuing the company at R14.8bn. For a company which, in the prior year, made a profit of just R26.8m, that is quite a stretch. The true valuation was probably closer to, generously, R268m.
The only money raised was from SA’s piggy-bank, the PIC, which bought a 29% stake for R4.3bn. The idea was for AEEI to strip R1bn from Ayo via the BT transaction. At the eleventh hour, the PIC, now in the spotlight, blocked the sale.
The truth is that even if BT is worth R1bn and the transaction went ahead, it would not have lifted the valuation of Ayo beyond perhaps R4.5bn, a far cry from the R14.8bn that the PIC bought into.
All that is well publicised but, as always, it is the small details in the pre-listing statement that really matter. And there were some gems.
The first one is the fact that bringing the PIC to the party came with a reward in the form of placement fees paid to that well-known advisory firm, AEEI Corporate Finance, of R57.7m and another R14.3m to PSG Capital. I listed Sygnia with no advisers at zero placement fee. I should have called myself Wierzycka Corporate Finance and paid myself millions.
Further, R80m was stripped out by AEEI as a loan repayment from Ayo. So before anything else, AEEI took R138m out. AEEI would also have been entitled to an ongoing 1% of Ayo’s revenues as an administration fee. Nice boost to earnings.
And then the really hoary chestnut: just before the listing, Ayo issued shares amounting to 9.3% of the company to a BEE consortium at R1.50 a share. So PIC gets to buy their shares at R43, but the BEE Consortium gets theirs days earlier at R1.50? The BEE consortium consisted of unions Popcru, Sactwu, the Black Business Council, Fedusa, Nehawu and the Social Entrepreneurship Foundation.
Let’s do some maths. At R1.50 a share, the BEE consortium paid R48m for their stake. If the R14.8bn valuation held up, overnight they would have become billionaires worth R1.3bn. Even if that valuation was fake and all that Ayo is worth is the money injected by the PIC, 9.3% of R4.3bn now belongs to the BEE consortium. That’s R400m transferred from the PIC to the BEE consortium in a sleight of hand.
Even if everything is unwound, PIC has already lost R538m.
No one has mentioned the poor minority shareholders of AEEI. That company has a market capitalisation of about R2bn. If it were to sell an asset worth R1bn to Ayo, and then pay out the cash it received as a dividend (R400m to Survé), then AEEI’s valuation would go down to R1bn.
The problem is that Independent Media needs cash. Its debt repayments were running at R151m for the six months to June 30 2017. Annualised, that is R300m per year. Debt worth R481m needs repaying in August 2018. Survé needs R481m. Is it just me or is there a certain circularity in these calculations? What is interesting is that Survé needs money fast, looking at the financials of Independent Media.
But that’s not all. Sactwu is a shareholder of Sekunjalo Independent Media, as per the Sagarmatha Technology pre-listing statement. In fact, Sactwu lent Independent Media R263m with 50% of the loan repayable in August 2018. Could this be the reason for including them in the BEE consortium? And then let’s look at the PIC’s exposure to Survé. The PIC lent Survé R1bn to buy Independent Media, and a further R1.2bn to keep it afloat. So the PIC now has R6.5bn exposure to Survé’s controlled entities, excluding interest on the loans, which could boost this to R8bn or more.
The most sensible step would be for the JSE to suspend the listing, investigate directors’ forecasts and punish the offenders. The PIC should demand that its money be returned. One can but dream.
*AEEI bought a 1.7% stake in Sygnia. I have repeatedly tried to buy it back and been rebuffed. Unfortunately, I cannot control who buys our shares.
• Wierzycka is Sygnia Group CEO.
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