The Public Investment Corporation (PIC) lost almost half a billion rand in a scheme aimed at empowering black fuel suppliers — courtesy of VBS Mutual Bank.
The scheme involved the creation of a revolving R350-million loan facility for businesses in the fuel supply sector to access working capital after being awarded supply contracts by the state. VBS, in turn, using the supply contracts as security, would draw money from the PIC facility and provide the loans at a rate understood to be between three cents and five cents a litre, and then receive payment as soon as the fuel was delivered and payment made.
But, as noble as the scheme’s intentions may have seemed, it now appears to have been created to siphon funds from the PIC — the continent’s biggest asset manager. Within just a few weeks of the facility being approved, the rules were broken.
“For us this was a great chance to get a foot into the fuel supply business,” said an entrepreneur who participated in the fund. The businessperson asked not to be named as their association with VBS could have a negative effect on their business.
“Banks were not funding us because we were new, and the suppliers do not move the stock without a payment first, so having such a facility was great, even if it meant we walked away with a little less at the end of a deal. I’m disappointed that they wanted to loot the PIC.”
VBS’s first withdrawal — a whopping R100-million within two weeks of the credit facility agreement being signed — did not meet the requirements set out for withdrawal, including a clause that the first drawdown would be capped at R10-million and followed by withdrawals in increments of R5-million per request.
The R100-million request did not include any supporting documents to show who the funds were meant for or proof of an agreement between VBS and the beneficiary. Nor did it specify where the fuel was being supplied.
Despite this, the request went through nine PIC employees, including executives Ernest Nesane and Paul Magula, and then chief financial officer Matshepo More, before the then chief executive officer, Dan Matjila, approved it on July 31 2015.
By March 3 2018 the balance in the revolving facility, after seven drawdowns between July 2015 and November 2017, reflected that R484-million had been withdrawn, and only R143-million had been paid back.
VBS was placed under curatorship in March last year after the Reserve Bank discovered liquidity issues with the bank, when R900-million of VBS’s reported deposits of R2.9-billion could not be confirmed.
Details of the scheme are contained in a forensic investigation report by Nexus Forensic Services into allegations relating to the PIC’s commercial relationship with the now-defunct VBS.
This report recommended that serious action be taken, including that criminal charges be laid against several PIC executives, including Matjila, former head of risk Magula, and former legal head Nesane.
The PIC had not responded to questions at the time of going to print. The report also highlighted that it picked up from paperwork submitted to the PIC that VBS had provided contract finance valued at R1.25-billion to 81 companies and an amount of R1.18-billion was still outstanding.
Anoosh Rooplal, who was the bank’s curator, and who was subsequently appointed as VBS liquidator, said: “We can’t comment specifically on the 81 companies that you are referring to in the PIC report. The bank does have contract finance loans and we are pursuing all loans that are in arrears.”
Other anomalies picked up by the investigation include the PIC’s team allowing VBS to access R90-million in two transactions in November 2016, despite a clause in the credit agreement limiting withdrawals to one a month.
The fourth withdrawal — R100-million requested on February 5 2016 — was approved, despite VBS providing only an addendum to a main agreement between it and Mmampilo Suppliers for R5-million, but saying the main agreement was for a R100-million facility. Despite this main agreement not being made available in the request, the PIC monitoring team approved it.
The sixth and seventh requests, totalling R134-million for six companies, did not contain any agreements between VBS and the entities, and R54-million of this did not even have any fuel agreements between the entities and any company seeking fuel. This meant that it was impossible to determine whether the payments were for fuel purchases.
A condition of the facility was that the money be used only for contract finance in fuel supply transactions.
As well as payments being approved despite requests not meeting criteria, a R75-million drawdown for four companies was identified by investigators as overpayments, and a further R15-million drawdown was made without any supporting documents.
Although documents submitted by the PIC claimed VBS signed agreements with 17 entities to access the facility, investigators found evidence of only 10 agreements.
“We found no drawdown requests for the following contractors who had allegedly signed agreements with VBS: Kukhanya Marketing for R38.5-million, DIM Logistics for R3-million, Ionic Ventures for R4-million [and] Mzumbe Oil for no amount specified.
“In the absence of the VBS bank statements, we cannot confirm if these amounts requested were in fact paid to the contractors. We further could not confirm whether the additional amounts requested per contract was based on the amounts already repaid by the fuel contractors to VBS,” said the report.
Last week the Mail & Guardian reported that three PIC executives, including Matjila, could face criminal charges related to R20-million in allegedly gratuitous payments, mortgages and loans from the bank.
In return they overlooked serious anomalies, including poor liquidity at VBS, that ordinarily would have seen the PIC pulling its investments — which included R100-million in equity — out of the bank.
Appearing before the commission of inquiry into the governance structure of the fund, which manages R2-trillion in government pensions and other funds, Matjila described being linked to the scandal surrounding the bank as the “lowest of the low in allegations about [his] leadership at the PIC”.
He also dismissed allegations that he was the executive who was given a R5-million bribe by the bank’s officials as being untrue.
“As someone who has placed integrity above all other values, the mere suggestion that I would accept a bribe is abhorrent to me, and deeply upsetting to my wife and my children,” he said.
But it also emerged during the inquiry that VBS was not the only bad investment the PIC made under Matjila’s leadership. The PIC had also increased its exposure in Steinhoff and made a significant loss when the company went bust, following allegations of impropriety that caused its shares to plummet.