In July 2003 Lembede Investment Holdings, the African National Congress Youth League’s (ANCYL) investment company, was touted as the new 16,5% empowerment partner in property management company Rand Leases.
The deal appears to have been a sham to achievthis mee two goals: to enrich youth league leaders and to prepare the ground for a questionable bid by mining house JCI to take full control of Rand Leases. The JCI bid for Rand Leases was questioned — and subsequently probed by the securities regulation authority — after minority shareholders discovered that JCI was using a company controlled by youth league leaders as a “front”.
JCI is controlled by father-and-son team Roger and Brett Kebble. The Kebble family and the youth league company have a controversial business relationship spanning mining and financial services.
Now the Rand Leases deal raises new questions about the extent to which individual youth league leaders may have been prepared to use the league’s investment vehicle to feather their own financial nests — and the extent to which the Kebble family may have been prepared to use these leaders as empowerment pawns to achieve their business objectives.
Brett Kebble, JCI chief executive, has sought to downplay the personal gains of individual youth league leaders such as Songezo Mjongile, Andile Nkuhlu and Lunga Ncwana.
Both Mjongile and Nkuhlu are members of the youth league’s national executive. Ncwana is one of the league’s more prominent members.
Kebble said: “Lembede was created to provide sustainable funding to the ANCYL .”
The Mail & Guardian was the first to reveal the youth league’s business activities — although league officials had initially sought to distance the league from Lembede.
Kebble told ThisDay newspaper last week that Ncwana, Mjongile and Nkuhlu are involved in their personal capacities in ventures through which they acquire interests in the same deals as Lembede. Kebble’s statement in ThisDay came after the M&G forwarded questions to JCI relating to the Rand Leases deal.
The announcement that “Lembede” had bought a stake in Rand Leases was made by Rand Leases managing director Grant Fischer on July 14 last year.
Fischer was quoted as saying: “We have been encouraging an association with this particular black economic empowerment consortium. We think there will be benefits for the company flowing from it.”
Much fanfare followed Fischer’s statement. The “deal” was publicised in a number of business publications, including Business Day. It also caught the attention of CNN, which hailed it as one of the major empowerment deals in South Africa for 2003.
Fischer’s statement was misleading for one simple reason: Lembede Investment Holdings, which is owned by the youth league’s South African Youth Development Trust, did not buy a stake in Rand Leases.
The company that bought into Rand Leases was Itsuseng Strategic Investments, which does not benefit the youth league as Lembede does —even though some of Itsuseng’s directors are also involved in Lembede.
Lembede chief executive Songezo Mjongile last week confirmed that the company did not buy a stake in Rand Leases.
Internal JCI documents support Mjongile’s version. The documents show that Itsuseng Strategic Investments, not Lembede, acquired a stake in Rand Leases. Itsuseng Strategic Investments is wholly owned by Itsuseng Investments, which in turn is owned by youth league figures such Nkuhlu (30%) and Ncwana (15%). The Itsuseng group of companies was set up last May.
Itsuseng Strategic bought a stake in Rand Leases in July — less than two months before the Kebble-controlled JCI announced its intention to acquire the full issued share capital of Rand Leases in exchange for shares in JCI.
The nature of the relationship between JCI and Itsuseng Investments caused tensions among Rand Leases’s minority shareholders. The minority shareholders’ concern was that Itsuseng Investments was a “front” for JCI and might “collude” with JCI in the mining house’s takeover plan.
The minority shareholders asked the statutory Securities Regulation Panel to probe the matter. The panel regulates takeovers and mergers on the JSE Securities Exchange to prevent unfair business practices.
A consortium of minority shareholders, headed by businessman Fraser Simpson, approached the panel to investigate the origins of the money used to pay for the Itsuseng Strategic stake in Rand Leases and the relationship between JCI and Itsuseng Strategic.
A securities expert, who has knowledge of the forensic audit that flowed from the complaint, told the M&G that the money came from a JCI source.
Simpson said minority shareholders charged that JCI had used Itsuseng Strategic to avoid being required, by JSE and panel regulations, to make a public offer to all minority shareholders.
“Rand Leases minority shareholders knew that the Kebble group plus Itsuseng Strategic together had almost 50% of the issued share capital. No one could stand up and fight them as they could have outvoted us. Having Ituseng Strategic there was a very useful way of getting Rand Leases cheaply with minimum drama and publicity.
“If JCI had bought those shares directly and not used Itsuseng Strategic it would have given rise to major problems and publicity from all the minority shareholders,” he said.
As a result of the JCI takeover, Simpson said: “Minority shareholders ended up getting about R1,12, the equivalent value in terms of the scheme for JCI shares, for every Rand Leases unit, instead of between R1,50 and R1,80, which they could have made had Rand Leases been liquidated and the proceeds paid to all shareholders.
“This means that JCI bought Rand Leases shares at a 50% discount.”
Simpson said JCI had insisted that Itsuseng Strategic was “entirely independent of JCI”.
JCI last week denied to the M&G that it had funded Itsuseng Stategic’s aquisition of the stake.
Simpson said the panel found that that JCI and Itsuseng Strategic were closely linked. But the panel, he added, was reluctant to take the matter further because of fears of a protracted legal battle.
“The panel experiences extreme difficulty in pursuing these matters due to the plethora of legislation protecting rights of individuals,” he said.
“In the end minority shareholders took the JCI offer of marketable JCI shares because it was decided to cut their losses, take the cash and run.”
JCI has denied the accusations, saying “there is no truth in that at all”. In a joint statement by JCI, Rand Leases and Itsuseng Strategic, JCI chief financial officer Hennie Buitendag said: “It was an outrage to suggest that JCI had tried to use Lembede or any other member of the consortium as a vehicle to gain control of Rand Leases at a 50% discount.
“JCI paid a fair price to minorities, who received a premium of roughly double the market price. I fail to understand how this could be interpreted as unfairly trying to bully minorities. Besides, they were not compelled to accept the offer.”
Ncwana, who is managing director of Itsuseng Strategic, contradicted Lembede CE Mjongile, insisting that Lembede is a partner in the “consortium”. “Always was and, we hope, always will be,” he said. “Itsuseng Strategic funded the whole transaction with its own resources and Lembede is a partner in the consortium.”
He went on to say that the allegations smacked of political posturing. “Our consortium consists of young black entrepreneurs and it seems some people resent the fact that we are making inroads into the South African business scene and so try to belittle us or smear us,” he said. “Why when certain black people make good investments or do good deals do they face this kind of attack?