There have been questions about the private equity firm’s ties to the Public Investment Corporation (PIC) and allegations against its former chief executive, Tshepo Mahloele. Red flags have been raised over Mahloele’s past business dealings — which allegedly financed the ANC — and Harith’s involvement at another state entity, PetroSA.
Recently doubt has been cast on Harith’s ability to raise the capital for the risky SAA venture.
Harith chief executive, Sipho Makhubela, says the firm is being asked to play by a different set of rules. “This is not the norm of how business is done,” he said in an interview with the Mail & Guardian this week.
“What we are being asked, and how we are being treated, is like asking to forget how everything else gets done. In your case, if you are buying SAA, prove to us that you have got R3.5-billion in the bank.”
The scrutiny, he surmises, may not be so acute if Harith was not a black-owned business. “Our credentials get asked at every given turn. We are not a business that came around yesterday,” Makhubela said.
“We have been around for over 15 years now. We’ve got a track record. We’ve got investments that are tangible.”
But, considering how Harith got its start, questions were inevitable.
Seeds of doubt
The firm’s beginnings are laid bare in the PIC commission report. And, as United Democratic Movement leader Bantu Holomisa pointed out in a statement after the SAA announcement, the report does not paint Harith in a favourable light.
According to the report, the PIC, mandated by then president Thabo Mbeki, initiated a process to establish the Pan African Infrastructure Development Fund. The fund started operations in 2007 with commitments totalling $625-million from nine investors. The Government Employees Pension Fund (GEPF), which is overseen by the PIC, committed $250-million.
Mahloele was the head of corporate finance at the state-owned asset manager and was appointed to lead the fund’s secretariat. In 2007, he was appointed as the chief executive of Harith, which was established to manage the fund. Then deputy minister of finance, and PIC chair, Jabu Moleketi was appointed chairman of Harith.
The PIC commission found that Harith charged “significantly high fees”. Mahloele has denied any wrongdoing. “Harith’s conduct was driven by financial reward to its employees and management, and not by returns to the GEPF,” the report reads.
“In essence, the PIC initiative, created in keeping with government vision and PIC funding was ‘privatised’ such that those PIC employees and office bearers originally appointed to establish the various funds and companies reaped rich rewards.”
The commission recommended that the PIC and the GEPF appoint an independent investigator to look into the matter. The investigation has not been concluded.
In his statement, Holomisa — who testified at the commission on the Harith allegations — asked if PIC funds had been leveraged to finance the SAA deal.
The PIC denied this, saying that although it still owns 30% of Harith, it is not in any way involved in the acquisition.
Makhubela said he is not surprised by the public scrutiny Harith has been subjected to, but he is disappointed. “It has become a personal thing. Our directors [Mahloele and Moleketi], who are independent, are being abused, quite frankly, as if they have a beneficial interest … They have no beneficial interest in Harith in one shape or the other.”
The PIC controversy has been an albatross for Harith. “We are just waiting for this chapter to be behind us. Truthfully it has been a drag on our business … There’s a lot of things that we should be and could have been doing that have been delayed because these things are pending.”
The SAA acquisition, which was announced by Public Enterprises Minister Pravin Gordhan last week, is itself awaiting finalisation. The Takatso consortium, consisting of Harith and Global Airways, must still undertake a due diligence process before the deal is inked.
Makhubela said that, although he doesn’t want to speak for government, he believes the announcement was made prior to the due diligence exercise for transparency. “If government came out and announced a deal that was done and closed, there would be an equal uproar because this was kept in the dark and people only learned about it at the very end. “I think it was well meaning to take the public into confidence and to do it transparently.”
But government’s transparency about the SAA deal has also been questioned after it reportedly said it would not disclose the names of 30 shortlisted equity partners. In response to questions from News24, the department of public enterprises said non-disclosure agreements were signed for commercial sensitivity reasons.
This is par for the course, Makhubela said. He also reiterated that it is not the norm for the public to be privy to the ins and outs of a deal like the SAA acquisition.
“Everybody talks about details being scarce. Ja sure, part of it is because you don’t want to lay out your strategy as if there is no competition. There is competition out there.”.
He added that it is unfortunate that doubt has been raised over Harith’s ability to raise the capital needed for SAA. “What I can tell you is I see a lot of businesses, who do not get asked the kinds of things that we are getting asked. I see a lot of businesses who are not asked to see their bank accounts … Our job is to mobilise capital.
“We have done significant projects that cost billions over the years and we have been able to aggregate capital … I find it rather curious that when it comes to us, we are being asked before we start to show that we’re good for it.”
Makhubela said the funding for SAA will be multi-layered and Harith will tap into multiple sources of capital. “There is nothing wrong with that. And if other people are using that way to fund themselves, allow Harith the same courtesy to be an equal market participant. There is almost a sense that the rules for us must apply differently than they would elsewhere.”
Despite Harith’s qualms over being asked to put all its cards on the table, Makhubela is willing to talk about why he believes getting involved with SAA, even amid Covid-induced uncertainty, is good from a strategic standpoint.
Harith, he said, has been involved in the infrastructure side of the aviation sector. The firm is a significant investor in Lanseria airport, northwest of Johannesburg. Harith was also invested in the Enfidha and Monastir airports in Tunisia.
Because of these investments, Harith is awake to how periods of instability can jeopardise assets. Unrest in Tunisia, starting in 2010 as a result of the Arab Spring, left state-owned Tunisair reeling from the exodus of tourists. Harith had to exit this investment.
A decade later, Covid-19 hit the Lanseria airport. “When the aviation sector was hit, all of a sudden, we had Mango not flying, Kulula not flying … The airport got into a difficult spot,” Makhubela said.
“So what became clear was that the airports are quite exposed. So if one or two customers go down, they can take you down along with them. And that spawned a whole rethink, strategically, about how to insulate yourself.”
Buying an airline would allow Harith to “control its own destiny”, he said.
When SAA became an option, Harith jumped at the opportunity. Last week, Gidon Novick, the chief executive of Takatso said the price of new aircrafts have come down by 50% as a result of Covid-19’s blow to aviation.
Makhubela said: “You don’t want to buy on the high. You want to sell on the high and buy on the low. We’re not saying that we are exploiting the business. But the market is repositioning itself. We think now is a great time.”