Dieketseng Maleke
THIS week, the Public Investment Corporation and AYO Technology Solutions head to court to duke it out in a battle royal that could have resounding repercussions for investors and investee companies throughout the country.
At stake is the R4.3 billion for a 29% shareholding the PIC invested in AYO, which gave rise to the ICT group listing on the JSE in December 2017. The PIC wants its money back with interest.
When it listed, AYO, which was a bundling of several well-established technology-related companies under the African Equity Empowerment Investment stable, the newly minted black-owned and -managed tech company was lauded and welcomed.
Its prospects were excellent, and it was on track to earn its future-looking valuation. It had at its helm a capable driver who had come across from one the group’s key assets to ensure the planned trajectory laid out in its pre-listing statement came to fruition.
Several months down the line, however, blurred by developments at AEEI’s main investor, Sekunjalo Investment Holdings, who had also looked to list a company with the PIC as backer, a muddying of the waters began to be stirred through a series of factually incorrect media articles.
Falling on willing ears, these articles became ever more flagrant and defamatory, giving rise to a commission of inquiry being called to investigate allegations of impropriety at the PIC – the Mpati Commission – with AYO as the main protagonist.
Some 13 companies and their deals with the PIC between a specific time frame were identified by the terms of reference of this inquiry.
However, as we all now know, the bulk of the focus was shifted to the AYO deal, with limited mention of other companies, such as Lancaster 101, in whom the PIC invested and lost R9.3 billion. Lancaster’s shares were held by just one person, and the deal went south as the investment in Steinhoff saw South Africa’s worst case of company fraud unfold before our eyes.
So what does the PIC have against AYO, as it is highly unusual for an investor to ask for its money back, especially since the PIC has benefited from its investment through dividends of more than R400 million, which it has never declined.
The PIC is the custodian of more than 80% of the Government Employees Pension Fund’s portfolio.
The GEPF describes itself as Africa’s largest pension fund with more than 1.2 million active members, more than 450 000 pensioners and beneficiaries, and assets worth more than R1.61 trillion.
In May 2019, the PIC and the GEPF issued a summons to AYO which sought a declaration that the subscription agreement entered into by the PIC with AYO was unlawful, and that it be set aside.
The summons also requested that “AYO be ordered to pay the PIC R4 290 654 165, with interest of 10.25% per annum accrued from 22 December 2017 to the date of final payment”.
AYO instructed its attorneys to oppose the action.
At the time, in its financials, AYO said: “In the event that the PIC and GEPF are successful in their court application, management believes that they will be able to reconfigure the company into a pure investment holding company.
“AYO has several subsidiaries that have been in existence for more than 20 years, delivering both satisfactory trading performance and dividend income for AYO.”
In its 2021 annual report, AYO stated that the consistent association and discrediting of its brand with investigations of impropriety at the PIC during the Mpati Commission of Inquiry continued to erode the value it worked hard to create for stakeholders.
The ensuing and consistent negative publicity has also led to South African banks closing all bank accounts belonging to SIH and SIH-related companies, including AYO, stating “reputational risk” – although, it must be said, with scant evidence to support these claims.
First National Bank did not provide AYO with valid reasons for terminating its bank accounts, while Absa in 2020 sent letters to companies directly or indirectly controlled by SIH giving 60 days’ notice of termination of services. Companies affected also include AEEI and subsidiaries, and Premier Fishing & Brands.
However, at the instruction of Parliament’s standing committee on finance, among others, SIH approached a retired former judge to conduct a thorough review of the Mpati Commission report.
Advocate Willem Heath undertook the assignment on condition that whatever he found in his investigations and interrogations, he would be able to publish – good or bad.
What Heath determined was that the Mpati Commission had a total disregard for and failed to comply with fundamental legal doctrines and principles and procedural fairness. On that basis, the commission’s report is reviewable and falls to be set aside.
Heath found there had been an undermining of the rule of law, and it is his considered opinion that the commission exceeded its powers (acted ultra vires).
According to Heath, not only did the commission fail to call on the likes of Steinhoff (the biggest accounting fraud this country has ever seen), but the commission also erred or refused to investigate substantial irregular transactions entered into by the PIC – the very reason why the commission was supposedly convened in the first place.
Heath reported that: “The (Mpati) report has caused significant damage to the reputation and goodwill of Sekunjalo and threatened its very existence.
“It also imperils the livelihoods of thousands of employees and sets back an important transformation project. All of this is regrettable due to the Mpati Commission not following due process and natural justice. The report has been a grave injustice to Sekunjalo.”
Last year, SIH and its various related companies, embarked on a series of lawsuits to not only ensure they could still trade, but with the aim of clearing their name and reputations. These include a formal review of the Mpati Commission report.
To date, the Competition Tribunal and the Equality Court have agreed with SIH – and de facto AYO – that the banks had discriminated against them. Nedbank is, however, appealing the decision that forced them to reopen and keep open AYO and other company bank accounts.
The case to be heard in the Western Cape High Court later this week will set the scene for a charged 2023 where all is at stake – not just for AYO and its shareholders, employees, and their families, but the future of South Africa’s largest asset manager too – the PIC.