Andile Ngcaba will still get a slice of Telkom, but both his personal stake and his clout will be substantially reduced after Minister of Finance Trevor Manuel and Brian Molefe, who runs the Public Investment Commissioners (PIC), intervened to stop his empowerment consortium from winning a R7-billion share in the fixed line monopoly.
At the same time the government has sent a strong signal to banks that it will no longer countenance debt-crippled empowerment finance arrangements.
But these actions did not stave off an angry response from the Congress of South African Trade Unions (Cosatu). On Thursday seven affiliated unions lambasted ”this disgraceful misuse of the pension fund [which] shows no respect for the rights of workers in deciding the fate of their hard-earned money”.
Negotiations to pull off the deal went on all of last week, with the National Treasury keeping a tight lid on the story, but details of the race toward the past Monday’s deadline have now begun to emerge.
On the evening of Monday November 8, Molefe and his team of young recruits at the R378-billion government pension fund management company met with President Thabo Mbeki to discuss the funding of a 15,1% stake, just bagged by the president’s old friend and comrade, Andile Ngcaba’s Elephant Consortium.
Mbeki queried the impact on the second economy.
If one trend has characterised Mbeki’s approach to economics in the past year it is his repeated insistence on linking the first economy of security and prosperity with the second economy of poverty and unemployment.
In an apparent shift to the left, he has shown an increasing willingness to use the resources of the state to achieve that link. All policy, including black economic empowerment, is increasingly subject to the question he asked Molefe.
That question, and the answer, would later make Ngcaba ”very angry”, according to insiders; having thought he was a shoo-in as the next telecoms oligarch, he found the rug pulled from beneath his feet.
It seems the Industrial Development Corporation, which had been set to provide Ngcaba with R1-billion, abruptly scaled back its funding offer to R200-million, and he found himself with a large shortfall and just days to the November 15 deadline.
Only the PIC could supply the difference, and Molefe, as the funder of last resort, was left holding all the cards.
The meeting with Mbeki came after meetings with Manuel and his deputy Jabu Moleketi, both of whom are public critics of narrow empowerment, funded by the public purse.
They were also angered by the draft deals, crafted by private sector bankers, which would see the consortium’s shares encumbered by debt for at least the next decade.
Both men, say sources, lost their suave ministerial facades at the meetings and reverted to the ”tough township guy” persona each is known for. Accept the PIC’s terms, or lose the deal, they told Ngcaba.
People close to Manuel say he has staked considerable political capital on his resistance to enrichment and wobbly equity finance, and will keep a close eye on negotiations over the coming months, which could see Elephant’s stake substantially scaled down.
”He’s made very public statements about enrichment, and he has the support of the president, he’s not going back off on this,” one such person said.
Nevertheless, Ngcaba and his consortium is expected to retain the largest chunk of the shares — the PIC has stressed that negotiations will proceed on the basis that Elephant ”won the right” to acquire the Thintana stake — but will probably have to make its shareholding structure significantly more broad-based in the next six months.
The PIC wants financing arrangements which ensure a better return; better vesting of shares in the empowerment partners and a more broad-based transfer of wealth.
It is unlikely to settle for the 3% Ngcaba apparently offered during negotiations to set aside for broad-based groups. Crucially, however, the new arrangement means Elephant will not take transfer of the ”golden share”, a special share created in terms of the government’s agreement with Thintana ahead of the initial Telkom public offering last year.
That share confers effective management control on its holder, along with board seats and special voting rights. It can only be transferred once, and if Thintana had sold its remaining stake in the open market, it would have been voided.
Initially the government was anxious to keep the rights and obligations contained in that agreement intact, and sought a friendly buyer to acquire the stake.
The idea was that this would allow it to improve its leverage over a company that has stubbornly resisted efforts emanating from the Department of Trade and Industry, the National Treasury, and the Presidency, to keep telecommunications costs under control.
The urgency of getting a deal done initially clouded concerns about the background of the Ngcaba consortium, and the political consequences of such a move.
Certainly, until Monday’s announcement, Ngcaba appears to have felt that the golden share would vest with Elephant, saying he would take up a seat on the Telkom board, and dismissing suggestions that this created a conflict of interest with his chairmanship at Didata, its biggest competitor in the value added network services market.
It will now either rest with the PIC, or fall away. And Didata chief executive Jeremy Ord told analysts on Wednesday that Ngcaba would not be sitting on the Telkom board, and would ”not be privy to its strategy going forward”.
Even the new arrangement entails considerable political risk for Manuel and Molefe.
Public statements by the PIC that it was merely warehousing the stake on behalf of Elephant have led to intensified criticism from the Cosatu and the South African Communist Party, who have complained that workers’ pensions are being used to ”oil the wheels” of an illegitimate empowerment deal.
Cosatu called for a moratorium on all the investments by the PIC. ”The PIC cannot be seen to have a blank cheque to do as they please. The wrath of workers will be seen should the deal continue without proper procedures.”
Cosatu economist Neva Makgetla says the federation is not unhappy in principle with the PIC holding the shares, in fact it has called for the commissioners to use their muscle to ensure more activist management of companies they invest in, in order to promote developmental goals.
But, she says, if the stake is to be distributed to private shareholders, the criteria should include improved service standards from Telkom, a worker-friendly policy on employment, and not just skin colour.
The union federation is engaged in a long running battle with both Manuel and PIC over its mandate to invest on behalf of the Government Employees Pension Fund.
”The minister has never called a meeting of the trustees, he’s never consulted with workers, and he’s treating workers’ pensions as though they were government funds,” she told the Mail & Guardian.
From a union point of view, further reaction will depend on what the PIC does with the stake, but handing it over to Ngcaba will be fiercely resisted. Repeated attempts to reach Ngcaba for comment were unsuccessful.