The terms of deals offered by the Public Investment Corporation (PIC) to select partners came under scrutiny at the inquiry into the state-owned asset manager on Wednesday. 

This was as it heard details about the acquisition of poultry producer Daybreak Farms in 2015 on behalf of a consortium led by businessman Kholofelo Maponya. 

The inquiry is being chaired by retired Supreme Court of Appeal judge Lex Mpati. 

According to the testimony of the PIC’s head of impact investing, Roy Rajdhar, who had oversight of the transaction when it was implemented in 2015, the PIC facilitated the acquisition of Daybreak Farms, considered a “distressed asset”, from agricultural services group Afgri after being approached by Maponya of Matome Maponya Investment Holdings (MMI).

Daybreak Farms, which is based near Delmas, Mpumalanga, grows and slaughters more than a million birds per week. 

The PIC had previously funded Maponya to acquire a stake in Afgri. Rajdhar would later become a non-executive director of Daybreak as the PIC’s representative on the board.

Rajdhar said that on April 2 2015 the PIC provided funding of about R1.2bn, comprising debentures of R892m and senior debt of R300m, to purchase Daybreak shares and shareholder claims from Afgri. 

For this commitment, the PIC received 36% of the shares, while Maponya’s consortium got 54% and staff, with 10%, held the balance.

Rajdhar did not state whether the consortium invested any of its own money to pay for the acquisition or any transaction fees, merely stating “if required such fees could be capitalised and funded out of the capital raised to fund the transaction”.

But the opposite appeared to have happened. As opposed to paying fees, MMI actually received fees. Rajdhar said MMI, as the lead sponsor, was responsible for paying the costs and expenses regarding independent experts to provide due diligence and advisory services required to assess the investment and advise on the transaction.  

Instead, at “financial close” the PIC, Daybreak and MMI entered into an agreement in which the company paid all fees incurred in finalising the transaction and that allowed a 1% participation fee paid to the PIC and MMI, resulting in each party receiving R11.75m from Daybreak.

This implies that MMI got the PIC to fund its 54% stake in the business and provide all of the required debt while receiving a fee of nearly R12m.

A year on from the acquisition, in April 2016, the business fell on hard times. To prevent it from going “belly up”, as Rajdhar said, the PIC intervened by providing guarantees amounting to R250m for Daybreak to access working capital.

Rajdhar did not state whether MMI provided any guarantees or financial assistance to the business at this point, and what, if any, recourse the PIC had against MMI. 

Relations between Maponya and the PIC appeared to have soured and the two parties are engaged in litigation over another deal. The PIC exercised its pledge on the shares held by MMI in Daybreak and now owns the company outright.

Daybreak was able to trade out of its dire situation in 2016 and has enjoyed two consecutive years of “exceptional profits”.

According to Rajdhar, for the 10 months ending January 2019, the company generated earnings before interest, tax, depreciation and amortisation of R388m and all capital expenditure has been paid out of internally generated cash.