How mystery changes to a R350m VBS loan cost the PIC millions

Three changes, which were not approved, were made at the 11th hour to the conditions attached to the R350-million loan facility by the Public Investment Corporation (PIC) to the now defunct VBS Mutual Bank, the commission of inquiry heard on Tuesday.

The changes appear to have been instituted by two former PIC officials and members of the PIC board, who have since been debarred from the financial services sector.

The PIC, which invests around R2-trillion, mostly on behalf of government employees was VBS’s second-largest shareholder with a 25.2% stake through its client the Government Employees Pension Fund (GEPF).

The GEPF has a legacy shareholding in the Venda based bank when it absorbed the pension fund of the Venda Bantustan government in 1996.

READ MORE: Former PIC officials implicated in VBS heist banned from financial services sector

VBS is bankrupt and was liquidated in November, after being placed under curatorship by the South African Reserve Bank (SARB) in March 2018.

Advocate Terry Motau’s forensic report ‘The Great Bank Heist’ found that the R350-million loan facility from the PIC to VBS was used to plug the cash hole at the bank.

The Motau report revealed almost R2-billion was looted from VBS and payments were made to several politically connected individuals.

Civil and criminal cases will be lengthy and are unlikely to recover the full amount that was taken.

The commission of inquiry, headed up by Justice Lex Mpati is investigating investment decisions taken by the asset manager.

Loan changes

Associate principal of impact investing at the PIC, Brendah Mdluli told the commission of inquiry that the R350-million loan extended to VBS in 2015 was a revolving credit facility, which allowed the bank to borrow or drawdown further, after having repaid the capital.

Mdluli testified that the application for the loan was first introduced to her in 2014 by Paul Magula who was then the associate principal for unlisted debt within the PIC’s Isibaya fund, and a director on the board of VBS.

He was later transferred to the risk division and she continued to correspond about the loan conditions with a PIC legal representative, Ernest Nesane, who was also a member of the VBS board, on behalf of the asset manager.

Both Magula and Nesane are banned from working in the financial services sector after they were found to be unfit and improper by the Financial Sector Conduct Authority (FSCA) for their role as VBS board members, the commission heard earlier in March.

Mdluli explained to the commission that the original loan facility agreement was changed on an electronic copy in April 2015 and she had printed out the original document sent earlier that month. The original document did not contain two controversial clauses. It was also the version she commented on.

The two clauses were added to the final agreement and she only became aware of the changes “at a very later stage” when VBS was placed under curatorship in March 2018.

This allowed the R350-million loan to be “subordinated” against other borrow creditors, which ranked the PIC debt below other claims by VBS lenders.

Another condition which was changed gave VBS the green light to convert the R350-million loan into equity or shares in the bank, at the discretion of the bank.

The original agreement also allowed for R200-million to be loaned initially and R150-million would be made available later in line with performance.

This condition was withdrawn in the final document.

Unlikely to recover funds

To date, VBS has used R324.8-million of the revolving credit facility, according to the PIC’s operations and investment support manager Sello Nkoane. The asset manager is unlikely to recover this money, given the changes to the original loan agreement.

Mdluli told the commission that the PIC’s legal department would be best placed to answer why the agreement was changed at the 11th hour.

Assistant commissioner Gill Marcus asked if the PIC has a system in place to monitor changes to draft agreements as there had been several similar cases to the VBS loan agreement and there should be “some review” of this.

Mdluli responded that the person sending the original document is responsible for monitoring the amendments and comments prior to final approval.

In the case of the VBS loan agreement, this was Nesane.

The PIC board in December said that it would pursue criminal charges against Nesane and Magula for failing to report suspicious transactions at VBS.

The inquiry is ongoing. — Fin24

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Tehillah Niselow
Tehillah Nieselow
Tehillah Nieselow is a Journalist at Power FM. She Covers labour issues, strikes, protests and general stories

Related stories

Repo rate falls to 3.5% — its lowest since 1998

Repo rate drops to 3.5% as Reserve Bank predicts a 7.3% contraction in South Africa’s GDP

All agree: Use pension funds

The state wants to increase spending on infrastructure to drive economic recovery, and South Africans’ savings could help foot the bill

ANC wants pension funds to finance infrastructure build

The party released its plan for the reconstruction of the country’s post-coronavirus economy on Friday. This would involve changes to Regulation 28 of the Pension Funds Act

Out of our Wits: Should more be done to block club sales?

South African football is in an awkward position where it dare not refuse investment … no matter the cost

The demise of the chequebook

The use of cheques has fallen about 80% in the past decade as consumer habits shift and digital payments continue to gain traction

An emergency budget needs bold decisions, including a bigger public sector

Choosing this path would create work for many while also building the infrastructure that the country needs

Treasury presents Covid-19 corruption action plan

Reports of corruption, over-pricing and the delivery of sub-standard PPE have become the norm over the past five months as the country grapples with the Covid-19 pandemic

Metro cops, SAPS clash over control

Tensions between the City of Cape Town and the police service over responsibilities mirrors the strain between national and local government

press releases

Loading latest Press Releases…

The best local and international journalism

handpicked and in your inbox every weekday