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AS IT HAPPENED: EX-PIC head Dan Matjila says he never influenced transactions

2019-07-11 09:28

Ex-PIC head Dan Matjila told the commission of inquiry that there were sufficient checks and balances to ensure he never influenced transactions. He will continue his testimony next week.

PRETORIA, SOUTH AFRICA - JULY 8: Former Public Inv
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Last Updated at 09:34
11 Jul 13:00

No room for undue influence of investment decisions - Matjila

Ex-PIC CEO Dan Matjila said he did not influence investment decisions of the asset manager.

Matjila made his fourth appearance before the commission led by Justice Lex Mpati on Thursday. The inquiry adjourned at 12:00, and Matjila is expected to return next Monday, July 15 to continue his testimony.

Matjila told the commission that the PIC is viewed by some as a "tempting piggy bank" as it sees over R2trn in funds. Despite this, the PIC has not become a piggy bank, Matjila confirmed to Commissioner Lex Mpati.

The investment process, asset selection is very stringent. An asset will be taken on the books if it meets the minimum requirements. "That's how we deal with the risk of it being a piggy bank," he told the commission.

When asked by assistant commissioner Gill Marcus if the checks and balances the PIC has put in place have been enforced, Matjila said investments are screened and go through rigorous due diligence. No single person at the PIC can make an investment decision on his/ her own, he added. "The checks and balances to police this are as robust as they possibly can be."

Matjila explained he cannot influence transactions as they are dealt with by different teams. There is a lot of work that goes into a transaction and final approval that he is no involved in, it is done independent of the office of the CEO. "I don't get involved at all."

He also told the commission that he has never pressured his staff to push through transactions. "I was actually quite shocked that people were making statements that I was pressurising them."

Matjila's legal team had also informed the commission they received a Nexus report concluding that he received a VBS loan. Matjila and his team still reject this finding or claims that he received a loan.  


11 Jul 12:56

Mkhize: I have never asked the PIC to fund the ANC

Former ANC Treasurer-General Zweli Mkhize says he did not request funding from the PIC nor any other state-owned entity for the ANC January 8 statement.

Mkhize issued the statement on Thursday, in response to the testimony of former PIC head Dan Matjila before the commission of inquiry on Wednesday.

Matjila had told the commission that he received requests for funding from politically-connected people, from all political parties and not just the ruling party.

He particularly gave an example of how the PIC was asked by a "top ANC official" to assist the ANC for its January 8 statement. But Matjila explained the asset manager cannot get involved in the funding of the ANC.

Matjila said the official, whom he would not name, asked Matjila to refer the request to other possible entities who had been funded by the PIC. Matjila then referred the request to businessman Lawrence Mulaudzi for assistance.


11 Jul 12:11

The inquiry adjourns.

It will resume from 09:30 on Monday, July 15.

The GEPF is expected to provide evidence, and Matjila is expected to continue his testimony from 14:00.


11 Jul 12:07
Mpati says that the evidence presented by Mulaudzi and Matjila seems to be contradictory. 

11 Jul 12:06

Mpati asks why Muaudzi asserts he was forced into a merger.

Matjila says: "I don't know what the nature of the force is. He could have simply refused."


11 Jul 12:04

Mpati asks if the two companies decided to merge out on their own.

Matjila says all he told the two parties is that a binding letter could not be issued.



11 Jul 12:03

Matjila said he told Mulaudzi that a binding letter of expression of interest could not be issued.

There was another competing company. 


11 Jul 12:02

Mpati asks if Matjila had asked for a merger.

Matjila said he never mentioned a merger- but it was in his mind.

Mpati says that in Mulaudzi's testimony that Matjila told him to merge.


11 Jul 12:01

Lediga asks why Matjila could not choose between the two companies - Matjila says it would be like catching a falling knife.


11 Jul 12:01

Matjila said he could not choose between the deals presented by Mulaudzi and Sakhumnotho. 

