The high-profile deals that sank the PIC’s governance processes

A breakdown of the judicial commission of inquiry into allegations of impropriety at the Public Investment Corporation (PIC):

• President Cyril Ramaphosa instituted the commission on 4 October 2018  following ongoing allegations of impropriety at the PIC, which manages R2.13-trillion in government pension savings on behalf of the Government Employees Pension Fund (GEPF) and other social funds.


• The commission probed about 14 transactions that mostly date back to 2017. However, the transactions identified in the commission’s report, which runs to nearly 1,000 pages, do “not constitute a comprehensive list of improprieties identified by the commission”.


• Among the most high-profile deals that were probed included transactions involving former union leader Jayendra Naidoo and entities owned or controlled by businessman Iqbal Survé, including Independent News & Media SA, AYO Technology Solutions and Sagarmatha Technologies.


• The commission was headed by Lex Mpati, the former judge president of the Supreme Court of Appeal, assisted by former Reserve Bank governor Gill Marcus and asset manager Emmanuel Lediga.


• The commission heard testimonies from 77 witnesses over eight months ending  August 2019.

• Matjila failed to comply with the requirements of being honest and having integrity, thereby contravening the provisions of the Financial Advisory and Intermediary Services Act. For breaching the act, he might face a monetary fine of not more than R1-million or imprisonment for a period not exceeding 10 years.


• Matjila had repeatedly concluded deals with individuals and their entities, enriching them in the process, “even where no value has been proven from the first deals”, and had breached his fiduciary duties when approving investments in insolvent companies.


• The commission found that the “close relationship” between Survé and Matjila created pressure to get approval for deals.


• Matjila’s requests to provide financial assistance or make contributions to individuals, organisations and political parties reflect his abuse of office and the ability to exert undue influence over investee companies of the PIC.


• Underscoring this is that following a request from former minister of intelligence, David Mahlobo, Matjila asked businessman Lawrence Mulaudzi, who benefited from a number of PIC deals, to assist Pretty Louw with a R300,000 donation because her company, Maison Holdings, was facing financial difficulties.


• The commission wants the PIC board to hold Matjila financially responsible for any losses recorded in soured investments.

• The PIC subscribed for a 29% shareholding in Survé’s AYO at R43 per share ahead of its JSE listing in December 2017. For its AYO shareholding, the PIC shelled out R4.3-billion, becoming the only investor to back the company. At listing, AYO had a market value of almost R15-billion. But the AYO share price has collapsed to R2.38 per share as of Friday 13 March 2020, giving the company a valuation of R819-million.


• The commission found that no proper valuation was done to back the AYO investment, and therefore “the question remains as to whether the PIC subscribed for the shares at a fair and reasonable value.”


• The commission found that there was an outright manipulation by Survé of the valuation numbers. This was done to increase the AYO valuation from its own initial assessment of R2.3-billion to a range of between R10-billion and R15-billion, ultimately determining a value of R13-billion, which translated to the R43 per share that the PIC paid.


• The commission found that ahead of the AYO JSE listing on 21 December 2017, Matjila and his erstwhile colleague, Lebogang Molebatsi, signed a subscription form on 14 December 2017, paving the way for the PIC to buy AYO shares. Matjila, Molebatsi and suspended CFO, Matshepo More, didn’t inform an investment committee meeting, which is tasked with due diligence on investments, that a subscription form had been signed.


• The commission found that the AYO transaction demonstrates the “malfeasance of the Sekunjalo Group, the impropriety of the process and practice of the PIC as well as the gross negligence of both the CEO and CFO.”


• The commission recommended that the Independent Regulatory Board for Auditors investigate the limited assurance work performed on the AYO pre-listing statement (which details the number of shares a company plans to sell to investors and a company’s financial position) “given that the extreme revenue forecasts were clearly very aggressive”.


• The commission said AYO overestimated its financial position in the pre-listing statement as it achieved an actual comprehensive income of R148-million in 2018 compared to what was forecast (R764-million), which reflects a significant underperformance.


• Emails provided to the commission indicate that PSG Capital, the transactional adviser and sponsor for the AYO listing, received a “generous” bonus in the region of R4-million from Survé for successfully listing AYO.


• Survé and Matjila had both indicated that the monies received from the PIC are still in AYO’s bank accounts. But various bank statements show that monies have been transferred to fund other Survé group companies and then transferred back when it is time to reflect the interim or year-end financial results of respective companies.

• Sagarmatha Technologies, which intended to have a primary listing on the JSE and secondary listings on the New York and Hong Kong Stock Exchanges, was another transaction that was introduced by Survé to Matjlia.


• The commission found that in late 2017, Sagarmatha offered the PIC an option to subscribe for shares worth between R3-billion and R7.5-billion ahead of its JSE debut.


• The price for the Sagarmatha shares was pitched at R39.62 per share by the company. However, the PIC deal team was opposed to the valuation, offering a value of R7.06 per share.


