Pensioners subsidising deals that lack 'investment rationale', PIC inquiry hears

Government pension fund holders are subsidising BEE deals conducted by the Public Investment Corporation without a strong investment rationale, according to evidence heard by the inquiry probing the affairs of asset manager.

According to Paul Magula, former head of risk and compliance at the PIC, the company had to write off vast amounts of money as a result a meltdown in Steinhoff shares.

Magula further testified that focus on the Steinhoff financial loss had been focused on the listed entity but not on the unlisted vehicle where the PIC invested R9.3bn – Lancaster Group, an empowerment partner led Jayendra Naidoo. According Magula, Naidoo held 100% shareholding in Lancaster when he approached the PIC, but it was later restructured, with the Government Employees Pension Fund (GEPF) holding 50%, Naidoo taking 25% and the other 25% controlled by a community trust.

'Disregard for governance tools'

"The transaction was effectively approved without considering credit risk opinion. That shows complete disregard for governance tools.

"R9.3 bn was approved without considering risk opinion, and now R5bn has been impaired as a result," he said. 

According to Magula, there was not a strong investment rationale for the deal.

"For GEPF, the debt funded exposure never made commercial sense. No commercial bank would have funded the same structure," said Magula. 

"Taxpayers are ultimately subsidising the BEE deals done at the PIC, without strong investment rationale," said Magula, adding that the BEE players should shoulder the brunt of the share price decline not pension holders.

Matjila desperate to seal the deal

Turning to AYO Technology Solutions R4.3bn investment late in 2017, Magula said "due diligence was waived" – which he described as "unheard of", given that the PIC was underwriting the investment.

He further described how former CEO Dan Matjila was determined to get the deal approved, a claim that has been repeated during the inquiry. Magula said Matjila was desperate to have the transaction concluded, to the point that he returned from leave to convene a meeting where the deal was approved. "If deals like Steinhoff and AYO were evaluated based on commercial basis... the PIC would not have exposed itself to potential losses worth billions. Similar possible losses in any other institution would have been considered a disaster," he said.

The Companies and Intellectual Property Commission (CIPC) in February ordered the PIC to recover the R4.3bn the corporation invested in AYO.

On Sunday, the PIC said in a statement it had lodged an application to the North Gauteng High Court, seeking an extension to the March 14 deadline outlined by the Compliance Notice.

The statement said both parties, the PIC and the CIPC, agreed that the deadline would not afford the PIC sufficient time "to undertake the necessary legal steps to implement the recovery of any losses it may have suffered in relation to the AYO Transaction".

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