PIC's R9.3bn loan to Jayendra Naidoo was 'reckless', says former executive.
According to the PIC's former executive head of risk Magula, Lancaster was completely reliant on dividends received on its Steinhoff shares to service the loan.
The PIC's decision to loan R9.3bn to Jayendra Naidoo’s company to buy shares in Steinhoff was reckless, one of the state-owned investment managers’ former executives said on Monday.
Paul Magula, the former executive head of risk at the corporation, was dismissed in 2018 by the PIC on allegations of “poor performance” and for his role in the collapse of VBS Mutual Bank where he had served as a non-executive director at the behest of the PIC. The PIC owned a 26% stake in VBS.
The PIC oversees an investment portfolio worth more than R2-trillion, mostly on behalf of the Government Employees Pension Fund (GEPF).Those retirement benefits are ultimately underwritten by the fiscus should the GEPF not have sufficient money.
Among many issues raised by Magula at the commission of inquiry into the PIC was the asset manager’s loan of R9.3bn to a BEE entity headed by former trade union leader Jayendra Naidoo, called Lancaster 101.
“For the GEPF, the debt-funded exposure never made commercial sense. No commercial bank would have funded [the deal] with the same structure,” Magula told the commission headed by retired judge Lex Mpati on Monday.
Magula said Naidoo initially approached the PIC to borrow the entire amount for his own benefit. The PIC decided this was untenable and the shareholding of Lancaster was later amended to include the GEPF (50%) and a community trust (25%).
In August 2016, the PIC then approved a loan of R9.3bn for the purchase of shares in Steinhoff by Lancaster 101.
As part of the initial phase, derivative structures were implemented to protect against a fall in the share price “to certain levels”, thereby at least protecting the collateral of the PIC’s loan up to a point.
In July 2017, Lancaster wanted to raise capital to invest in Steinhoff Africa Retail (Star) ahead of its listing on the JSE in September and approached the PIC with a view to restructuring the loan.
According to Magula, the terms of the restructure meant the PIC would partially forego its security to another lender, Citibank, “without getting paid for the subordination of security”.
This would leave the collateral of its loan unprotected. In addition, Lancaster was completely reliant on dividends received on its Steinhoff shares to service the loan, but Magula and his team did not believe these dividends were sufficient to service the loan from the PIC.
These conditions caused “mayhem” in the boardroom at the time as the PIC was taking an equity position in a loan structure without seeing any of the upside, says Magula.
This was the reason why, when the Steinhoff share price collapsed due to “accounting irregularities” and the departure of Markus Jooste, the PIC was forced to write off more than R5bn just in relation to this loan.
The PIC, along with hundreds of other retirement funds, would incur hundreds of billions of rand worth of losses from direct shareholdings in Steinhoff.
Quelle: www.businesslive.co.za/bd/national/...-says-former-executive/
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