Technology firm GijimaAst's share price yesterday dropped 25 percent in mid-morning trade, shaving more than R250 million off the company's market capitalisation of about R1.05 billion. This was after the emergence of a dispute over the validity of a R2.5bn contract the company has with the Department of Home Affairs.
This was the biggest fall in the company's share price since 2005, but it later recovered and was trading at R1.09, a 11.38 percent decline, by the close of trade yesterday. The software sector closed 0.88 percent firmer at 376.13 points.
GijimaAst said that if the dispute continued it could have a material effect on its earnings. The contract accounts for 15 percent of the company's revenue. In February the firm reported R1.4bn revenue for the six months to December, down 3.6 percent from the same period in 2008.
The government would not give reasons for saying the contract was invalid, but GijimaAst said that after the close of business on Tuesday the department had sent the company a letter stating the contract was invalid, without justifying the statement.
However, GijimaAst was seeking legal advice to deal with the problem, it said.
The contract, signed in June 2008, is for the management of the Who I Am Online project, which is aimed at modernising the business of the Home Affairs Department in line with international best practice. It forms the foundation of future projects, such as smart IDs.
The black-owned GijimaAst was considering legal action if there was no immediate resolution to the dispute.
Negotiations between the legal representatives for both parties held yesterday afternoon produced no solution.
Department spokesman Ronnie Mamoepa said that the government had noted GijimaAst's statement but "since they issued a statement they and they alone should comment regarding the contents of their statement". He refused to respond to questions.
GijimaAst is a holding company for a group of companies providing management, information technology consulting, systems design, outsourcing, training, and software design to clients in South Africa, the UK and Australia.
The group covers mining, manufacturing, financial services, telecoms, as well as the public sector and parastatals.
Its other major government contracts are with the Department of Land Reform and the SA National Road Agency. The government accounted for 47 percent of the group's business, Irnest Kaplan, an analyst at Kaplan Equity said yesterday.
The company was formed out of businessman Robert Gumede's Gijima Technologies' empowerment merger with the loss-making AST Group in 2005. Gijima Technologies, now known as Guma, holds a 37 percent shareholding in the company.
It has been ranked as the top empowerment information and communication technology services company in South Africa. Fifty percent of its board and executive committee comprise black people.