• The commission found that Matjila, who was not a member of the deal team, was actively involved in the transaction and wanted the PIC to subscribe for Sagarmatha shares at R39.62 per share or a higher price.


• The commission found that Matjila had already signed the share swap agreement and bound the PIC to a share price of R39.62 prior to Sagarmatha being valued by the PIC deal team.


• The JSE cancelled Sagarmatha’s listing because the company failed to file its financial statements with the Companies and Intellectual Property Commission.

• Sekunjalo Investment Holdings was created by Survé in 2013 to acquire Independent Media, which owns a range of publications including The Star and Cape Argus.


• The commission found that the PIC’s investment in Sekunjalo showed a marked “disregard for PIC policy and standard operating procedures”. The PIC initially invested R1.4-billion – through a range of debt facilities/loans over five years –  to enable Sekunjalo to buy Independent Media. In exchange for the funding, the PIC scored itself a 25% equity stake in Independent News and Media South Africa (INMSA), a subsidiary of Sekunjalo Group.


• By 2017, the R1.4-billion PIC loans had not been repaid by Sekunjalo, prompting the PIC to impair the loans in its financial books in March 2018.


• About the INMSA transaction, the commission found that “proper governance was absent or poor, and risk identification processes were downplayed by looking for risk mitigants to make sure the deals were approved”.


• This is because Matjila signed an agreement that allowed the PIC to swap its debt and shares in INMSA for a stake in another Survé company, Sagarmatha, in December 2017.


• The commission found that “the proposed Sagarmatha transaction, including the suspected share price manipulation and essentially attempting to use the PIC’s own investment to pay the debt INMSA owed to the PIC, demonstrates a lack of ethics, lack of compliance with laws and regulation, and a disregard for the best interests of the PIC and its clients”.


• The commission recommended that the PIC board should conduct a forensic review of all the processes in deals involving Sekunjalo, probe the flow of money in and out of Sekunjalo, and recover all monies due to the PIC with accrued interest.

• The PIC lent R9.4-billion to a Broad-Based Black Economic Empowerment vehicle called Lancaster 101 in September 2016 to buy 2.75% of Steinhoff’s ordinary shares. Lancaster is owned by Jayendra Naidoo, a former trade unionist with links to Cosatu.


• Through its investment in Lancaster 101, the PIC would increase its shareholding in Steinhoff beyond 9%– a point where it could influence Steinhoff’s strategic direction and have a say in corporate governance issues.


• The initial funding request by Naidoo was R10.4-billion, but this was reduced to R9.4-billion so that the investment would fall within Matjila’s delegation of authority (DoA) and wouldn’t require approval by a PIC investment committee or the board.


• The commission found that the conduct of Matjila in reducing the amount so that it fell within his DoA was wholly improper. “This might be taken to indicate collusion between Dr Matjila and Lancaster.”


• The R9.4-billion loan, with accrued interest, has increased to more than R11-billion as Lancaster has not been able to service it. The GEPF has already written off more than R10-billion of this loan due to the collapse in Steinhoff shares by more than 80% after the retailer admitted to accounting fraud in December 2017.


• The commission also found that the PIC could have purchased any quantum of Steinhoff shares outright in the market instead of entering into a transaction with Naidoo, who scored a R114-million underwriting commission from Steinhoff that was paid directly to his Lancaster Group and not into the B-BBEE vehicle (Lancaster 101).

• The commission wants the PIC to “obtain a legal opinion as to whether the R114-million underwriting commission… should have been paid to Lancaster 101, or if it was in fact due to the PIC, and if the latter is shown to be to the case, appropriate steps should be taken to recover the money.”

• The PIC invested $270-million (about R4-billion) into Erin Energy, when the little-known oil company founded by Nigerian businessman Kase Lawal listed on the JSE in 2014.


• The commission found that there was “impropriety” in the decision to approve the transaction, as Erin was technically insolvent and the PIC’s own energy experts were against the transaction.


• “The question has to be asked as to how appropriate it is for an asset manager of a pension fund to invest in oil exploration, which is a high-risk endeavour,” the commission said.

• The commission found that a PIC executive, Sibusisiwe Zulu, promoted an investment deal involving JSE-listed Ascendis Health, which benefited her lover Lawrence Mulaudzi, who is a beneficiary of PIC funds.


• The commission found that the R100-million which was approved by the PIC for the purchase of shares in Ascendis, was not used for that purpose. Instead, the R100-million had been added to transaction fees and paid to two entities of Mulaudzi, the report found.


• Transaction fees were determined as R19-million, yet there was a payment to Mulaudzi of R79.8-million from Kefolile Health Investments, the investment vehicle that would own the Ascendis Health shares.


• “Yet again, the Ascendis investment shows the PIC’s weakness, indeed failure to monitor the implementation of the decision and ensure that the funds provided were used as approved,” the commission said.