PIC inquiry interrogates advisory fee payments to associate of Nhlanhla Nene’s son
Investment manager pays commissions to individuals that hold stakes in projects
The inquiry into the Public Investment Corporation (PIC) on Tuesday questioned the fund manager's advisory fee payments to a firm linked to former finance minister Nhlanhla Nene's son.
The topic was raised at the commission, chaired by retired judge Lex Mpati, when the PIC’s Wellington Masekesa, a former chief of staff to ex-PIC CEO Dan Matjila, described the events that led to the state-owned asset manager contributing debt and equity to S&S Refineria in Mozambique.
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. They include allegations of corruption against a number of its directors and allegations that politically connected individuals and companies unduly benefited from PIC investments.
The S&S deal had been introduced to the PIC in October 2014 by businessman Amir Mirza and Siyabonga Nene, the son of Nhlanhla Nene, who was deputy finance minister at the time. As deputy finance minister, Nene was also the chairman of the PIC. Siyabonga Nene and Mirza were business partners in a company called Indiafrec Trade and Investment Pty Ltd.
Masekesa told the inquiry that the proposal arrives as a "hard copy" from Matjila's office, who was then the PIC's chief investment officer.
While Siyabonga Nene accompanied PIC executives on trips to Mozambique during the due diligence phase, he “was not actively involved in facilitating this transaction and he did not play any meaningful role” in it.
His interest in the project waned after the PIC notified Indiafrec that it could not fund the company because the PIC’s empowerment rules did not apply to investments outside of SA, Masekesa testified.
While Siyabonga Nene did not ultimately become a shareholder, Mirza did, as the founder of S&S lent him money to buy a minority shareholding.
In an admission by Masekesa that received much scrutiny from the commissioners at the inquiry, Mirza’s interest in the project did not prevent the PIC paying him a commission of $1.7m (R18.5m at the time) for “facilitating the transaction”.
This sum was calculated as 1.5% of the total project cost of $115m, even though the PIC did not fund the entire deal.
All three commissioners questioned how the PIC could pay advisory fees when the “advisers” were the owners of the businesses being invested in.
The PIC ended up investing $65m of the GEPF’s money as debt and equity in the palm oil and soap-producing project.
The project has been beset by challenges almost from the outset, including the departure of CEOs and operational managers, corporate governance issues and problems with financing.
The GEPF carried the investment at $55m as at the end of March 31 2018, according to its annual report, implying that it had already written off $10m.
Masekesa told the inquiry that S&S has never serviced its loan to the PIC since the last disbursement was made in May 2016.