The walls close in around Iqbal Survé as BDO severs ties

According to Sekunjalo, it's a storm in a teacup.

When audit firm BDO announced on Thursday 17th October that it would not seek the renewal of its mandate for the stable of Sekunjalo-related companies, which includes AYO Technologies, Independent Media, Premier Fishing, and most crucially, Sekunjalo chairman, Iqbal Survé’s personal vehicle, Africa Equity Empowerment Investment Limited, the market assumed the worst.

After all, auditors don't just resign. As has been seen over the last few years, auditors need to be pushed really really hard to resign. And even then they don't.

But in this case, the reality was far less sinister. Sekunjalo has an increased requirement for rotation of auditors and audit partners, as well as a requirement for transformation and involvement of more black audit partners and audit firms, a Sekunjalo statement read.

Further, the statement continued, while Sekunjalo cannot speak for the listed companies under its group umbrella, as the majority shareholder, Sekunjalo had already resolved that it was not going to support the re-appointment of BDO as auditors to the listed entities in which it has a stake. 

Funny that. Sekunjalo's philanthropic chairman has been at pains in the recent past to stress the fact that he does not directly manage the companies in his stable, but is an arms-length shareholder.

Sekunjalo (quite who is not stated), met with Managing Partner of BDO on Thursday in Cape Town to give BDO fair notice.

For its part, BDO provided no reasons for the move. The mandate expires at the end of December. BDO has technically been the auditors of the group for the past decade. Formally, the group has been auditing the companies for 18 months and inherited the client when BDO merged with Grant Thornton, the previous auditor.

Chief Executive Officer of the auditing firm, Mark Stewart, said: “It is important to note that all matters between BDO South African and our clients are absolutely confidential and we are bound to respect such confidentially at all times.”

Yet, the decision itself speaks volumes. Auditors do not generally resign their clients. Not unless they are facing untenable interference when doing their work. Or if there is resistance to accountability.

In a best-case scenario, it could be because the auditor fears reputation risk by association.

Survé’s head office was raided by South Africa’s financial market conduct regulators this month in a search and seizure operation. The office houses Sekunjalo Investment Holdings, which is not a BDO client, and its JSE-listed subsidiary African Equity Empowerment Investments (AEEI), which is.

The regulators were looking for evidence to support allegations that companies and individuals close to Survé may have manipulated the share price of AEEI subsidiary AYO after it listed in December 2017. The listing was supported by South Africa’s state pensioners at a price widely regarded in the market as absurdly high.

Then, this week, the managers of public sector pensions, the Public Investment Corporation, now under new management, told a parliamentary inquiry that it may consider the liquidation of Sekunjalo Investment Holdings as it explores ways to secure the return of a R1-billion loan made to a Sekunjalo-led consortium in 2013.

For the auditors, both events mean a small mountain of trouble, even in the best of circumstances. So, one possible reason they are pulling out could be that BDO just doesn’t want to have to endure the whole court process and liquidation process – not that the company will entirely avoid the scrutiny, since it has been Survé’s auditors for so long.

Another possibility why the group has pulled out is also obvious: it has discovered something in the books that makes it uncomfortable.

Or, it could be something less, or perhaps more, sinister. Survé himself has maintained that the actions against him are part of a political conspiracy. After the search and seizure operation, he claimed that the search “was a political tool motivated by the DA and Minister of Public Enterprises Pravin Gordhan”.

Look out for more slanging matches in the near future. BM