By Corrie Kruger
THE Office of Public Enterprises (OPE) was established in 1994 to champion and direct the restructuring of state-owned companies (SOCs) and to ensure their optimal economic and developmental impact.
The Minister of Public Enterprises, Pravin Gordhan, on May 10, regarding the disposal of the 51 percent shareholding in South African Airways (SAA) to Takatso Consortium, confirmed that they were able to fund the transaction.
The following press release was issued. “Note to Editors: This is an explanatory release to all media to highlight the salient points of the presentation to Parliament’s Standing Committee on Public Accounts (Scopa) by the Minister of Public Enterprises on May 10, regarding the disposal of 51 percent shareholding in SAA.
The minister stated: “The intent is for the consortium to acquire a 51 percent controlling stake in SAA and will inject R3 billion over a period of two years. The finance for operating a ‘New SAA’ will come from the Takatso Consortium. Government will not be contributing any finance to the new airline. However, as pointed out below, government will receive dividends as a preferential shareholder”.
According to Bloomberg, May 10 SAA was sold for R51 — and taxpayers could still pay some of its debt. SAA government guarantees: As a condition for the sale, the remaining government guarantees were to remain in full force and effect. This is concerning given that SAA has been advised to eliminate its current government guarantee exposure.
Due diligence reports prepared by Norton Rose Fulbright highlighted some risks related to the Takatso Consortium. If Gordhan is of opinion that he is informing the Cabinet and South African citizens with such information without disclosing the full report, we should be very worried.
SAA would issue preference shares to the Department of Public Enterprises (DPE). The terms and conditions of the preference share issue have not been provided. The Scopa meeting regarding the transfer of 51 percent of the shares in SAA to Takatso was characterised by both Finance Minister Enoch Godongwana and Gordhan being evasive, defensive and guarded about the SAA/Takatso deal.
The refusal to provide details of the agreement is far from transparent and is of major concern for the ability of Parliament to fulfil its oversight duties over SOCs.
Alarm bells rings out loud. In a deal of this magnitude how can a SOC accept the consortium stating it is their intention to inject R3bn as opposed to hereby attached please find our bank guarantee for R3bn. The question that immediately springs to mind is whether the R3bn, which the Takatso Consortium has undertaken to inject over a period of two years, will be in the form of equity or will it be as a loan from Takatso to SAA?
We contacted Richard Mantu, the contact person for the Ministry of Public Enterprises for more clarity. He was unable to shed any light on the question as to whether the R3bn injection will come in as equity or perhaps as a shareholder’s loan with undisclosed terms. As the person nominated by the minister to be contacted for further questions it is mind boggling that he does not know any of the details of the transaction.
Very disturbing to see in the transaction is the so-called issuance of preference shares to the DPE. Firstly, what will the DPE have to pay for these shares? The assurance that the DPE will get a dividend once the airline becomes profitable provide little comfort.
The government has already forked out more than R16.4bn and the chances of profits can only be described at best as very remote. Should the terms of the R3bn injection from Takatso determine that the R3bn must first be repaid then the DPE may not see a return on their preference shares or their ordinary shares for more than a decade, if ever.
Secondly, one can only guess what concessions was made to the Takatso Consortium in return for the issuance of preference shares.
The issuance of preference shares is only too familiar to South African citizens and in particular the pensioners of the Government Employees Pension Fund (GEPF).
In an article by Jayendra Naidoo, entitled Right of Reply: My view of the PIC/Lancaster investment in Steinhoff, he stated: “This led ultimately to an offer from Steinhoff to Lancaster Group to acquire shares in Steinhoff. It was a purely commercial transaction, with shares offered at market value, based on the notion of working together as value-adding business partners.”
During the latter half of 2017, Thibault (owned by Christo Wiese), Lancaster and Steinhoff Africa Holdings Pty Limited (Sahpl) entered a series of transactions, by way of several agreements, which were intended to result in inter alia the acquisition by Lancaster of shares in Steinhoff Retail Africa Limited (Star), now Pepkor Holdings Limited (Pepkor), in circumstances where Star had plans to acquire Shoprite Holdings Limited (Shoprite).
The series of transactions are collectively referred to as “the Loop Transaction”. The Loop Transaction made funding available to the Lancaster Group from Thibault subscribed for preference shares in Sahpl to finance its (the Lancaster Group’s) transaction.
In summary, the Loop Transaction comprised the following transactions:
• During October 2017, Standard Bank provided funding of R4bn to Sahpl, which was required to be repaid on the same day.
• Sahpl subscribed for preference shares in Lancaster, using the R4bn in funding received from Standard Bank to pay the subscription price for these preference shares. A preference share subscription agreement was entered into between the parties.
• Lancaster subscribed for ordinary shares in Thibault, using the R4bn received from Sahpl to pay the subscription price to Thibault for the ordinary shares. The parties concluded a subscription agreement.
• Sahpl, using the R4bn received from Lancaster to pay Sahpl for these shares (the Sahpl preference shares). A preference share subscription agreement was concluded between the parties.
• Sahpl used the R4bn received from Thibault to repay Standard Bank on the same day.
The immediate outcome of the Loop Transaction was that Sahpl held preference shares in Lancaster, Lancaster held ordinary shares in Thibault, and Thibault held preference shares in Sahpl.
Each share transaction was accompanied by a discrete agreement between the relevant parties and each agreement provided that any dispute between the relevant parties would be referred to private arbitration.
It was contemplated that Lancaster would swap the shares it had acquired in Thibault for shares in Star, if Star acquired Shoprite. To give effect to this, Lancaster, Sahpl and Star entered into an option agreement. This option agreement provided that if Star acquired Shoprite, Lancaster could swap its shares in Thibault for shares in Star. The option agreement also contained a provision for any disputes between the parties to be referred to expedited private arbitration.
Lancaster 101 instituted an action against Steinhoff on April 17, 2019, in which it sought, inter alia, the rescission of a share subscription agreement, which Lancaster 101 concluded with Steinhoff on September 23, 2016, and in terms of which Lancaster 101 subscribed for 60 million shares in Steinhoff at a price of R75.98 per share for the total sum of approximately R4.5bn.
So 50 percent of Lancaster 101’s issued shares are held by the the GEPF, who is represented by the Public Investment Co-operation (PIC), and the remaining 50 percent is held by entities controlled by Naidoo.
The current state of this complicated financial transaction involving preference shares to balance out certain interest groupings have led to a potential loss of more than R13bn to the PIC’s client the pensioners of GEPF.
In the Public Enterprise Budget Vote 2021/2022 Gordhan stated: “Our approach is a holistic, systemic one. For the challenges are indeed systemic and not superficial. We have zero tolerance towards mismanagement, malfeasance and the culture of greed and disregard for the well-being of the economy and citizens of South Africa.”
These are music to the ears of the South African citizens, yet when an inadequate informative session such as described above is made it is very difficult to accept the sincerity of his words.
The SAA/black economic empowerment partnership deal look all too familiar. A few individuals stand to score big in the unlikely event that all goes well, while the average south African citizen fears more tax revenue will go to further SAA bailouts.
The GEPF pensioners should also concern themselves with the involvement of Harith General Partners in the Takatso Consortium. Harith General Partners have a significant investment in Lanseria Airport and other infrastructure investments in, inter alia, roads and ports. These industries have recently been hard hit by the Covid-19 pandemic.
Corrie Kruger is an independent analyst
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