"It was a hard one. I could not choose between the two of them, at the time."

A possibility of a merger would have been best. 



11 Jul 11:57

11 Jul 11:56
Matjila says he does not get involved in due diligence processes. He was assured by the team involved that they had done the work. 

11 Jul 11:50
Marcus notes there is a different testimony on the same matter from Mulaudzi.

11 Jul 11:50

However, there appeared to be lack of communication and working in silos which resulted in three competing consortiums being promised support by the PIC. 

including non-binding letters of support.

Mulaudzi was hounding Matjila for a binding letter of support.


11 Jul 11:46
An engagement letter was issued by the PIC to KiliCap in July, Matjila says.

11 Jul 11:46
Matjila says a binding letter must have conditions for the pricing to be set.

11 Jul 11:43

Whoever gets the exclusivity - then a binding letter of expression of interest is issued.

This is usually issued before a stage of prices is set. 


11 Jul 11:41

Matjila explains when someone approached PIC for funding - and if the information makes business sense to pursue by the team - a letter of interest is sent.

At a stage of due diligence- then an expression of interest confirming the deal is being done is issued. A sponsor must be recruited to support the expenses of the deal and an engagement letter is issued.

This ties the parties, but there are escape clauses to allow the PIC to exit. 

The PIC must also allow the sponsor exclusivity.

If there is a competitive bidding process- no strong letters of interest are issued. Only letters of support are issued, to all the bidders. 


11 Jul 11:37
Matjila said he was surprised to learn of this in evidence presented to the commission.

11 Jul 11:35

PIC provided KiliCap a letter expressing interest in June 2015 - which could be used by them to make a bid for Tosaco.

Nedbank had issued KiliCap a similar letter.


11 Jul 11:26

Matjila says when it comes to fees- it must be tied to performance.

i.e. an advisor is to be paid based on the performance of their advice. 


11 Jul 11:21

Marcus asks Matjila about managing conflict of interest.

Matjila says the PIC is seen as a training ground- creating new enterprises (black enterprises) and supporting them. This should be across all sectors, and mainly the financial sector where the PIC is a main player.

He says when it comes to advisory services, the PIC did not see why they should not create those out of employees, to move out of the PIC and become bigger without the constraint of the PIC.

But the PIC is constantly attacked for having a conflict of interest - but in the private sector this is common. 

Some of the biggest entities were created as spinoffs of other larger entities.

Matjila finds the treatment of the PIC to be unfair.

Marcus says the PIC is not prohibited from doing this- the process must just be transparent.



11 Jul 11:12

KiliCap had no experience of putting together investment information memo, so the PIC advised them to appoint an advisor.

KiliCap asked the PIC for a recommendation. The PIC recommended BnPCapital.

Matjila emphasises this recommendation was by the deal team - not the office of the CEO.


11 Jul 11:09

Matjila said as CEO there is an impression that he is everything at the PIC.


11 Jul 11:08

KiliCap was a newly formed company put together to pursue Tosaco, says Matjila. 


11 Jul 11:06

Royith Rajdhar of the Isibaya Fund dealt with the Tosaco transaction - funded by debt.

The deal was funded by a GEPF loan for the acquisition of Tosaco and a UIF loan for Tosao retail because of the high job creation potential.

 



11 Jul 11:03

There was no introduction of Mulaudzi by another party - Matjila says this is not unusual.

Mulaudzi approached him on his own volition.


11 Jul 11:01

Matjila said he was not aware that Paul Magula was involved with Mulaudzi at this point. 

Long after the transaction was finalised, was Matjila informed by Mulaudzi's wife that Magula had been interacting with her husband prior to the deal.

Marcus says Adv Lubbe must follow up with Magula about this allegation.


11 Jul 10:59

Matjila said he met Mulaudzi in May 2015, when he introduced the Tosaco opportunity - he had never met with Mulaudzi before. 

At the meeting, he ran through the investment process and informed him that the PIC needs an information memorandum on the opportunity.

