These are the Public Investment Corporation (PIC), which is supposed to focus on growing state employee pensions, and the Industrial Development Corporation (IDC), tasked with economic development.
Alongside a funding trust set up by ANC leaders, individual beneficiaries include Gugu Mtshali, the life partner of Deputy President Kgalema Motlanthe, Lotto boss Bongani Khumalo and Pilisiwe Twala-Tau, the wife of Johannesburg mayor Parks Tau.
The deal was simple. The consortium, assembled by a controversial ANC fundraiser, bought an empowerment stake in Capitec using funds provided by the IDC. Later, exploiting strong growth in the Capitec stock price, it sold just enough to the PIC to pay off all debt associated with the original purchase.
The ANC and some well connected individuals now stand to benefit from the value of the remaining shares – over R950-million – in another instance of the ruling party acting as both player and referee. The party has hit flak in the past for investing through its front company, Chancellor House, in areas where government has a say.
The consortium is named Coral Lagoon after the shelf company it uses to house its interest in Capitec. Coral Lagoon's second-largest beneficiary is the Batho Batho Trust, founded by ANC leaders in 1992.
Despite attempts to dissociate itself from the ANC, Batho Batho is a major sponsor of the party. A spokesperson would not say whether Batho Batho would transfer proceeds from the Capitec windfall to the ANC, calling it a "hypothetical question".
Batho Batho holds 20% of Coral Lagoon, giving it a net gain of Capitec shares now worth about R190-million.
Other significant stakes are held by the companies Keabetsoe Holdings (32%) and Regiments Capital (18%), both of which appear to have strong links to the ANC treasury.
Mtshali, Motlanthe's life partner, gained shares now worth R9.5-million. She worked for the ANC treasury when Coral Lagoon was formed.
The PIC's role is particularly contentious, because it bought the shares only to warehouse them for onward BEE sale. This echoes its 2004 warehousing of Telkom shares to assist the politically connected Elephant Consortium that consisted of close associates of then-president Thabo Mbeki.
The warehousing allowed Coral Lagoon to gain hugely from an investment for which it paid nothing. But the long-term benefit to the PIC and its customers – government employees, whose pensions it invests – is not as clear.
The IDC and PIC both denied politics played a role, saying they acted within their mandate of supporting BEE while ensuring decent returns.
Coral Lagoon said in a statement: "This transaction can be seen as one of the most successful BEE transactions in South Africa as Coral Lagoon now has an unencumbered holding in Capitec that pays regular dividends."
Capitec said it had found both the IDC and PIC "professional" in their dealings and that it had been un-aware the ANC might benefit.
ANC treasurer Mathews Phosa declined to respond to questions.
New kid on the block
JSE-listed Capitec entered retail banking as little more than a microlender in 2001 but, because of technological innovation and product simplicity, it is now barking at the heels of the four big retail banks.
In 2006, Capitec found itself way behind the financial sector charter's target of a 25% black shareholding by 2010, after a restructuring reduced its BEE shareholding from 17% to 4%.
Capitec needed a new BEE partner. Although potential takers for such deals tend to be plentiful, institutions willing to finance them are not.
What set Coral Lagoon apart was that it brought the IDC along, offering to lend almost the entire purchase price.
ANC's "Mr 15%"
Central to putting the consortium together was Zwelibanzi "Miles" Nzama, a controversial ANC fund-raiser. Nzama attracted public attention in 2003 when a printing company alleged in court that it had lost a Transnet tender because it rebuffed his attempt to extort shares for the ANC.
The company, Sechaba Photoscan, said in an affidavit: "Miles Nzama informed us that … with his contacts in the African National Congress, he could guarantee our success for a consideration of 15% of [our] shares … at no cost to his principal."
Though Transnet had scored Sechaba Photoscan the highest, it awarded the tender to a rival bidder, which had allegedly fallen for Nzama's advances. Sechaba Photoscan won a record R57-million in damages from Transnet.
Nzama, who at the time ran the ANC Fundraising Trust with the then ANC treasurer, Mendi Msimang, remained closely associated with the ANC treasury. Nzama is now an executive of Chancellor House. He did not reply to questions.
… and his friends
Nzama in turn roped in Regiments Capital, a black-owned investment and advisory firm, to help with the corporate financing and to take up a stake.
Regiments executive chairperson Litha Nyhonyha told the Mail & Guardian earlier this year: "Miles [Nzama] and I go back a long way so I know him very well … Capitec was looking for BEE partners. I don't know how they got to approach Miles. And he came to me. We were invited to participate and that's how the deal happened."
