Terms of the PIC/AYO deal revealed – it is a bloodbath for state pensioners

Since the PIC invested R4.3-billion in 2017, AYO Technology, ultimately controlled by businessman Iqbal Survé, has been paying huge dividends, even though it's technically in a loss-making position, resulting in the gradual reduction of the PIC's original investment.

The mediation deal effectively leaves those payments in place, but it draws a line under the dispute, ending the litigation and allowing the PIC to get back a small portion of what it originally invested – while not placing AYO in immediate jeopardy of bankruptcy but leaving the PIC with around R600-million of its original investment, R4.3-billion. 

The PIC bought 29% of AYO's shares in its initial public offering in December 2017 on behalf of the Government Employees Pension Fund (GEPF) in a process it has now itself claimed in court was irregular. AYO's share price has since fallen by around 85% over the past five years from R43 to R4.70 a share. The settlement agreement sees AYO paying the PIC R20 a share.

Along with the immediate 5% share buyback by AYO, the GEPF will have the option of selling another 5% of the shares back to AYO in three years’ time subject to the solvency of AYO, and at a pre-determined price of at least R20 a share. The settlement means that the PIC and the GEPF by extension, will have locked in losses of at least R2.5-billion in this controversial investment. In the meantime, the GEPF will remain a 25.1% shareholder of AYO and have one board seat for every 10% of the company it owns. The GEPF representative will also chair the board. 

This arrangement seems likely to bring a halt to the gradual bleeding of the company in favour of its holding companies. AYO is 49.4% owned by Africa Equity Empowerment Investments, which is majority-owned by Sekunjalo Investments. Sekunjalo Investments was founded and is chaired by Survé. Sekunjalo also owns a small direct stake in AYO, making it effectively the controlling shareholder of AYO. 

Although the further bleeding of AYO's cash resources now seems likely, the deal will not reverse the approximately R3-billion paid in dividends to the holding companies over the past five years. But it does give AYO the opportunity to trade its way out of its current crisis. 

Justifying the PIC’s agreement to the mediation, the corporation’s lawyers noted that commercially, the PIC had to balance the probability of the success of the litigation, the quantum it was likely to recover and the potential growth of the business under different management and board. 

They pointed out that the last reported numbers in AYO showed a net asset value of around R3-billion and a cash balance of around R1.2-billion. The PIC had therefore secured about half the cash available in the business for 4.99% of the shares and secured a put option on another 5% of the shares. 

In a brief statement issued on Friday night, the PIC merely confirmed that a settlement had been reached: 

“The parties have sought to resolve the long-running litigation in a manner that best protects the interests of their stakeholders, in the circumstances, and with a view to giving the business of AYO a chance to create growth and value into the future,” the statement reads. 

Repeated attempts (five calls, one SMS and one WhatsApp message) to contact David Masondo, chairman of the PIC on Saturday morning were unsuccessful, and he finally replied with, “Sorry, I can’t talk right now”.

Changes in the governance structure, including the protection of minority shareholder rights, would ensure that the PIC has significant influence over potential value creation for the business over the next three to five years. What the note does not explain is how AYO, which has recorded frequent losses over the past five years, intends to turn around its financial position. BM/DM