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Possible "collusion" between the Lancaster Group and former Public Investment Corporation CEO Dan Matjila was at the heart of a R9.4 billion deal involving the purchasing of shares in Steinhoff, the Lex Mpati Commission of Inquiry has found.
The Commission’s report was released by the Presidency on Thursday afternoon.
It found that there was "substantial impropriety" at the PIC, the state-owned asset manager, and that its board was "divided and conflicted", Fin24 reported.
The PIC manages over R2 trillion in state assets and its biggest client is the Government Employee Pension Fund.
One of the deals examined by the Commission was the purchasing of 2.75% of the shares in Steinhoff International Holdings, by the Lancaster Group, to the tune of R9.35 billion, with the PIC’s help.
According to the Commission’s report, there were a number of irregularities in the deal. There was a suspicion of "collusion" between Lancaster’s chairperson and sole shareholder, Jayendra Naidoo, and Matjila, and there was ultimately no reason for the PIC to invest in Steinhoff via Lancaster’s subisidiary, L101.
The investment proposal prepared by Lancaster also involved the PIC purchasing half of L101 for R50 million.
Ultimately, the PIC funded the deal to the tune of R9.4 billion – a reduced figure from the initial request of R10.4 billion. This done by Matjila so that the investment would fall within his delegated authority and would not have to be referred to a higher committee or the board for a decision.
The Commission found that L101 would not have been able to purchase the shares in Steinhoff without the funding advanced by the PIC, and, despite this, the underwriting commission was paid to the Lancaster Group.
"It is questionable whether the Lancaster Group or L101 should have received an underwriting commission at all, and whether this should have gone to the PIC itself," the commission noted.
It recommended that a legal opinion should be obtained by the PIC to determine whether this was correct, and that "appropriate steps" should be taken if it emerges that the commission was due to the PIC, not L101.
The Commission found that the PIC should have purchased the Steinhoff shares in the market instead of entering into a transaction through Naidoo to purchase them.
The transaction was approved by the PIC’s investment committee, chaired by Roshan Morar, a PIC non-executive director. But Morar was also appointed as a board member to L101 representing the PIC – a conflict of interest, the Mpati Commission found.
The amount outstanding on the loan was about R11.6 billion, including interest, as of February 2019, the report noted. And this loan has yet to be serviced by L101.
Other concerns raised by the Mpati commission included that the PIC did not use any transaction advisors despite how complex the deal was. This allowed the Lancaster Group to dictate the terms of the deal through their advisors, placing the PIC team "at a significant disadvantage".
The Commission found that the "conduct" of Matjila in reducing the amount of the loan so that it would fall within his purview was "wholly improper".
"This might be taken to indicate collusion between Dr Matjila and Lancaster," the Commission found.
It recommended that the PIC’s investment decision making framework should be amended so that Board approval would be required when proposals submitted to the PIC need to be amended.