Nyhonyha too has a long-standing connection with the ANC treasury. In 1992 he and Vusi Khanyile, who was then head of ANC finance, established the Thebe Investment Corporation, then fully owned by Batho Batho.
Nyhonyha denied rumours that Regiments is linked to the ANC treasury. "We are a strict private company. We were never set up by the ANC and we were never facilitated by the ANC."
But he added: "We believe in this country democracy should be supported financially and, yes indeed, we do donate to the ANC."
A third person who helped to set up Coral Lagoon was investment banker Tshepo Mahloele. After stints at the PIC and the Development Bank, he was qualified to help. In fact, as head of the PIC's BEE-supporting Isibaya Fund between 2003 and 2005, he was directly responsible for warehousing the Elephant Consortium's Telkom shares.
Mahloele heads Keabetsoe Holdings, a special purpose vehicle whose 32% in Coral Lagoon makes it the biggest beneficiary of the Capitec deal. It gained shares now worth about R300-million.
But Keabetsoe's shareholding is opaque. In a January 2007 circular announcing its imminent deal with Coral Lagoon, Capitec stated that Mahloele and Nzama each held 50% of Keabetsoe.However, attempts to establish Nzama's supposed 50% share and whether he held it personally or as a nominee for the ANC, led to contradictory responses. Mahloele even produced a share register purporting to show that Nzama had never held any shares.
This would leave Nzama without any stake in Coral Lagoon, which is highly unlikely given his role in launching it. Company registration records show him as one of its active directors.
Capitec issued 10-million shares to Coral Lagoon in February 2007. At R30 a share, the price was R300-million.
Information provided by the parties shows that Coral Lagoon financed the purchase with two loans: R285-million from the IDC and R15-million from Capitec itself. As this covered the full purchase price and the loans were structured using preference shares, Coral Lagoon carried no risk, even if Capitec's share price collapsed.
This left Coral Lagoon as the owner of just over 12% of Capitec, but without the full benefit, as it had to use the substantial dividends received from Capitec to service the IDC and Capitec loans.
That changed in February this year, when the PIC bought about 5.3-million of the 10-million shares from Coral Lagoon, at a small discount to the going price of R185 a share. The proceeds were enough to redeem the full original IDC and Capitec loans and pay taxes and transaction costs.
The net result was that Coral Lagoon remained with about 4.7-million Capitec shares unencumbered by any debt, then worth R872-million. Further growth in the Capitec share price took this to more than R950-million by the close of trading on Wednesday this week.
Coral Lagoon may have some difficulty in turning the shares into instant cash – they cannot be sold on the open market as they must remain in BEE hands – but there is already the benefit of Capitec's sturdy dividend flow. Since February, Coral Lagoon has earned about R22-million in pre-tax dividends.
The IDC and the PIC denied favouring Coral Lagoon because it is politically connected and said that the deals made commercial sense.
The IDC sidestepped a question about whether it knew of Coral Lagoon's closeness to the ANC treasury, saying: "The IDC considers all applications for funding based on the economic viability and developmental impact of each transaction … Political affiliation of applicants is not a consideration for funding whatsoever."
The PIC responded: "The PIC follows robust and rigorous due diligence processes on all transaction we invest in. This includes assessing transactions on merit and value to be derived for our clients. The PIC does not exclude anyone based on their political affiliations."
On whether warehousing the shares could expose it to undue risk – there are concerns that significant growth in Capitec's unsecured lending might end its bull run – the PIC said it had done a full analysis. It was "comfortable that the risks related to unsecured lending were within acceptable levels given the proposed holding period of the shares and that the indicative financial returns were in line with our benchmark return requirements."
Capitec said it was unaware that the ANC could benefit from the transaction. "Until we received your questions, we were also unaware of the fact that Mr Miles Nzama is a fundraiser for the ANC.
"We believe it is wrong for the ANC, as a political party, to participate in a BEE deal and to benefit from funding intended for BEE. We do not, however, believe that somebody who is employed by the ANC or any other political organisation can for that reason be disqualified from participating in a BEE deal."
- Capitec Bank Holdings' chairperson is the founder of the Millennium Trust, one of the funders of the M&G Centre for Investigative Journalism
The consortium players that will reap the rewards from the deal
Keabetsoe Holdings: 31.9% = Capitec shares worth R303-million
Announcing its BEE deal with Coral Lagoon in 2007, Capitec said Keabetsoe was owned by Tshepo Mahloele and Zwelibanzi "Miles" Nzama, the ANC fundraiser. But the true ownership remains a mystery, as Capitec says it is now informed that "the administration surrounding the shareholding structure has not been formalised yet", whereas Mahloele has produced a share register showing only himself and businessman Blessing Rugara as shareholders from the start.
