AYO valuation a 'thumbsuck' former exec concedes, as PIC inquiry continues

Former president of the Supreme Court of Appeal, Justice Lex Mpati (AFP)
Former president of the Supreme Court of Appeal, Justice Lex Mpati (AFP)

The valuation of controversial ICT company AYO Technology Solutions was "stretched out" so that it appeared to be worth more than it was in reality, according to the testimony of the company's former chief investment officer.

Abdul Malick Salie on Tuesday appeared before the commission of inquiry into the Public Investment Corporation (PIC), after he was subpoenaed to present evidence.

The commission is investigating allegations of wrongdoing at the PIC, which manages R2.2trn in investments on behalf of public servants.

Salie resigned as the group's CIO on May 6, but is still employed in a managerial position. On Tuesday he told the commission he stepped down due to "internal and external" pressures relating to the governance of the JSE-listed ICT group. "I was not comfortable within the current environment and [with] pressures internally and externally, and I made a decision to resign from the board," he said. 

A 'stretched out' valuation 

In his testimony, Salie unpacked how AYO, which listed on the JSE in late 2017, was ultimately valued. The PIC invested R4.3bn in the ICT company when it listed, buying 29% of its shares and valuing the group at R14.8bn. The share price has since declined from its listing price of R43 a share to R10.99 a share.  

The inquiry already heard from Salie's predecessor, Siphiwe Nodwele, in April that he believed AYO's initial valuation was overstated. Nodwele, who resigned in August 2018, told the commission he valued the ICT group at between R700 million and R1 billion, about 5% of the PIC's valuation. 

On Tuesday Salie said that Iqbal Survé, the executive chair of Sekunjalo under which AYO ultimately falls, expressed that the "desired value" of AYO be set between R10bn and R15bn when it listed. Sekunjalo holds a roughly 30% stake in AYO via African Equity Empowerment Investments (AEEI).

Testifying at the inquiry in early April, Survé hit back at claims that there was anything wrong with the PIC's investment, saying it was sound. He blamed controversy around the deal on a misinformation campaign by his media competitors. 

The inquiry has also previously heard from AYO's former CEO Kevin Hardy that the group's interim financials were tampered with. AYO, in a statement, denied any wrongdoing. The JSE, meanwhile, ordered AYO to engage with its auditors on an urgent basis to verify its earnings. 

On Tuesday Salie told the inquiry that AYO, which was valued at R2.3bn by Salie and others working on a prelisting document, was made to look like it was valued at around R13bn. This figure was arrived at by taking into account an earnings transfer from British Telecommunications South Africa of 30% from AEEI, proposed acquisitions in the pipeline, and the value of a national health insurance project.

Assistant commissioner Emmanuel Lediga noted it appeared that AYO's valuation had been "stretched out".

Salie agreed, but said that these figures were to be audited before proceeding with the listing. "You would not be able to take that (the figures) to an audit process that's why the final valuation drops off most items."

Evidence leader Advocate Lubbe commented that he may have a limited knowledge of finance, but it appeared there had been a "juggling of figures" which resulted in a "thumbsuck".

Salie did not dispute this. "At this stage, yes Advocate Lubbe," he responded.

'The numbers were manipulated' 

Assistant commissioner Gill Marcus said it appeared that the base case of R2.3bn as the value of AYO is verifiable and real, and every adjustment upwards is just an extrapolation of what might be.

"Anything above the R2.3bn was because targets were set at the expectations of the valuation. The numbers were manipulated … the numbers are not real," Marcus said.

"In the build up phase, before the pre-listing work – that is 100% correct," said Salie. 

Lubbe also asked Salie if there had been any meetings between Survé and former PIC CEO Dan Matjila prior to AYO's listing.

Salie said that at the end of July 2017, there had been a conference call between Survé and Matjila and a representative from the PIC. Salie was present at the time. He said Survé indicated that there was a road-map for the ICT listing, and the team planned to discuss it with the PIC.

Lubbe asked if this meant that before the finalisation of the valuation of AYO and its draft pre-listing statement, Survé and Matjila were in discussions. Salie said it would be correct to conclude so.

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