Nobody knew the extent of Steinhoff’s misrepresentation, says Jayendra Naidoo
The businessman says the investment by Lancaster 101 in Steinhoff, supported by the PIC and a major international investment bank, was well structured
Following the testimony of the Public Investment Corporation’s (PIC) previous executive head of risk Paul Magula at the Mpati commission on Monday, a number of irregularities surrounding the granting of a R9.3bn loan to a consortium (Lancaster 101) led by Jayendra Naidoo have been highlighted.
The loan was initially advanced to buy shares in international furniture retailer Steinhoff, long before revelations of accounting irregularities under its previous CEO, Markus Jooste, came to light.
The loan was later restructured to allow Lancaster to buy shares in Steinhoff Africa Retail, which has since been re-named Pepkor Holdings. To do this, the hedge the PIC had put in place against the value of the Steinhoff shares, which protected them, to a degree, from any downside move, was ceded to Citibank.
This meant that when the Steinhoff shares collapsed in the wake of the accounting revelations, the PIC was forced to write down the value of the loan by R4.2bn last year.
Magula has his own problems, most of which flow from his role as the PIC-appointed director to VBS Mutual Bank. But Business Day put forth his allegations of irregularities regarding the loan to Lancaster to Naidoo:
BD: Can you tell us what consortiums and individuals are included in the community trust? What was the purpose of the trust?
JN: There is no community trust as referred to in the affidavit attached to your e-mail. The shareholders in Lancaster 101 RF (Pty) Ltd are the PIC (50%), Lancaster Group (25%) and the Lancaster Foundation Non-Profit Company (25%).
The Lancaster Foundation has no specific “consortiums or individuals”, nor any specific entity, that are beneficiaries. Its scope is to provide financial support to projects and initiatives — which either advance sustainable community/social development, or the development of black entrepreneurs. The beneficiaries of funding advanced by the foundation will be determined on a case-by-case basis after a review of the funding applications and motivations received.
BD: Were you aware of any irregularities on the part of the PIC with respect to the extending of the loan? Did you find anything strange or unusual in their interactions with you?
JN: The PIC representatives we dealt with in respect of our transactions have, at all times, been very professional and thorough.
BD: Could you provide us with more information regarding the loan: was it a non-recourse loan, that is, did Lancaster or you personally have to provide any surety or collateral outside of the shares being bought with the proceeds of the loan? And how was the loan priced? What was the duration of the loan?
JN: Details concerning the PIC loan are matters reserved under [a] confidentiality agreement for the PIC to comment on. But more generally, the investment by Lancaster 101 in Steinhoff, supported by the PIC and a major international investment bank, was well structured with downside protection for the capital invested.
Nobody — not analysts, asset managers, or prominent individual investors — guessed at the time that Steinhoff financials were based on any misrepresentation. Like other investors, Lancaster has been negatively affected by the destruction of value of Steinhoff since late 2017.
However, the net financial impact on Lancaster 101 is less than experienced by other investors in Steinhoff due to the manner in which our investment was structured. Furthermore, Lancaster 101’s subsequent investment in Pepkor has retained [its] full value. We remain confident of achieving an overall positive return on the entire Lancaster 101 investment in time.