Iqbal Survé. Picture: TREVOR SAMSON
Iqbal Survé. Picture: TREVOR SAMSON

The Public Investment Corporation (PIC) decided to invest in the Independent Media SA (INMSA) despite risks highlighted in its due diligence report and discomfort communicated to it by its largest client, the Government Employees Pension Fund (GEPF).

This is according to the testimony of Thipana Mongalo, the credit risk analyst at the PIC, who did the due diligence on the deal in December 2012.

Mongalo described how the transaction was considered to be high risk. “This can be evidenced from the recommendation [in the risk report that was compiled] that the services of a turnaround specialist be sought,” Mongalo told the PIC inquiry on Monday.

The proposed transaction involved the PIC committing to a bridge funding package amounting to R2bn which would allow the Sekunjalo Consortium led by Iqbal Survé to acquire Independent Media.

The original plan envisaged a commercial bank stepping in to refinance R750m of the PIC’s loan. The risks raised in the PIC’s due-diligence process report included the industry outlook for newspapers, INMSA’s Independent Media’s primary revenue generator.

“There was a concern that the print media industry is a sunset industry as exhibited by the declining circulation figures. There was a further concern of INMSA’s Independent Media’s ability to transition the model to a digital domain,” Mongalo said at  the commission hearing.

Reputational risks associated with the deal, whether perceived or real, related to the “politically exposed groupings” of members of the Sekunjalo  consortium.

Mongalo also proffered an opinion on “valuation risk”, referring to the price being paid for the investment. “The main shortcoming of the valuation was that it was dependant on the turnaround strategy assumptions given that the company’s earnings were on a negative trend for the past three years at least.”

Given these issues, the PIC thought it prudent to approach its largest client, the GEPF, and present the deal to its investment committee. Mongalo said ys that “to the best of his recollection”, the GEPF expressed its discomfort over the transaction. But it acknowledged that the PIC had full powers to proceed with it in terms of the mandate the GEPF had given it.

The GEPF  last year in 2018 impaired the full value of the loan. 

Commissioner Gill Marcus openly questioned whether the PIC had exercised its duty of care to its client by electing to proceed with the deal without first addressing the concerns of the GEPF.