Former ANC heavyweight James Ngculu chairs Basileus
Millions invested by the Industrial Development Corporation in a venture linked to arms deal offsets is at risk as the fallout spreads following the killing of venture capitalist Julian Williams.
The IDC invested R35-million in a politically connected entity called Avalloy, the same company at the centre of the dispute that appears to have led to Williams's murder on July 26. He was shot at the Cape Town office of his company, Basileus Capital, following a confrontation with his former business partner, an unregistered investment manager called Herman Pretorius.
Pretorius then seems to have turned the gun on himself. He died later in hospital.
Basileus's chairperson is former Western Cape ANC heavyweight James Ngculu.
The dispute appears to centre on questions about the flow of funds through SA Superalloys, which held 63% in Avalloy.
Backing
Avalloy is a producer of super-alloys, which are metal compounds used in high-performance turbines. The Abante Group, which Williams and Pretorius jointly formed in 2002, bought into Avalloy in 2006 and negotiated for the project to receive backing from the department of trade and industry.
In May 2007, Rolls-Royce, which makes jet engines that use super-alloys, purchased a 15% shareholding in Avalloy and injected $20million as part of its offset obligations related to the arms deal.
When Williams branched off in 2008 to form Basileus, the investment in Avalloy went with him to Basileus through a 100% shareholding in SA Superalloys.
At that stage, a number of Pretorius's private investment clients had already invested in SA Superalloys through the issue of preference shares that carried a high dividend payment rate of 20% a year.
It appears that, in turn, Avalloy has issued preference shares to SA Superalloys with a dividend rate of 20% and latterly 15%. How anyone imagined Avalloy could support these rates is not clear because, according to SA Superalloys' 2011 financial statements, the company was operating at a loss.
Optimistic
By then it had an accumulated losses of more than R105-million.
The IDC stepped in with a R35-million loan to Avalloy. The financials state that, as security for the loan, SA Superalloys had pledged a 15% shareholding in Avalloy to the IDC, but the valuation of this security might be wildly optimistic given that Avalloy was not yet profitable.
A spokesperson for the IDC said it had funded Avalloy and did not have a direct business relationship with SA Superalloys.
Of concern is the outflow of cash from SA Superalloys to entities connected to Basileus that have nothing to do with Avalloy.
The financial statements show loans out of SA Superalloys to other companies in the Basileus group totalling about R60-million. In addition, a loan of R33-million to another associated company, Mirador, has been written off.
Illegal investment scheme
It was these transfers that appeared to have worried Pretorius, although it has been suggested that he may have been running an illegal investment scheme.
According to Moneyweb, which first broke the story, Pretorius wrote to Williams on June 21 demanding answers.
Moneyweb quotes Pretorius as saying: "Shareholders, of which I am one, are under the impression that all money invested into SA Superalloys has gone to Avalloy to fund their operations and get the company to be cash generative. From the financials it seems that SA Superalloys was the funding vehicle for Basileus and its related parties."
A Basileus spokesperson said: "It is important to stress that SA Superalloys and Avalloy are audited by Deloitte and all transactions have been fully disclosed."
Rolls-Royce, which has a representative on Avalloy's board, declined to answer detailed questions.
An inspection team from the Financial Services Board visited Pretorius's company on Thursday last week.
"The tragedy occurred shortly afterwards," said a board spokesperson.
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The M&G Centre for Investigative Journalism (amaBhungane) produced this story. All views are ours. See www.amabhungane.co.za for our stories, activities and funding sources.