Gijima fights for survival

2014-11-30 20:00

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A court case against the State Information Technology Agency (Sita) and an upcoming rights issue may be all that stands between IT company Gijima and business failure.

The IT company, led by executive chairperson and ANC benefactor Robert Gumede, is fighting to hold on to a multimillion-rand department of defence contract, which Sita says was awarded in contravention of the Constitution and the agency’s procurement rules.

Gijima’s attorney, Nicqui Galaktiou, said the matter was argued before a judge last week. But it will be some time before the company knows its fate because judgment was reserved.

The case

The matter stems from an urgent application brought by Gijima in February 2012 after Sita terminated a separate contract to provide IT services to the police – worth R19.6?million – with only five days’ notice. Gijima said the contract was being unfairly terminated in favour of a company called Khauleza IT Solutions.

But the matter between Sita and Gijima was removed from the court roll by mutual agreement, while Sita’s website said the tender had been awarded to Khauleza.

The current court case has revealed that Sita and Gijima had reached a settlement agreement – Gijima would be appointed to provide hardware maintenance and support services to the defence department at an estimated cost of R11.3?million.

But Sita’s Tendani Mphaphuli said in court papers the company had earned about R26.5?million from the tender by May 2013.

This agreement was so secretive, only the boards of Gijima and Sita, and employees directly involved, could know about it, according to Sita’s heads of argument.

Mphaphuli said because the defence contract did not go out to tender, it violated section 217 of the Constitution. After Gijima raised concerns that it might breach public finance rules, it said it was advised by a Sita employee that there was nothing wrong with concluding the agreement.

“It was irresponsible of the respondent [Gijima] to rely on advice given to it by a person who is not a lawyer on what is simply a legal matter,” argued Mphaphuli.

“[Gijima] cannot be heard to contend that it concluded the agreement simply because it was

advised by [the employee] that there was nothing wrong in concluding the agreement.”

Mphaphuli said the employee was suspended for flouting the agency’s procurement policy numerous times – including failing to act on legal opinion regarding Khauleza and avoiding litigation costs – but opted to resign before her disciplinary hearing.

The company declined to comment on the details of the case.

“Gijima awaits the outcome of the court proceedings before making any statements on this matter,” said CEO Eileen Wilton.

The rights issue

Gijima needs to stem the financial bleeding. Its results for the year to June, released in September, showed the company’s ability to continue as a going concern depends on achieving its future budgets and forecasts, and raising capital through a R100?million rights issue, which opens on December 8.

This is on top of a R150?million rights issue last year.

Gumede left behind a thriving company when he left the executive committee in 2008, and during former Sita strategic services chief Jonas Bogoshi’s first full year as CEO. Revenues of R2.5?billion were boosted by the department of home affairs’ Who Am I Online contract. It paid a dividend of 3.5c a share.

The next year, revenues grew to just more than R3?billion. But in 2010, home affairs cancelled the Who Am I Online tender on grounds that it was invalid. Revenue fell to R2.9?billion, and has been in freefall ever since.

By June 2014, a year after Bogoshi’s departure

and Gumede’s return as executive chairperson, the company’s revenue (R1.5?billion) was lower than it was 10 years ago.

Although the company has narrowed losses to R153?million from R294?million in the year to June, tough trading conditions have forced it to restructure payment terms on borrowings of R213?million.

The interest rate on the debt increased, and the group was compelled to enter into the next phase of its turnaround strategy to ensure it will be able to generate sufficient cash to pay its debts when they are due, and comply with the borrowing requirements.

Gijima needs fresh working capital without borrowing more money, hence the rights issue and renegotiation of debt.

Gijima will offer a billion shares fully underwritten by Gumede’s Guma Group, which owns 46.7% of Gijima.

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