The board of the Public Investment Corporation (PIC), chaired by Deputy Finance Minister Mondli Gungubele, largely ignored the alarm raised by its internal audit unit about the R4.3 billion worth of Ayo Technology Solutions shares it had acquired – for seven months.
This was revealed at the judicial commission of inquiry into allegations of impropriety at the PIC, which began hearing testimony in Pretoria on Monday.
The sixth and final witness of the week – the corporation’s head of internal audits, Lufuno Nemagovhani – provided the most explosive evidence.
Nemagovhani said he had alerted the PIC board about critical issues related to the Ayo deal in May 2018, after Ayo’s listing on the JSE in December 2017, but these issues fell largely on deaf ears.
However, after the PIC made a presentation to the standing committee on public accounts (Scopa) in Parliament on December 6, following concerns about controversial investments made by the state-owned asset manager, Nemagovhani was instructed to relook into the matters he had previously raised the alarm about.
The PIC’s acting CEO, Matshepo More, said she received a letter from board chair Gungubele, in which he expressed concern about the issues that were revealed at Scopa, Nemagovhani said.
This resulted in the PIC’s internal audit unit producing a 94-page report, submitted on Monday, which led to its board suspending two members of staff this week: executive head of listed investments, Fidelis Madavo and assistant portfolio manager Victor Seanie.
The report “clearly reflects a blatant flouting of governance and approval processes of the PIC” and employees had been implicated in these irregularities, noted the PIC.
Commenting on the suspensions, the PIC’s major client, the Government Employees’ Pension Fund (GEPF), said it was “extremely perturbed”, adding: “Of serious concern to the GEPF is that the PIC had assured the GEPF on numerous occasions, and in correspondence, that correct governance processes were followed with respect to the Ayo Technology Solutions transaction. The GEPF views this as a serious breach of trust.”
In May last year, Nemagovhani said that, as part of “conducting our normal audit in the [PIC’s] listed investment space”, the internal audit unit had raised an audit query regarding Ayo.
“The finding in this audit query was ‘transaction not ratified’,” he said. “During the review of a sample of transactions, internal audit noted that the Ayo Technology transaction Initial Public Offering subscription share form was signed off on September 14 2017 and confirmed with the listing agent before approval of the transaction was received … on December 20 2017. It was signed off before the delegated committee could approve.”
This was in breach of PIC policy, Nemagovhani said. “This matter was discussed with the CEO, Dan Matjila, who resigned in November last year.”
The query was raised with the PIC board’s investment committee and debated intensively. “At the end of the meeting, we were able to prove that there had been a process breach.”
The matter was also brought to the attention of the PIC’s audit committee – but, said Nemagovhani, “that is where it ended”.
Jannie Lubbe, evidence leader at the judicial commission, said the Ayo transaction was the subject of a forensic probe “that is at an advanced stage”.
The PIC processes that governed listed investments were breached and approvals were skipped, Nemagovhani said. “This is the first time I have seen something like this in the PIC. Action needs to be taken against those responsible.”
Ayo’s share price at the time of the PIC’s share subscription was R43 a share. But by Friday, it was quoted at R21.45, a drop of more than 50%.
Ayo’s board of directors said it welcomed the commission of inquiry, but “notes with concern the ongoing negative reporting and speculation of impropriety and unethical conduct expressed by certain media entities”, according to Fin24.
Despite the drop in Ayo shares, group chairperson Wallace Mgoqi said Ayo was on a growth trajectory.
And, despite having being suspended, Madavo appeared before the commission this week, saying that he was out of the country when the deal related to the subscription for the Ayo shares was concluded.
On day one of the inquiry, the first three witnesses – Roy Rajdhar, the PIC’s head of impact investing; Sholto Dolamo, head of research and project development; and acting secretary Wilna Louw – denied any knowledge of allegations of impropriety levelled against the PIC.
The inquiry is headed by the former Supreme Court of Appeal President, Judge Lex Mpati, assisted by former SA Reserve Bank governor Gill Marcus and asset manager Emmanuel Lediga.
President Cyril Ramaphosa appointed the commission in October. It is tasked with looking into the affairs of the PIC from January 1 2015 to August 31 2018.
The time period includes two giant investments that the PIC planned to make in companies controlled by controversial media mogul Iqbal Survé. The first was the Ayo transaction and the second deal, which fell through, entailed a substantial investment into Sagarmatha Technologies.
The inquiry will also probe the PIC’s involvement in a deal to acquire a palm oil refinery in Mozambique which involved former finance minister Nhlanhla Nene’s son, Siyabonga.
The submission date for the commission’s interim report is February 15 and the final report is due two months later. Next week, the commission will hear testimony from Monday to Wednesday. It will adjourn and then resume at the end of February.
What is the PIC?
It manages almost R2.1 trillion on behalf of 23 government clients, which include the GEPF, the Unemployment Insurance Fund, the Compensation Commissioner Fund, the Compensation Commissioner Pension Fund and the Associated Institutions Pension Fund. The GEPF is by far the largest PIC client, making up 87% of the funds under management.