/ 14 August 2019

PIC inquiry focuses on Steinhoff deal

Jayendra Naidoo said that closer to the conclusion of the transaction
Jayendra Naidoo said that closer to the conclusion of the transaction, Dan Matjila decided to involve the rest of the PIC’s executive team. (Delwyn Verasamy/M&G)



Dan Matjila was approached by former trade unionist and businessperson, Jayendra Naidoo prior to the Public Investment Corporation’s (PIC) R12-billion investment in the now embattled retail giant, Steinhoff.

On Wednesday, Naidoo told the Mpati commission which is probing alleged impropriety at the PIC, that in 2016 he approached the former state-owner asset manager’s chief executive for possible funding for the Lancaster Group — chaired by Naidoo — to acquire shares in Steinhoff.

“Steinhoff was an extremely well-regarded JSE-listed blue-chip company. Many international investment banks had a relationship with Steinhoff as a result of their global profile,” Naidoo said.

Naidoo testified that he had initially approached Matjila after failing to acquire funding for the deal from international banks saying that “no single bank had the capacity to provide this quantum of funding on its own given its investment limits”.

“The PIC saw the benefit of the commercial nature of the proposal and was also keen to access strategic influence that could arise from the relationship between Lancaster group and Steinhoff,” he said.

Naidoo said that closer to the conclusion of the transaction, Matjila decided to involve the rest of the PIC’s executive team. Following discussions Lancaster Group, Steinhoff and the PIC agreed to form Lancaster 101, a special purpose company, through which Lancaster and the PIC would partner and invest in Steinhoff.

Under the agreement, Lancaster 101 would be 25% owned by the Lancaster Group, 50% owner by the Government Employees Pension Fund (GEPF) through the PIC, and the remaining 25% would be allocated to a broad-based black economic empowerment (B-BBEE) group.

The transaction was concluded in September 2016 and saw the PIC provide R9.4-billion to Lancaster 101 to buy a 2.75% stake in Steinhoff.

Steinhoff’s shares infamously crashed in 2017 after it was revealed that the retailer was the subject of multibillion rand fraud, wiping out more than R200-billion of shareholder equity.

In April — after the publication by Steinhoff of the summary of findings by auditing firm PriceWaterhouseCoopers into accounting irregularities at the retailer — Lancaster 101 instituted legal action against Steinhoff for the recovery of the investment made in the 2016 investment.

Lancaster claimed repayment of a total of approximately R12-billion, which included accrued interest.

According to its latest financial statements, the GEPF, the PIC’s biggest client, incurred losses of R4.2-billion in the transaction.

In January, former PIC board member Claudia Manning told the Mpati commission that the state-owned asset manager “made a mistake’ when it invested in Steinhoff.

On Wednesday, Naidoo told the commission that the Lancaster Group and the PIC were “optimistic” about Steinhoff’s future at the time. He said the massive amount of losses were not envisaged at the time.

“This investment has been disrupted by the corporate fraud that we have all seen and that is most unfortunate,” he said.

Wednesday’s sitting of the Mpati commission was the last scheduled for the inquiry. The commission is expected to give its final report to President Cyril Ramaphosa at the end of October. The commission’s chair, Judge Lex Mpati, said that public hearings may still be held from time-to-time should the need arise.