The Public Investment Corporation’s (PIC) investment team tried by all means to protect shareholder interests from increasing exposure to companies linked to Independent Media owner Iqbal Survé.
Lebogang Molebatsi — the PIC’s general manager for listed investments — worked closely on the controversial R4.3-billion investment that the PIC made in Ayo Technology Solutions in December 2017. Molebatsi was also included in the attempt to inject another R3-billion into tech “unicorn” Sagamartha before its attempt to list on the JSE was scuppered in April 2018.
The Ayo and Sagarmatha transactions allegedly came from former chief executive Dan Matjila’s office.
In the Sagarmatha transaction, Molebatsi said the team — despite its apprehensions about the investment merit of the deal — was “instructed” by Matjila to make sure the deal was presented at the approval committee.
He was recounting the deals at the PIC commission of inquiry headed by retired judge Lex Mpati.
Molebatsi described how Survé had practical control of the companies, given that both firms fall under Sekunjalo Investment Holdings which is ultimately controlled — through a family trust — by Survé.
Sagarmatha approached the PIC for funding less than a month after the PIC had invested in Ayo, which Molebatsi described as “very strange”. Sagarmatha wanted the PIC to raise R3-billion in investments from the state owned asset manager in its initial public offering (IPO).
“Ultimately there is exposure to an individual… once again it adds to the risk concerns,” Molebatsi said.
Despite including a loss-making entity — Surve’s Independent Media — as part of its value proposition, Sagarmatha valued its shares at R39.65. This was significantly higher than the R7.06 the PIC investment team had determined, after their own assessment of the company.
The funding raised from the IPO would also be used to buy the PIC’s shares in, and loan claims against, Independent Media. This means the PIC would settle its own loan against itself of about R1-billion.
“It cannot be that part of these funds are used to extinguish a liability they owe to the PIC on the other side,” Molebatsi added.
Molebatsi said, if it had been up to his team, the deal would not have been presented to the portfolio monitoring committee for consideration. But because they did not have a choice they managed the process by “highlighting the risks quite strongly”.
The main conditions the team set for the investment in its recommendations to the committee involved approving the Sagarmatha at its approved intrinsic value of R7.06 per share or less. The PIC and Sagarmatha would also have to enter into a put share price option, which is an agreement that would protect the PIC from a decline in the share price.
“One had to get to a point where we you say, if we were being forced to put our money here, then we can only do it at R7. If we had a choice as a team, of whether we wanted to do it or not, the answer is we probably wouldn’t want to do it,”. Molebatsi said.
Sagarmatha was barred from using the equity funds raised for anything else but growth acquisitions for a period of between two to three years. This condition would prevent the entity from using the money to buy out the PIC in Independent Media.
The e-commerce company was also not to pay dividends for at least 12 months after listing, to manage the risk of an outflow of money, and it had to implement a conflict of interest policy. If it wanted to make acquisitions that are greater than 10% of Sargarmatha’s market capital it would need to get its shareholders’ approval first.
“There are elements of this investment opportunity which would make sense conceptually in the sense that one does believe in ecommerce businesses and that as media becomes digitised there is a growth opportunity.
“We looked at all the different components and said we can understand that if you put together this opportunity at a certain price it could make sense,” Molebatsi said.
But the transaction was never finalised by the PIC after the JSE cancelled Sagarmatha’s plans to list because it did not comply with the Companies Act and failed to submit its reviewed provisional results before the specified due date.