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Hogg update: PPC gets nastier, Brazil’s Nkandla

In today's bulletin, there is comment on overnight breaking news from Brazil where its President Dilma Rousseff is embroiled in a corruption scandal involving the misappropriation of billions from State-controlled Petrobras at a time when she was its chairperson (her political party was a major beneficiary).

There is also a look at the Villain of the Piece in the PPC saga after interviewing the chairperson and former CEO within minutes of each other and implications for the private equity industry after market leading Blackstone restructures a new offering to replicate the “hold forever” approach of Warren Buffett’s Berkshire Hathaway. – AH

ALEC HOGG: Good morning. It is Wednesday, the 19th of November. I’m Alec Hogg from Biznews and here’s your update.

Overnight: Not a whole lot happening on the stock markets, bubbling around pretty much where they were the day before (that’s the United States) and in the Far East (in Asia), but there’s news coming out of Brazil, which is not very happy. Brazil, being one of the Brics, haven’t had a good time recently. We know the problems here in South Africa with Jacob Zuma.

Vladimir Putin (the R of BRICS) got short shrift at the G20 meeting because of his activities in the Ukraine and now comes bad news for Dilma Rousseff. She is the President – recently elected in Brazil. Petrobras is the major energy group in Brazil. It’s partly privatised, so it is listed on the stock market. However, Dilma Rousseff was the chairperson of Petrobras up until 2010, a period during which masses of funds were misappropriated. There’s a corruption scandal involving billions of dollars that has broken in Brazil. A lot of that money found its way into the coffers of the political party, which Dilma Rousseff represents (as in the Presidency). That’s the start of a story that could see (and what it is, already) Brazil’s own Nkandla.

Talking about Nkandla, the repercussions continue there. Last week we saw the fracas in Parliament by the opposition parties: the DA and the EFF. Yesterday, Cyril Ramaphosa, the Deputy President of South Africa, met with the two political parties, trying to re-establish some decorum. For now, the politicians have promised that they will behave themselves. We’ll see.

Onto the business front: A significant development into the private equity field. Now, this is not an area where many investors are fully familiar because private equity is a different route to market. In South Africa, we have a company called Brait, which, until its recent restructuring, was a listed private equity firm. What Brait would do is raise money (much of it in fact, internationally) to invest in companies, which it would put the money into for limited periods. For example, for five, seven, or nine years. The money would then be repaid at the end of that period to the investors who came in, in the first place – like a long-term deposit, except that it was longer than most bank deposits and in addition, it was invested in private companies.

The problem with this is that you might get to a period where you have to repay the investors and the companies aren’t 100% at their value, just yet. In other words, you’re enacted upon by the timing of the requirements of investors. Someone who’s very different and who’s never played by those rules is Warren Buffett. His Berkshire-Hathaway has been one of the great success stories and he buys private equity in many ways. He buys companies (usually 100% of them) as subsidiaries, but his holding period is not five, seven, or nine years. It’s forever. Blackstone, who are one of the biggest financial services groups in the world, is taking a tip from Warren Buffett. They had just launched a fund where they say that the holding period will not be determined.

It will be indeterminate (almost like a rolling fund) – a bit like Buffett. In their case, they probably will be selling those private equity investments – in other words, the underlying companies that they acquire – but it is interesting to see that one man’s achievement is shifting the views of an entire industry.

Also, here on the local front, the PPC [JSE:PPC] saga turned a new leaf yesterday when, at CNBC Africa, we had (in our Power Lunch Studio) Ketso Gordhan, the outgoing Chief Executive and the Chairman of that company, Bheki Sibiya. Bheki came in first. We spoke a little about the results and then we started talking about the big shareholder meeting, which is coming on the 8th of December and why, exactly, the PPC Board has stood so steadfastly behind the Villain of the Piece (I guess you could call her), the Chief Financial Officer Tryphosa Romano. He said that she was an Executive Director, she’d done nothing wrong, and indeed, he felt that she’d done a fine job. Ketso Gordhan came into the studio after the break. I believe the two of them did meet in the Green Room. I didn’t manage to get a video of it.

WATCH:


They shook hands rather stiffly and one of them said to the other ‘why did it have to come to this? Why did we have to discuss this in public’ and the other said ‘well, it was because we couldn’t reach an agreement in private’. It’s interesting. I wish I had that video, but anyway, Ketso came in and he said that it’s all fairly simple really, as business often is. It’s driven by personalities and people. When he applied for a job at PPC, so did Tryphosa Romano, the CFO. Now, it’s an unwritten rule in business that if you’re in a very senior position, you apply for a job, and you don’t get it…very soon thereafter, you leave. You let the new CEO take over or you at least, if you do have Damascene conversion, you make sure that you let the CEO know about this. In Tryphosa Romano’s case (according to Gordhan), she did not. She made his life a living hell, he says.

She tried to ‘white hand’ him at every opportunity. After a couple of years, he’d had enough, and he said to her ‘it’s you or me and I’m the CEO, so goodbye. Pack your bags. I’m firing you’. The Board of Directors did not agree with it and here we are. As Ketso said, it was within his rights to get rid of her and the Board doesn’t seem to believe this.

On the 8th of December, shareholders will get to choose whether they want to put Ketso Gordhan back in or whether they want to kick out Bheki Sibiya and his entire Board. Bheki did say to me that they’ve gone ahead with the recruitment process. Indeed, as Executive Chairman, he is currently running the company and the recruitment process has a shortlist of ten. On those ten – dammit, I didn’t ask him – one would assume that Tryphosa Romano is amongst them.

Isn’t it interesting how business sometimes represents more like politics than it does in the way of developing or looking after our wealth?

* For more in-depth business news, visit biznews.com or simply sign up for the daily newsletter.



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