A single obligor limit is the maximum amount a bank is allowed to lend a single borrower or an individual in relation to the total shareholders’ fund of that bank.
In the testimony yesterday of PIC executive head of impact investing Roy Rajdhar it emerged that the PIC had exposed itself to the tune of more than R2.1 billion in four transactions, all lead sponsored by entrepreneur Kholofelo Maponya.
The exposure to Maponya related to Afgri (now renamed Daybreak Farms); SA Home Loans; a housing venture called Makhaya Makhaya and a healthcare project.
“Now during this commission you hear about people being funded multiple times. We at the moment in the PIC have developed a single obligor that has now been tabled through the committees, so we have some guidance to limit the extent we support single individual or groupings,” Rajdhar said.
Rajdhar was at pains to defend the PIC’s assessment procedures, particularly the risk assessment practices, after the commissioners questioned how the funder would seemingly bend-over backwards to make a transaction happen for its sake whereas risk assessment and due diligence reports had indicated high levels of risk, which then came to pass a short while after the funding had been granted.
A case in point was the Afgri/Daybreak deal in which the PIC eventually pumped in R1.2bn, which was tailored around Maponya being an active participant, but which ran into glitches mere months after the PIC had made its investment, which ultimately forced the funder to pump in more money to save the investment.
Rajdhar also defended the PIC’s valuation methods, which the commission questioned on the basis that the organisation had paid R1.2bn for an asset pegged at between R600 million and R800m, but which the market was bidding for no more than R600m.
“A lot of parties were making unsolicited bids for R600m, because it was known in the market at the times that Daybreak was going through a rough time. We have evidence of collusion in the bid for the asset. The people we had entrusted to turn the company around were more interested in selling it,” he said.
He said though Afgri/Daybreak was technically insolvent at the time the PIC had invested into it, there was potential for turning it around.
“We still believed in the fundamentals of the business. We believed that the high input costs would be rectified.”
Rajdhar said the status of the investment had subsequently turned around
“We have had two consecutive years of exceptional profits, the business is now worth more than R2bn. So at the end of this year we will have fully recovered our investment,” he said.