Bheki Ntshalintshali. Picture: THE TIMES
Bheki Ntshalintshali. Picture: THE TIMES

Cosatu signalled a “massive fight” with the ANC if the state-owned fund manager failed to rescue SA’s second-largest clothing retailer, Edcon Holdings.

A week after a senior labour union official sent an e-mail on February 22 to the country’s then deputy finance minister, the Public Investment Corporation (PIC) led a R2.7bn investment in Edcon, two people with direct knowledge of the situation said. The decision ran counter to the recommendations of PIC’s investment professionals, the people said.

The previously unreported incident highlights concern that some investment decisions at the fund manager are driven by political considerations. President Cyril Ramaphosa has made curbing corruption a key part of his drive to resuscitate the economy.

The PIC, which manages more than R2-trillion of mainly government worker pensions, is being scrutinised by a judicial commission following allegations of interference in investments ranging from newspapers to coal mines. The Pretoria-based company, Africa’s biggest fund manager, is responsible for the pensions of more than 1-million state employees.

“If they don’t have an investment case there is a problem,” said Asief Mohamed, chief investment officer at Cape Town-based Aeon Investment Management. “I am concerned that investments are not made on a risk and return basis.”

The e-mail came from Matthew Parks, Cosatu parliamentary co-ordinator, to Mondli Gungubele, who in addition to being deputy finance minister was chair of the PIC at the time. Parks complained the fund was “dragging its feet” with regard to a bailout of Edcon.

In the e-mail, seen by Bloomberg, Parks warned of conflict between Cosatu, the PIC and the ANC and thousands of job cuts if the deal didn’t take place. Parks, in a telephone interview on Thursday, confirmed sending the e-mail and said it was one of many he sent on the issue to Gungubele.

Gungubele didn’t answer a call made to his mobile phone or respond to a text message.

“Our members are furious at how long this is taking to be concluded,” Parks said in the February 22 e-mail. “We are pleading with you, comrade deputy minister, to intervene to ensure the PIC investment committee does meet, quorate and the PIC signs the final lock-up agreement.”

Edcon announced on March 1 that it secured the money from lenders, landlords and the PIC, which used money it manages on behalf of the Unemployment Insurance Fund, in exchange for equity in the company. That allowed the retailer to stay in business and protect jobs.

Grant Pattison. Picture: SUPPLIED
Grant Pattison. Picture: SUPPLIED

“We have already placed on record that we appreciated the support of the unions acting in their members’ interests in looking for a solution to prevent Edcon being in a position where” jobs would be lost, Edcon CEO Grant Pattison said in an interview by telephone on Thursday. The UIF had to independently approve the investment and change its mandate with the PIC in order for the investment to be made, he said.

Spokespersons for the PIC and Treasury didn’t immediately respond to e-mailed requests for comment and didn’t answer calls made to their mobile phones. The UIF said it may respond later.

In his e-mail, Parks said that if the investment wasn’t made, 40,000 jobs would be lost at Edcon, which runs the Edgars chain of clothing stores, and another 100,000 at factories and related services companies. A mass layoff on that scale could hurt the ANC’s prospects in elections to be held in May, he said.

“It will be impossible to convince any worker and their family to vote in the elections after their government did not act decisively to save their jobs,” Parks said. “It will have long-term repercussions for the alliance,” he said in a reference to the political partnership between the ANC, Cosatu and the SA Communist Party.

Parks copied the e-mail to Bheki Ntshalintshali, the Cosatu general secretary. Ntshalintshali didn’t answer a call made to his mobile phone and didn’t respond to a text message.

“We’ve done it before, and we will do it again,” Parks said in an interview, adding that it is his organisation’s mandate to protect jobs. Gungubele “was very helpful” in compelling the PIC’s investment committee to meet and make the decision, he said, adding that the then deputy minister wouldn’t have been the only one to decide on the investment.

Parks said that while no investment is guaranteed to succeed, the fact that banks also supported the rescue showed that it was a sound decision.
Bloomberg