Capital Appreciation still backing GovChat despite business rescue proceedings

Capital Appreciation (Capprec) is doubling down on its backing of GovChat, even as the government’s public messaging system goes through business rescue and after years of court battles with WhatsApp parent company Meta.

GovChat is an affiliate of Capprec and is funded through the group’s Enterprise Development Fund. Capprec’s subsidiary, Synthesis Software Technologies, is involved in the design and development of the GovChat platform.  

In December, GovChat — in which Capprec has a 35% stake — went into business rescue due to contracts taking longer than expected to be secured. It is also facing a hefty legal bill for its case again Meta. 

Even then, Capprec executives say it is still a good investment. 

“Together with the business rescue practitioner, we’re working on the GovChat model,” Michael Pimstein, joint CEO at Capprec, told Business Day this week.

“There’s still tremendous value in the citizen engagement platform for our political and government leadership. Not only in SA but beyond.”

Because of the business rescue proceedings, the group has “resolved to adopt a conservative approach” by raising an expected credit loss provision of R70.8m for GovChat. This action had the effect of reducing basic and headline earnings in the year to end-March 2023.

Despite this, the group says the provision has had no material impact on the its cash resources or its net asset value per share. The group has kept its shareholding in the company, together with a loan secured by a pledge of the shares in GovChat as well as the intellectual property of GovChat.

Pimstein says there is yet more upside from the platform and is hoping Capprec can cash in once all issues have been resolved.

“There are a lot of active users that are still on the platform and lots of messages are being conveyed. The platform has an underlying value of R25m. We, in our conservative approach, have not brought any of that value into our calculations, so we’ve taken the full knock.

“There are interested parties that are talking to the business rescue practitioner,” he said. 

At the heart of the dispute with WhatsApp is Meta’s allegation that GovChat, launched in 2018 by Capprec and the department of co-operative governance & traditional affairs, is in violation of its contract terms of use because when it signed up its digital communication programme to the WhatsApp Business app it pledged to use the service to monitor and evaluate service delivery, response time, failures, success and corruption in real time.

However, after the Covid-19 outbreak in 2020, the government used GovChat to convey awareness messages, symptom-tracking notifications and the provision of test results.  

Following a series of court actions the Competition Tribunal — the body that has the final say on antitrust-related matters in SA — granted interim relief to GovChat, preventing Meta from removing it from WhatsApp pending the outcome of the Competition Commission’s investigation.

Since then, the commission has completed its inquiry and referred the matter to the tribunal for prosecution based on alleged abuses of dominance by WhatsApp and Meta. 

Capprec refers to this as “anticompetitive interference” by WhatsApp and Facebook (Meta) “in GovChat’s operations, which prevented GovChat from expanding”. 

In April, the parties were back in court again, with GovChat making a case that it wants to participate in the pending tribunal proceedings. This is on the basis that GovChat thinks its interests are not adequately represented by the commission.

gavazam@businesslive.co.za