AllPay takes its welfare fight to the highest court

2013-09-08 14:00

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The battle over a R10?billion tender won by technology company Net1, to distribute social and welfare grants, will reach its final round in the Constitutional Court this week.

Net1’s subsidiary, Cash Paymaster Services, will once again face off against Absa subsidiary AllPay, which also bid for the tender and lost.

When Net1 won the tender, AllPay immediately alleged foul play and took its competitor to court over the five-year contract to distribute grants to more than 15?million children, pensioners, the disabled and war veterans.

In the North Gauteng High Court, Judge Elias Matojane declared the tender process illegal and invalid, but could not order to have it set aside as it would interrupt payments to about 10?million children who receive child-support grants.

AllPay took its challenge to the Supreme Court of Appeal and it was dismissed.

Now, AllPay has approached the Constitutional Court with section 217 of the Constitution as its main weapon. Section 217 calls for all organs of state to contract for goods and services in a system which is “fair, equitable, transparent, competitive and cost-effective”.

This legal wrangling has wreaked havoc on Net1’s share price, both on the JSE and the Nasdaq, and put into jeopardy its black economic empowerment (BEE) venture.

In April last year, Net1 granted a one-year option to purchase up to 8.95?million shares, or 20%, of the company at an exercise price of $8.96 (R90.66) to BEE consortium Business Venture Investments. The lead partner in the consortium is Mosomo Investment Holdings, led by Brian Mosehla.

The deal hit a snag when the consortium was unable to raise the $80.2?million capital needed to exercise the option and, according to Serge Belamant, Net1’s chief executive, this was because of the company’s reputational damage ever since AllPay went to court.

He said: “It was unfortunate that the AllPay involvement led to a substantial drop in our share price, which resulted in the inability of our BEE partners to raise the funds required to exercise the option.”

Net1’s share price has since recovered from its low of $4.95 and is now sitting at more than $10.

Belamant, however, could provide no clarity on the BEE deal or when it would be concluded.

In Net1’s yearly report released last month, Belamant said “we and the BEE consortium are evaluating various alternatives to ensure that our BEE objectives will be met. We cannot assure you that these efforts will be successful.”

The report also said Net1 may have to look at meeting its BEE objectives through other means. This includes selling or placing additional company shares on the market exclusively to black South Africans.

“We are working very hard to develop a broad-based BEE programme, which will hopefully be acceptable to all of our stakeholders as well as our local and international regulators,” said Belamant.

“Net1 has many different activities in South Africa, which it conducts through various companies. Net1 is always prepared to enter into smaller BEE programmes, which are focused on specific activities.”

He added: “(But) for our BEE programme to become meaningful, it will require our Sassa (SA Social Security Agency) initiative to be sustained for a long period of time in order to maximise the value creation for our BEE partners.”

The BEE partners have remained mum and, at the time of going to print, Mosehla was unavailable for comment.

Net1 is also being investigated by the US department of justice under the Foreign Corrupt Practices Act as well as the US Securities Exchange Commission, but Belamant was quick to say there has been no update from either.

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