Ithuba denounces HCI's legal challenge
CAPE TOWN – Hosken Consolidated Investment’s (HCI) legal action against Ithuba was an attempt to take over the black-owned R8 billion-a-year lottery operator without following regulatory processes, a statement from Ithuba alleges.
The arguments on the case were due to be concluded today in the South Gauteng High Court, a spokesperson for Ithuba told Business Report yesterday. Ithuba won a competitive tender to run the national lottery from June 2015 to May 2023.
HCI, led by former trade unionist Johnny Copelyn, had loaned Zamani Marketing and Management Consultant and the Ithuba special purpose vehicle, led by founder and chief executive Charmaine Mabuza, R325 million, repayable over five years, to start the lottery.
The interest on the loan (34 percent a year) will be about R441m on April 29, next year.
HCI has disputed that some of the loan covenants were complied with. Ithuba claims HCI had entered the gambling industry on previous occasions by taking up the stakes of black empowerment shareholders, and was now attempting to do the same with the lottery operator.
Ithuba allegedly offered to repay the interest early, but HCI, according documentation on its website, refused to accept the payment. The loan itself was, however, allegedly repaid by September 2016.
Since January 2016, HCI had been trying to implement “early-trigger events” in the loan agreement to be activated as a takeover mechanism, insisting that Ithuba had not complied with some of its loan covenants.
The alleged unfulfilled covenant relates to a lower debt service coverage ratio than the prescribed one in the start-up phase of the business, something that had allegedly been subsequently rectified by Ithuba.
Any management or transfer of the national lottery licence management must be approved by the Minister of Trade and Industry, National Lotteries Commission and the Competition Commission.
A recent arbitration ruling confirmed that the regulatory processes would have to be followed before HCI could take over the management of Ithuba or the national lottery.
But HCI has applied to the high court for an order forcing Ithuba to hand over management of the company. At stake, allegedly, were management fees paid to Zamani, calculated at 4.67 percent of Ithuba’s monthly revenue, Ithuba claimed.
Ithuba said losing bidders for the lottery tender might launch legal action against the government should HCI be allowed “a back-door contract via its takeover of Ithuba”.