PIC did not overpay for Ayo, portfolio manager says
Sunil Varghese tells commission of inquiry that the initial valuation process of Ayo led to a ‘base case value of R43 per share’, contrary to earlier testimony
The Public Investment Corporation (PIC) did not overpay when it controversially invested in Iqbal Survé's new empowerment IT firm Ayo Technology Solutions, says one of the portfolio managers responsible for the valuation.
Testifying at the commission of inquiry into the PIC on Monday, portfolio manager Sunil Varghese said the initial valuation process of Ayo led to a “base case value of R43 per share”.
This is in contrast with earlier testimony from Varghese’s subordinate Victor Seanie, who testified in January that the “excessive” R43 a share was set by Ayo and was non-negotiable. The PIC invested R4.3bn in the technology firm.
Two months later the stock fell to R25 on the JSE, where it is now trading at R16. Ayo is also the subject of a probe by the Financial Sector Conduct Authority (FSCA) for possible insider trading and share-price manipulation.
The PIC, which manages more than R2-trillion in assets on behalf of the Government Employees Pension Fund (GEPF) and other social security funds, has been embroiled in numerous controversies that include allegations of corruption against a number of its directors, prompting the entire board to resign in February.
Its Ayo investment has been particularly controversial as the initial public offering in December 2017 was shunned by other fund managers, who saw the IPO as significantly overvalued.
Varghese testified that in addition to the base case valuation, he and Seanie then performed a back-up discounted cash flow valuation. This indicated a fair value of R45.29 per share. Yet another approach yielded a fair value of R47 per share, he told the commission.
But according to Seanie, who testified earlier at the commission, the reason why the valuation just happened to match the asking price of Ayo in the IPO was because he had been instructed by his superiors, which included Varghese and Lebogang Molebatsi, to change his initial negative opinion of the company and its value to reflect the views of the PIC’s CEO Dan Matjila, a friend of Survé’s.
Varghese denied this in his testimony. “Neither Mr Molebatsi nor I dictated to Mr Seanie what the conclusion should be.”
But in a similar vein to Seanie, Varghese testified regarding the immense pressure the team was put under to evaluate the Ayo transaction ahead of its planned listing in December 2017.
He described a conversation he had with Seanie on December 8 2017 wherein they both agreed that it was not “realistically possible” to conclude the due diligence ahead of the IPO planned for December 15. They notified Ayo that the earliest they could make a decision would be near the end of January.
Despite this, on December 14, Varghese’s boss, Molebatsi, informed him that Matjila had instructed them they would be participating in the IPO, he testified.