Experts say AYO share valuation was an exaggeration

In AYO’s draft pre-listing statement, the company’s shares were stated to have an issue price of between R28.00 a share and R43.00 a share. Even if AYO shares were at the lower end of the valuation range, it was considered to be high by two asset managers who told Business Maverick the true value was R0.16 a share.

By all accounts, the Public Investment Corporation (PIC), which manages about R1.8-trillion in government employees’ pension money, has been unusually benevolent to Iqbal Survé and his controversial firm, AYO Technology Solutions.

Ahead of its JSE listing on December 2017, the PIC invested R4.3-billion in AYO through the subscription of shares at a valuation of R43 a share, effectively giving the state-owned asset manager a 29% stake in the technology firm.

The PIC was the only external investor to buy shares in AYO, which is majority-owned by Sekunjalo Investments, which in turn is owned by Survé, who is also the chair of the Sekunjalo Group.

The PIC’s investment has since become a dud because AYO’s illiquid shares are now trading at R9 a share – meaning that the PIC and by extension, 1.7 million current and former government employees have lost R3-billion in the scandal.

There are new indications that the PIC could have reduced the value of its losses when it was in early talks with AYO to subscribe for its shares before its JSE listing.

Testifying on Thursday 25 July 2019 at an inquiry into allegations of corruption at the PIC, former CEO Dan Matjila revealed that the asset manager could have subscribed for shares at less than R43 a share.

In AYO’s draft pre-listing statement, the company’s shares were stated to be issued at a price of between R28 a share and R43 a share. A pre-listing statement details the number of shares a company plans to sell to investors and their value. It also explains the company’s financial performance that investors can use to determine the value of shares.

Even if AYO shares were at the lower end of the valuation range (R28 a share) it was considered as astronomically high by two asset managers who told Business Maverick that the real value of the shares was 16 cents a share. This was after considering AYO’s net asset value of just a few cents per share.

Matjila responds

Matjila said the R43-a-share valuation of AYO shares was presented to him when a final pre-listing statement was produced by the technology firm on 14 December 2017, the day before the deadline to subscribe for shares. Matjila said he signed off on the subscription offer, committing the PIC to the AYO valuation of R43 a share.

Several witnesses have blamed Matjila for the PIC’s sloppy investment in AYO. One is the PIC’s suspended assistant portfolio manager, Victor Seanie, who testified at the inquiry that Matjila was a close friend of Survé, which influenced the state-owned asset manager’s decision to invest in AYO. Matjila has denied this.

Seanie said no substantive due diligence was done by the PIC on the deal and it was rushed to benefit AYO, which approached the state-owned asset manager with a “fixed” R43-a-share valuation that was not negotiable.

About the rushed nature of the deal, Seanie said that in three initial public offerings he worked on, the initial process from receiving a pre-listing statement to the subscription of shares was 11 weeks. AYO was finalised in three weeks.

Matjila believes that the PIC followed proper processes in its investment in AYO. He said the PIC paid R43 a share for a 29% stake in AYO, thus valuing the company at “R14.8-billion” even though its assets were estimated at “R292-million” (the net asset value).

“The real investment of an ICT company is no indication of its investment potential – the real investment potential lies in its contracts and deal pipeline. Therefore, the price of R43 a share was based on the future pipeline of deals to be executed by AYO with BT (British Telecom) as its strategic partner. From my experience, I was also satisfied (that) this valuation was reasonable.”

Initially, the PIC wanted to subscribe for a 20% stake in AYO, but increased its shareholding to 29%. This is because the PIC wanted to have “influence in the company” through having its shareholder representation on the AYO board. BM