/ 7 December 2018

Struggling investments sting PIC

Default: The PIC is considering its options after an impairment on an investment in the Independent media group
Default: The PIC is considering its options after an impairment on an investment in the Independent media group, led by executive chairman Iqbal Survé. (Lerato Maduna/Gallo Images/Foto24)

The Public Investment Corporation (PIC) is “assessing its options” regarding the Independent Media stable after the Government Employees Pension Fund (GEPF) declared an impairment on its investment in the group of more than R1-billion.

This follows a default on loan repayments that became due in August, the fund’s principal executive officer, Abel Sithole, revealed at a briefing on its annual results on Wednesday.

READ MORE: Ramaphosa appoints commission of inquiry into alleged PIC ‘improprieties’

Impairments also included R4.3-billion raised against a loan to the Lancaster Group, which was used to fund an empowerment stake in embattled retail giant Steinhoff and R374-million in defunct VBS Mutual Bank.

The Steinhoff empowerment deal consisted of two transactions, done in 2016 and in 2017, and enabled Lancaster to take up a 2.75% stake in Steinhoff International with a loan of R9.35-billion from the PIC. The second transaction allowed Lancaster to take up an 8.8% stake in Steinhoff Africa Retail, which has since been rebranded as Pepkor.

These impairments have predominantly been made on the PIC’s unlisted investment portfolio.

The PIC manages assets of behalf of the GEPF, which holds R1.8-trillion in government workers’ pensions.

Sithole said the impairments were not write-offs because the GEPF still believed there was some value attached to these assets. The only investment from which the GEPF believed it would not recoup any money was VBS; that had been written down to zero.

The PIC’s acting chief executive, Matshepo More, said the corporation was still assessing its options regarding the Independent investment. But whatever was decided, “we must get our maximum value”, she said.

It had not yet called in the security against the debt — shares in the group, according to Mervin Muller, the executive head of private equity and structured investment products at the PIC, but he did not rule it out.

“I am not saying we … won’t have to do that, but we are not there yet,” he said, adding that “the shares are still held as [they were] previously”.

Independent News and Media SA (INMSA) was bought from its Irish parent in 2013 for about R2-billion, in a transaction which was reliant on debt raised from the GEPF through the PIC.

A consortium, Sekunjalo Independent Media (SIM), led by Iqbal Survé, took up 55% of INMSA. The PIC took up a direct 25% stake. The remaining 20% was taken up by Interacom Investment Holdings, funded by the China Africa Development Fund.

In its annual report, the GEPF said the investment was impaired “as INMSA and Sekunjalo did not honour their payment obligations under the transaction agreements”. It attributed this to declining print media, adding that “cost-containment strategies are being implemented and the investment continues to be closely monitored”.

More told the Mail & Guardian that the PIC was an asset manager and had “no interest in running newspapers”. The poor performance of the media sector as a whole also had to be considered, she said.

Against a backdrop of a declining print sector, the Independent deal has performed poorly for the state asset manager. But the transaction garnered scrutiny from the start because it was deemed to be overpriced and motivated by politics rather than by sound business reasons.

Despite a spate of retrenchments and high-profile resignations and axings over the years, Survé, who is the executive chairperson of Independent, has maintained that the group has been a testament to transformation in the industry.

The health of the Independent media assets most recently came under the spotlight in the run-up to the failed listing of Sagarmatha Technologies Limited, which is ultimately majority owned by a Survé family trust, according to its pre-listing statement. In the document, the self-styled tech “unicorn” published SIM’s financial results for the
six months ended June 2017. It revealed that SIM’s accumulated losses of R752-million exceeded its assets by R547-million. It also revealed the debt of R2.3-billion that SIM was saddled with at the time.

A unicorn is a start-up company valued at more than $1-billion. The M&G reported at the time how analysts questioned Sagarmatha’s hefty R50-billion valuation. Although it was speculated that the PIC would be a key participant in the listing, which was supposed to take place by way of a private placement on the JSE, it ultimately decided not to do so.

Upon listing, Sagarmatha would have taken up 100% of SIM and its 55% stake in Independent Media, in a series of transactions that appeared to have been predicated on a successful listing. Given that the listing was aborted, it is unclear whether this took place.

Despite the write-downs on the Independent deal and Lancaster, Sithole said there might yet be value in these assets. “Yes, the value might not be what was reflected historically but … the value is also not zero.”

Due diligence in investment is always important, he said. “But analysts and investment managers are not prophets; they use the same information that everybody has and try to make a judgment based on what they have and do the best that they can. But failures will always happen, so I think it’s always important to understand that.”

It would be up to those who run Independent to determine its future, he said, adding that the GEPF’s interest was in ensuring that it got its returns.

READ MORE: PIC to exit investment in Independent Media

The growth in the GEPF’s investment portfolio this year reached 8.5% to hit just over R1.8-trillion. The value of total impairments reached about R7.4-billion, up from R994-million in 2017. When impairments were taken into account, the fund’s growth was about 8.3%.

Despite the spike in impairments, Sithole said it needed to be viewed in the context of the GEPF’s entire portfolio.

Survé did not respond to requests for comment by the time of publication.