PIC employees told by Matjila to advance Sagarmatha IPO
The offer was presented to portfolio management committee, despite reservations about the merits of the investment being voiced
Former Public Investment Corporation CEO Dan Matjila ensured a proposed initial public offering (IPO) for Iqbal Surve's Sagarmatha Technologies was presented to the company's investment committee for approval, despite serious reservations by officials.
This was the testimony of the PIC’s GM for listed equities Lebogang Molebatsi on Tuesday at the commission of inquiry into governance at the state-owned asset manager.
Just months after investing R4.3bn in Survé’s Ayo Technology Solutions, and despite the PIC’s loan to Independent Media — of which Survé is chair — not being serviced at the time, the team in charge of the deal at PIC were told to evaluate Sagarmatha and present it to the portfolio management committee.
But Molebatsi, like his colleague Victor Seanie before him, testified that they were wary of the merits of the investment, and were not sure it should have been presented to the committee.
“We were not attracted to a loss-making media company, and we didn’t even think it should go before the committee. But it was obvious that the CEO wanted the Sagarmatha transaction presented, so we explained the business model and highlighted the risks, and we valued Sagarmatha at R7.06 per share versus the proposed price of R39 per share,” said Molebatsi.
In response to a question from commissioner Emmanuel Lediga, Molebatsi expressed his concern at the time that the money Sagarmatha raised from the IPO would be used for Independent Media, which would allow Survé to repay the outstanding loan to the PIC.
“We outlined that part of the capital raised from the IPO would be used by Sagarmatha to buy PIC’s shares in, and loan claims against, Independent Media,” stated Molebatsi, and referred to a sale agreement that was disclosed in Sagarmatha’s draft pre-listing statement.
Molebatsi testified how the Ayo and Sagarmatha experience was a “game-changer” for the team in charge of the deal.
“Post-Ayo and Sagarmatha a lot of things changed. It was not the case that the deal team wanted to take Ayo and Sagarmatha to the portfolio management committee — it was an instruction to do so. We decided if we were going to present these deals to committee at the instruction of our superiors, we needed to highlight the risks of the investment.”
They did this, recommending that the PIC pay no more than R7.06 per share for Sagarmatha. Despite this valuation being approved by the committee, it became clear to Molebatsi that Survé’s Sekunjalo group “had continued negotiations on the transaction with ‘Dr Dan’”.
Matjila then proposed that a new committee document be submitted, the salient features of which were that the PIC would subscribe for R3bn worth of shares at R39.90 per share. The PIC would also purchase a call option, giving it the right to buy more shares from Sagarmatha, which, if exercised, would have the effect of lowering the average price paid per share for the PIC to R8.50.
“In effect, the PIC would be receiving exposure to Sagarmatha at a lower price than the IPO price on the same day that other subscribers would be paying the full price [of R39.90],” Molebatsi said. He was unsure if the call option purchased by the PIC from Sagarmatha was going to be disclosed to the wider market.
The JSE would later block the listing of Sagarmatha.
With Ayo, the PIC bought a 29% stake in the company at R43 a share, suggesting a valuation of R14.8bn. However, a few months before, financial statements showed that Ayo had total assets of R292m and a book value of R67m. Since then the share has traded far below the original valuation.
This caught the attention of the Companies and Intellectual Property Commission (CIPC), who served the PIC with a compliance notice instructing its directors to recover the investment on the grounds they had contravened the Companies Act.
Ayo has launched an application to interdict the PIC from complying with the notice, as well as a separate application against the CIPC to have the compliance notice set aside.