Batho Batho Trust: 20% = Capitec shares worth R190-million
Founded in 1992 by ANC and struggle leaders including Nelson Mandela, Walter Sisulu and Beyers Naudé, initially as the sole owner of Thebe Investment Corporation.
Managing trustee Molefe Tsele insists it is "factually incorrect" that Batho Batho was set up by the ANC or is accountable to it – the founders acted "in their private capacity as community leaders".
Batho Batho's deed binds it to support "democracy and socioeconomic transformation" and "the institutional viability and self-sustainability of historically black organisations". However, the ANC remains an important beneficiary. The Sunday Times has revealed an ANC document dating from Batho Batho's founding, stating that "in the trust's documents the area that the trust covers must be defined in extremely narrow terms, such that any profits received are donated to the ANC".
Although Batho Batho has boasted of donating R230-million to a range of beneficiaries, the ANC is thought to be the largest. When Batho Batho received an amount approaching R100-million from the sale of Thebe shares in 2006, Tsele and then ANC treasurer Mendi Msimang publicly disagreed about whether the ANC should automatically benefit. The ANC is believed to have received the lion's share, although Tsele would not confirm details.
Tsele says that, "without reservation, we do not see it as either legally or morally problematic" to benefit from the Capitec deal.
Regiments Capital: 18% = Capitec shares worth R171-million
Regiments is led by Litha Nyhonyha and his partners, Niven Pillay and Eric Wood. Nyhonyha co-founded Thebe Investment Corporation, set up in tandem with the Batho Batho Trust in 1992.
Lemoshanang Trust: 5% = shares worth R47.5-million
The family trust of prominent businessman Baekeng Japie Moropa.
Capitec Bank Group Employee Empowerment Trust: 5% = Capitec shares worth R47.5-million
A trust set up for Capitec employees that was included in Coral Lagoon in return for Capitec agreeing to finance 5% of Coral Lagoon's purchase of Capitec shares.
Nozala Investments: 5% = Capitec shares worth R47.5-million
A BEE investment company whose board boasts Chancellor House trustee Salukazi Dakile-Hlongwane and, at the time Coral Lagoon bought into Capitec, Mandela daughter Makaziwe Mandela and Lorato Phalatse, a senior official in Thabo Mbeki's presidency.
Mdumo Trust: 4.7% = Capitec shares worth R44.7million
A youth development trust founded by Abdoolrawoof Ahmed, a former accountant of Udumo Investments, a company directed by Nzama and Msimang.
Koma Trust: 3.5% = Capitec shares worth R33.3million
The purpose of the trust is unclear. Trustees include Tlhalefang Sekano, a former union moneyman closely tied to Nzama.
Rorisang Basadi Investment Holdings: 3% = Capitec shares worth R28.5million
A BEE investment company whose board includes Jackie Huntley, a lawyer in partnership with Leslie Mkhabela, who represented ANC moneyman Sandi Majali before being used by PetroSA in a largely unsuccessful attempt to recover Oilgate money from Majali. Huntley represented Julius Malema in his hate speech trial last year.
Gugu Mtshali: 1% = Capitec shares worth R9.5million
The life partner of Deputy President Kgalema Motlanthe. She worked in the ANC treasury when Coral Lagoon obtained its Capitec stake in 2007. Since then she has courted business controversy as a shareholder in the politically connected Imperial Crown Trading, which obtained exploration rights to Kumba's Sishen iron ore mine (later overturned in court). More recently, she was implicated in an alleged sanctions-busting deal to supply helicopter parts to Iran.
Bongani Khumalo: 1% = Capitec shares worth R9.5million
Prominent businessman and former Transnet chairperson, who now heads Lotto operator Gidani.
Pilisiwe Twala-Tau: 1% = Capitec shares worth R9.5million
Wife of Johannesburg mayor Parks Tau and chief executive of Gauteng Enterprise Propeller. She previously occupied senior positions at the Ekurhuleni and Johannesburg metros.
Tdikeledi Majola: 1% = Capitec shares worth R9.5million Unknown.
Values were calculated using a Capitec share price of R201.47. Consortium members generally preferred not to answer questions but associated themselves with this statement from Coral Lagoon: "The consortium is delighted with its shareholding in Capitec, which has played a major role in taking banking to the unbanked in South Africa.
"It is very pleased with the return on its investment to date and with its significant remaining stake in the company. This transaction can be seen as one of the most successful BEE transactions in South Africa as Coral Lagoon now has an unencumbered holding in Capitec that pays regular dividends."
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