PIC and Sekunjalo: a bizarre, value-destroying relationship

It turns out the relationship between former Public Investment Corporation (PIC) head Dan Matjila and Iqbal Survé’s Sekunjalo Group was as value-destroying as feared by most commentators.

The somewhat bizarre relationship dates back to 2013 and saw the PIC committing over R6 billion to businesses of dubious value. During that period Matjila, who was CEO, held unquestioned authority over decision-making at Africa’s largest asset management company.

The Report of the Judicial Commission of Inquiry into the PIC was released on Thursday. A damning chunk of the 900-page report provides some details of the five-year relationship between Matjila and Survé, which involved a R2 billion investment in Independent News & Media, a R4.3 billion investment in Ayo Technology, and a barely avoided multi-billion rand investment in Sagarmatha Technologies.

In that time Matjila showed total disregard for any due process and seemed determined to disburse billions of rands of pensioners’ money without questioning even the most ridiculous of valuations, such as those contained in the Sagarmatha prospectus ahead of its scheduled April 2018 listing.

The PIC’s own risk team had deemed Sagarmatha’s credit risk to be ‘high’. Matjila ignored that advice and would have backed the listing had the JSE not blocked it at the last minute.

“It is difficult to understand why Dr Matjila sought to invest in a company at a price significantly higher than that recommended by the very experts he claimed throughout his testimony [at the Mpati hearing] to rely on, and ignoring the fact that the company already had liquidity problems and was not servicing debt due to the PIC,” says the commission’s report.

As early as 2013, Matjila had ignored concerns expressed by the PIC’s primary client, the Government Employee Pension Fund, about the investment in Independent News & Media.

And throughout a remarkably brief pre-listing process he had ignored opposition to plans for a R4.3 billion investment in Ayo Technology. The company was listed on the JSE in December 2017, just as the Steinhoff implosion set off tremors throughout the investment community.

R4m bonus for advisor

As an aside, the Mpati Commission notes that PSG Capital, the transactional advisor and sponsor for the listing, “received a ‘generous’ bonus in the region of R4 million from Dr Survé for successfully listing Ayo”.

Despite that ‘generosity,’ four months later, with the spotlight now more clearly focused on Sekunjalo, PSG Capital decided not to play a role in the Sagarmatha listing.

While it provides a useful description, the report provides little by way of explanation for Matjila’s behaviour.

There is no evidence that the impropriety resulted in any undue benefit for any PIC director, says the Mpati Commission in reference to the Sekunjalo investments. However in its overall conclusion it does refer to Matjila’s requests “to provide financial assistance or make contributions to individuals, organisations and political parties”, noting that this “reflects his abuse of office and the ability to exert undue influence over investee companies”.

Flow of money

The Mpati Commission now wants the PIC to conduct a forensic review of all the processes involved in all transactions entered into with the Sekunjalo Group. It wants to “ensure that the PIC obtains company registration numbers of every entity in the Sekunjalo Group to be able to conduct a forensic investigation as to the flow of monies out of and into the group”.

This could prove troublesome for Survé.

In a chillingly matter-of-fact manner the report recalls how both Survé and Matjila had indicated during the commission’s hearing that the R4.3 billion the PIC had invested in Ayo Technologies in December 2017 is still in Ayo’s bank accounts. “This is partly correct, due to the fact that the results are published at a point in time and indicate that the monies were transferred back to Ayo just before the interim and year-end cut-off periods,” says the report.

It goes on to describe what appears to be a basic form of accounting manipulation. The evidence gleaned from various bank statements, says the report, shows that there has been significant movement of the funds between different related parties. “This created the impression of funds in bank accounts but, in reality, this was only the case at specific moments in time.”

Inevitably the independence of Ayo’s auditor of 21 years, BDO Cape Town, was called into question.

Remarkably, although the PIC was responsible for R2.1 trillion of assets, it did not have a chief investment officer or a chief operating officer throughout Matjila’s reign. Frequent changes of finance ministers created instability and a leadership vacuum that Matjila and his benefactors were able to take advantage of.

“The board essentially was a rubber stamp for the decisions driven by Dr Matjila,” says the commission in the conclusion to its 900-page report.

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