The Public Investment Commission (PIC), which administers and invests public servants’ pension funds, has lost half of its R16,5-million investment in Penta, publisher of Tribute and De Kat magazines.
The revelation about the status of the PIC’s investment in Penta comes three years after the publishing house, whose black ownership has since been significantly diluted, was bailed out of bankruptcy with public servants’ pension funds.
The PIC’s sole trustee is Minister of Finance Trevor Manuel. It injected about R16,5-million into Penta’s holding company, ICM Communications, in two tranches between 1998 and 1999.
The transactions were slated by opposition parties and the Public Servants’ Association, which represented about 85 000 members at the time.
The new revelation about the PIC’s investment in Penta flies in the face of Manuel’s assurances three years ago that an asset management company had investigated ICM and ”found it [the investment] to be a good investment in a black-owned publishing company”.
New information shows that despite the PIC’s significant cash injection into Penta, the company continues to experience serious financial difficulties.
Penta’s financial woes have forced it to seek more capital from investors, which in turn led to serious dilution of the PIC’s equity stake in the company.
Farouk Amod, the PIC’s spokesperson, confirmed that the PIC’s R16,5-million investment in Penta has since been written down significantly. The PIC’s equity in the company has also been reduced from 25% to 8,3% as a result of the PIC not participating in a recent capital restructuring of Penta.
Two other Penta shareholders, including Chillage Investment, an Irish company, converted debt funding to the company into equity and injected capital. It now holds a controlling interest.
The PIC’s total R16,5-million investment is down in real terms about 50% to R8,5-million. In nominal terms the investment stands at R10,5-million in preference shares, on which future dividends will be calculated.
Either way, the investment is worth much less than the original R16,5-million. In addition, the R10,5-million preference shares will only commence paying a 10% dividend from year three and the capital in year 10.
This means that even if Penta can make any profit in the next three years the PIC will not be entitled to dividends, nor will any other shareholders. It also means that the PIC’s R10,5-million preference shares are redeemable only after 10 years.
The PIC manages more than R200-billion. The investment in Penta constitutes a small portion of the PIC’s funds. But the PIC is quick to point out that it takes any of its investments, however small they may appear, ”very seriously”.
Penta’s woes have led to a dilution of black ownership, which arguably defeats part of the purpose of the PIC’s initial investment, which was to help prevent a black publisher from going under.
Industry sources say Penta’s new majority shareholders would have to bring in a black partner to justify the PIC’s continued involvement in Penta.
Mike Kos, Penta’s chairperson, last week confirmed that the new owners are willing to sell some of their shares to a black partner.
He said Penta could have closed shop if the new majority shareholders had not come on board. The PIC’s R16-million investment did not address all of Penta’s financial problems.
It needed a further cash injection to survive — but the PIC wanted other investors to come on board, Kos said.
For the past few months the company has been failing to pay staff salaries on time and, in some cases, staff were paid half their salaries. Some salary cheques bounced.
A Joburg printing company is refusing to print Penta’s publications until the company pays a deposit.
This week Penta’s telephone line was cut off by Telkom for non-payment. The telephone line was restored on Tuesday after Penta paid half of the R58000 owed to the state telecommunications giant.
Kos confirmed that Penta has been failing to print its own titles, like Tribute, on time. The April and May issues of Tribute were combined due to financial constraints and lack of advertising.
Kos said the company will overcome its financial problems. The PIC’s Amond said: ”Penta has had its fair share of cash flow problems. These arose due to an inappropriate debt, a backlog of debts that arose prior to the recent capital restructuring and a too high cost base relative to the revenues.” He said second-quarter sales were also ”worse than expected”.
Amond said Penta’s problems are being rectified and that costs are down by more than 30%.