Sekunjalo acquisition of PIC’s Independent stake came with a catch, inquiry told

21 May 2019 - 10:28
By Warren Thompson

A senior executive at the Public Investment Corporation (PIC) has testified that the deal tabled by Iqbal Survé’s Sekunjalo Investment Holdings to buy out the PIC’s stake in Independent Media was dependent on the state-owned asset manager investing in the listing of the businessman’s Sagarmatha Technologies.

Tshifhango Ndadza, a senior market risk analyst at the PIC, told an inquiry into the asset manager how it initially invested R1.285bn in 2013 to enable Sekunjalo to buy the Independent Media group from its Irish parent, Independent News and Media Plc in 2013.

Independent Media owns a range of well-known publications including The Star and Cape Argus.

Sekunjalo would later table an offer to buy the PIC’s shares and loans in Independent Media at almost double their book value, representing a substantial premium. However Ndadza testified that there was a catch. 

“The proposal also carried with it an implicit investment consideration for PIC to invest in Sekunjalo’s listed entity, Sagarmatha Technologies Limited,” stated Ndadza.

“This conditional exit mechanism could have presented reputational risk as the PIC/Government Employees Pension Fund (GEPF) would be perceived to be funding its own exit,” stated Ndadza.

“It would have been a great deal if we weren’t participating in the Sagarmatha listing. But you have an impaired asset being overvalued in the listing,” said Ndadza, in reference to Independent Media being included as one of the businesses in the portfolio of Sagarmatha.

By buying out the PIC’s stake at a premium (above cost) Sagarmatha would be able to include that portion of Independent Media at an inflated value on its own books at a time when the company was technically insolvent.

“Independent Media had liabilities exceeded assets by about R500m-600m,” stated Ndadza. The PIC had already begun impairing its loans to Independent given that it had not been able to service them since inception.

By March 2018, these loans had been completely written off in the books of the PIC and the GEPF, which provides the large majority of the over R2-trillion the PIC manages.

While the initial terms of the deal would see Sekunjalo offer cash to the PIC for its shares and loan claims, this would later change to exchanging shares in Sagarmatha to effect payment, Ndadza said.

The PIC’s agreement to purchase as much as R3bn in Sagarmatha has also come under scrutiny at the commission. According to the testimony of PIC company secretary Bongani Mathebula, then PIC CEO Dan Matjila agreed in writing in December 2017, on the eve of the ANC elective conference, to invest R3bn in Sagarmatha, despite the PIC not having undertaken any due diligence.

Sagarmatha’s listing in mid-2018 would ultimately be cancelled by the JSE.