GOVERNMENT pensioners lost R4bn thanks to the Public Investment Corp’s ill-fated investment in African Bank, it emerged last week.
This revelation, buried in the Myburgh report into African Bank’s collapse, raises new questions about the PIC’s transparency since CEO Daniel Matjila avoided any reference to these losses in a briefing to parliament last week.
When he addressed parliament’s standing committee on finance, he clumsily managed to steer clear of its R4bn mega-loss.
It almost seemed that SA’s largest investor had sidestepped the fallout from the collapse and was now sitting with just an investment in the “good” African Bank.
“The PIC’s investment is only in the good bank, we’ve got nothing in the bad bank,” Matjila told the committee.
A short while later, he reiterated: “We have no shareholding in the bad bank, we have invested in the good bank ... we did have a shareholding in African Bank.”
When Abil was put under curatorship in August 2014, that shareholding obviously vanished. Luckily for the PIC, this R4bn loss diminished in significance when seen against its entire portfolio of
R1.8 trillion.
In discussing Abil’s collapse, Matjila’s briefing to parliament highlighted the flaws of a corporate governance model that relies on an effective board, with skilled and independent-minded directors.
“What we saw were issues around the board. We rely heavily on good governance being in place,” he said.
Even though the PIC owned 12.5% of Abil, this gave it no advantage in terms of better-quality information.
“We rely on publicly available information — reports released in terms of JSE requirements — just like everyone else,” said Matjila.
This was somewhat ironic. Matjila was, after all, defending a hefty investment loss on the basis of “poor quality information” while himself not providing in-depth information that parliamentary members feel they need to hold the PIC to account.
The key issue for parliamentarians is what lies inside the PIC’s “black box” of unlisted and offshore investments — a bug-bear, considering the near-total lack of detail.
It’s not petty cash either: it is equal to 30% of the PIC’s entire R1.85 trillion portfolio.
David Maynier of the Democratic Alliance says it is impossible to hold the PIC to account, given the blackout on what’s in its unlisted portfolio.
Parliament can’t play its oversight role without this information, he says.
Testifying to a parliamentary committee is never easy. But Matjila appeared to be having a particularly tough time.
On the one side ANC members were heckling the opposition parties for their “too vigorous” efforts to extract detailed information from the PIC; on the other, Matjila had to deal with MPs clearly displeased by the level of disclosure.
In response, Matjila cited “confidentiality clauses” – but Maynier wasn’t letting him off the hook so easily.
“Could the PIC provide us with a copy of one of those confidentiality clauses? Could the PIC explain the purpose of these clauses ... they prevent oversight,” he said.
Frustrated, Maynier turned to Abel Sithole, principal executive officer of the PIC’s biggest client, the Government Employees’ Pension Fund (GEPF), who was waiting in the wings.
“Is the GEPF comfortable with all the confidentiality clauses and the refusal to disclose details to parliament?” asked Maynier.
Sithole replied that he had no problem with disclosing the names of companies in which the PIC was invested.
Committee chairman Yunus Carrim, of the ANC, suggested government’s legal advisers should weigh in.
“We need legal advice to determine what is the role of this committee. [The PIC] are very important and parliament is required to exercise oversight but this committee is not a second PIC board,” he said.
Carrim said the PIC should provide reasons — acceptable to the legal advisers — for any investment-related documents it didn’t want to submit to the committee. But he added: “You must give us the names.”
Left unsaid was the stark reality that, as the manager of the defined benefit pensions of government staff, any shortfall in the PIC’s performance will have to be made up by taxpayers.
Eventually, PIC chairman and deputy finance minister Mcebisi Jonas gave the committee an undertaking: “We will supply the names.”
After the meeting, Maynier said he wasn’t holding out too much hope of getting a complete list.
There were numerous unsettling implications from last week’s clash in parliament.
For one thing, Matjila’s apparent determination to reveal as little as possible is at odds with the PIC’s commitment to transparency. The PIC’s documents talk about instilling a “culture of compliance and good governance”, while ensuring its affairs are “conducted with accountability, transparency, fairness and prudence”.
But even were the PIC to release a list of names of companies in which it had invested, this wouldn’t guarantee any joy for someone searching for a link to the Guptas, for example. This is perhaps why the parliamentary committee spent so much time interrogating the exact words Matjila used to deny the PIC had invested in a Gupta-connected company.
Carrim, for one, felt the PIC’s qualifier, in which it said it hadn’t invested in the Guptas “to the best of our knowledge”, was just too equivocal.
Real transparency would mean, for example, that parliamentarians wouldn’t have to rely on the GEPF’s report to discover that the PIC has an R888m exposure to the Independent News Group.
In 2013, the PIC first agreed to finance Iqbal Survé’s purchase of Independent Media from its Irish owners, but the terms of the deal were never disclosed.
Even the PIC’s most recent annual report contained not a single reference to the Independent investment. Instead, details of that investment were painfully extracted during last week’s hearing.
Matjila said the rationale behind investing in Independent was to create a black media giant instead of generating immediate returns.
“We are less than two years into it, and maybe we will create a black Naspers,” he said.
For pensioners whose money was used to finance this deal, however, this seems like a decision suspiciously more political than financial.
Of this money, 30% was a direct loan to Survé’s company Sekunjalo, while the other 70% was a loan which sat on Independent’s balance sheet. After five years (in 2018), the PIC will give the newspaper group two years to pay back the money.
“This could be done through a trade sale to another investor or through a listing,” Koketso Mabe, the PIC’s head of private equity, told the committee.
Mabe said while it was still “early”, the Independent group “is performing above the J curve” — which describes the pattern of investment returns from negative in the early years to positive at later stages.
Though this is useful insight into one of its “black box” investments, it’s hard to assess the risks without the quality of information that the PIC, ironically, expects from its own investments.
The stakes are high. It is not just about government employees’ returns, or even the potential liability faced by taxpayers for a pet project that loses a billion here or a billion there.
It’s that a R1.8 trillion kitty is an immensely tempting amount of money to have at your disposal, when there’s zero oversight or accountability.
As the PIC would itself surely acknowledge, the best way to address this is through transparency.