Steinhoff was a 'good buy' for PIC at the time, witness tells inquiry

The Public Investment Corporation regarded Steinhoff shares as a good buy when it extended R9.35bn to empowerment group Lancaster 101 to buy shares in the now fraud-tainted retail conglomerate in 2016.

This is according to evidence presented to the PIC commission of inquiry on Tuesday by an official who was involved in the transaction that later led to a R4.3bn impairment in the investments of the Government Employees Pension Fund. 

The commission is investigating allegations of wrongdoing at the state-run asset manager, which manages R2.2trn in investments on behalf of public servants.

Botsang Morobe, an Investment Associate at the PIC, provided the inquiry with details of discussions that took place prior to the deal with Lancaster signed in August 2016.

'The asset to buy'

"There was a view that this was the asset to buy," she said, explaining that the international retailer had been reporting positive earnings in previous years and paying dividends.

"There was an appetite to buy the stock. It was a widely covered stock…we had all the data to assess it," she said.

In 2016, Lancaster 101, an entity led by former unionist Jayendra Naidoo, approached the PIC for funding to acquire a 3% shareholding in Steinhoff. The transaction was aimed at advancing the participation of black groups in the retail sector.

Morobe said that prior to granting the loan, the PIC investment committee raised reservations about Lancaster 101, including Naidoo's political exposure and union activism, as well as the composition of the company's broad-based structure. 

Later assessments, however, showed that Naidoo was considered a "low risk" as he was no longer actively involved in politics. 

Steinhoff’s share price plunged in December 2017 when its CEO Markus Jooste abruptly stepped down after auditors flagged accounting irregularities in its financial documents.

A forensic report released in March by PwC found that a small group of former executives, with the help of others outside the company, structured phony transactions that substantially inflated earnings and asset values.

Steinhoff executives later named Jooste as one of the executives. 

Steinhoff shares were trading at R1.77 a share on Tuesday at 12:53 on the JSE, down 95% from their level before Jooste resigned. 

The embattled retailer announced last week that it would again delay the release of its audited financial statements due to the complexity of the accounting and audit work required.

'A lot of work to be done' 

Morobe further testified that when Steinhoff shares began to decline within a year of concluding the deal, Lancaster came up with a further funding proposal that it argued would enhance the asset manager’s position. The proposal involved raising funds to acquire 11.8% stake in Steinhoff's JSE-listed subsidiary Steinhoff African Retail Limited. 

STAR has since changed its name to Pepkor Holdings

Asked if there were any prospects of yielding posting returns out of Steinhoff, she said that although it was not her place to make the call, there was "still a lot of work to be done" at Steinhoff.

Morobe put the value of the PIC shares at around R200m. 

She said that Pepkor was a "good place" for Lancaster to be invested in, as their growth projections were promising.

The inquiry is ongoing.

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