Edition: October / December 2016
Editorials

POLITICS

Don't pick on the PIC

Too many SA public institutions have been politicised. The largest manager of pension-fund assets mustn’t be amongst them.

May it never happen, but the Public Investment Corporation is a sitting duck for state capture. Be wary, for it’s as easily done as said.

The trick lies in a systemic convergence of roles. Because the deputy finance minister is automatically the PIC board chair, a seemingly minor cabinet reshuffle can work wonders. Switch the deputy finance minister to a full minister in a different portfolio, to be perceived admirably as a promotion, and then appoint a relatively junior ANC MP as deputy finance minister, to be viewed innocuously as an infusion of fresh talent for mentoring. Hey presto! The PIC gets a new chair.

Or maybe it wouldn’t be entirely innocuous, depending on whether the appointee is selected from the ranks of Zuma/Gupta acolytes. Speculation, hopefully idle but perhaps merely premature, focuses on the central figure of Mcebisi Jonas.

As deputy finance minister and PIC board chair, he’s been causing waves: earlier this year in having claimed, denied by the Guptas, that they’d offered him the position of finance minister; more recently in having insisted that the PIC discloses to parliament certain details of its unlisted investments, particularly in Independent News & Media SA where the Guptas want a slice of the action.

A way to start stilling the waves, from the perspective of the Zuma/Gupta nexus that officially doesn’t exist, would be to have Jonas move on as uncontroversially as possible. But controversy will nonetheless linger until the efficacy of the INMSA investment is ultimately revealed.

Were it not for the intervention of Jonas, the PIC would have said nothing. Its latest annual report, for the year to end-March 2015, said nothing. It had persistently ducked from answering questions about INMSA on grounds of client confidentiality, but is now reviewing the legalities of these agreements in light of Jonas’ stance.

Clear is that confidentiality does not sit well with the PIC’s self-proclaimed commitment to transparency. Less clear is why there should be wraps over investment of public monies. The approach of Jonas appears to be at odds with the PIC board whose eight non-executive directors – all appointed by government, each being paid an average of R500 000 annually– have at least acquiesced in the silence that’s hitherto prevailed on INMSA.

It also appears to be at odds with the approach of the Government Employees Pension Fund, half of whose trustees are appointed by government. Less reticent about disclosure, its latest annual report (to end-March 2015) shows that over a year the direct loans by the GEPF to INMSA had ballooned from R791m to R896m. But it explains neither why the loans have increased nor confirms whether the GEPF had mandated the PIC to grant them.

The GEPF, which has over a million members and pensioners, is a defined-benefit fund. This means that, as the employer, government (the taxpayer) underwrites promised benefits. Investment performance impacts on annual discretionary increments.

At its 2015 financial year-end the PIC, wholly owned by government, had R1,8 trillion in assets under management. Roughly 30% was in unlisted investments. Of the R1,8 trillion, almost 90% was represented by the GEPF for whom the PIC is asset manager.

An investment of a billion rand or so can easily become obscured in a portfolio of such magnitude. There’s no expectation that the PIC should annually publish the nuts and bolts of each investment in its unlisted portfolio. But when asked for specifics, for instance by a parliamentary committee, it should be happy to answer. Unlisteds are where funnies are most likely to happen.

INMSA is a case in point because of its political sensitivities.

First, there’s a threatened scrap between the Gupta family and Iqbal Survé of privately-owned Sekunjalo, funded through the PIC, for a Gupta stake in INMSA and for their respective media houses to claim a greater share of government sponsorships in acknowledgement of editorial support for the ANC.

Second, given the predictably parlous state of the newspaper industry and specifically the declining circulations of INMSA’s metropolitan titles, this is a curious investment for a pension fund. The PIC wants to help the creation of a black-owned Naspers, which is a great idea provided INMSA can also find something similar to a Tencent gaming operation in China and start something as successful as the Multichoice television service in SA.

THOSE VODACOM SHARES


Matjila . . . sticking to his guns

Last year government sold its 14% stake in cellphone operator Vodacom to the Public Investment Corporation for R25bn. In April the PIC announced that it was in talks with various black investors interested in buying some of these shares, ostensibly to improve Vodacom’s empowerment credentials.

Since then, however, no transactions with aspirant black investors seem to have been concluded. The reason is understood to be that PIC chief executive Dan Matjila is adamant that the investors raise the money themselves, without financial support from the PIC.

That’s as it should be. But were the PIC bosses to change, then so too could the PIC’s approach; in other words, back to the same old story of favours for friends in high places.

Subsequent to its appearance before the parliamentary finance committee, the PIC has supplied further information:

  • The GEPF, managed by the PIC, has a 25% shareholding in INMSA and the PIC is represented on its board;
  • Of the PIC’s present R888m exposure to INMSA and the Sekunjalo Media Consortium, R722m is in loans. These loans are two years into their five-year term;
  • The GEPF’s investment into INMSA was accomplished through a typical private-equity leveraged buyout where all the financial investor’s interests are protected above those of operational investors (e.g. management) who are expected to drive the value of the business. It is typical for interest in these structures, especially when funding black economic empowerment, to roll up and be paid as a single payment at the end of the loan term;
  • Interest will be serviced as and when cash is available during the interim period. Private-equity structures allow the company to invest in technology and expansion opportunities;
  • The PIC holds various securities and sureties for the loans, including cession over 55% of the shares in the company.

Spokesperson Sekgoela Sekgoela adds: ”The PIC has noted with concern an increased effort by some in the media, certain members of parliament and some members of the pubic, to use incorrect and in some instances false information in an attempt to cast aspersions on its integrity and investment processes.

”The PIC invests all its clients’ money in accordance with mandates approved by the Financial Services Board. All investments are also subject to a rigorous investment process, including a thorough due diligence. The investment in INMSA was in accordance with the mandate and investment processes of the PIC.”

This article, by TT editor Allan Greenblo, was first published by Biznews.com on July 8 and by several other websites (Fin24, Financial Mail and Politicsweb) shortly thereafter.