The memo was received later in May, which was then referred to the executive head of Isibaya Fund for review and guidance.


11 Jul 10:56
The Tosaco investment was R1.8bn, Lubbe confirms.

11 Jul 10:53

Matjila discusses the Tosaco (2015) and Ascendis (2016) transactions.

The media raised concerns with individuals- Lawrence Mulaudzi - involved in the deals.


11 Jul 10:36

Lediga asks if that means that there are enough checks and balances to prevent a bad transaction going through even if it is recommended by him.

Matjila says absolutely. "I don't understand where my colleagues were coming from in terms of me putting pressure on them.

"I was actually quite shocked that people were making statements that I was pressurising them."


11 Jul 10:33

Matjila says he cannot influence transactions as they are dealt with by different teams.

When transactions come to the office of the CEO, he passes it on to relevant executives to see if it fits the mandate. if it does- it is processed or sometimes tested further to see it will deliver returns.

There is a lot of work that goes into a transaction and final approval that he is no involved in, it is done independent of the office of the CEO.

Sometimes if there are problems, teams approach him and he provides guidance but he is not involved in the nitty gritty of what works and what doesn't. "I don't get involved at all."


11 Jul 10:28

Matjila says no single person at the PIC can make an investment decision on his/ her own. 

All potential investments are scrutinised in processes and discussed and debated before a decision is made.

The checks and balances to police this are as robust as they possibly can be. 


11 Jul 10:26

Marcus asks if anyone has signed a declaration but was still involved in presiding over an investment.

Matjila says he does not remember those situations- he has not done an in-depth analysis of that. 


11 Jul 10:25
Matjila says those who are assumed to have conflicts of interests when presiding over investments - need to recuse themselves. This has been a practice of the PIC. 

11 Jul 10:25

Marcus says the form is there- but is the substance there?

"You can have all the checks and balances about signing the declaration but the practice is different."

She asks if there is a difference between the forms and practice.

Matjila responds that it has been a challenge to deal with this aspect of conflict.

"From management side, the investment process we put in place we believe has been effective," he says.

Investments are screened and go through rigorous due diligence. before they get to any committee - they are presented because they are believed to be clear.


11 Jul 10:22

Matjila says conflict of interest checks and declarations are also complied with. Directors have to file declarations annually.


11 Jul 10:19

Matjila says that risk management is not perfect but it does not mean the whole of risk management has collapsed.

There are certain sections to look at and interventions made. But there are certain sections that the PIC has done well in - market risk, compliance, credit.


11 Jul 10:15

Lex Mpati asks if the PIC has become a piggy bank for politicians?

Matjila says it has not. The investment process, asset selection is very stringent. An asset will be taken on the books if it meets the minimum requirements. "That's how we deal with the risk of it being a piggy bank."


11 Jul 10:13

Having the fund be controlled by clients as opposed to being prescribed by government.

The clients can then give mandates and monitor it themselves.

Lediga asks if the funds indeed could boost the economy - Matjila says it could if the allocation of funds is mandated by clients.


11 Jul 10:11

Lediga asks about the GEPF - if the pension fund has a surplus of money - why isn't government taking some of its funds to boost the economy. He asks for Matjila's views.

Matjila says this can be handled better- on a voluntary process or as a mandate as opposed to just being forcefully expropriated from the GEPF.

Almost half of the GEPF members will retire in 15 years and the other half will retire beyond 15 years. 

There is an opportunity to stricture a different strategic asset allocation, Matjila says. 


11 Jul 10:06
He adds that the Eskom portfolio is exposed to the economy, and there is nothing the PIC can do in the case of an investment downgrade of Eskom as it is economy-related. 

11 Jul 10:05

Matjila says the PIC has invested close to R90bn in Eskom and almost R70bn of the bonds are government guaranteed.



11 Jul 10:03

Matjila says before he left- the PIC supported most SOEs.

But when some of them started experiencing balance sheet problems, the PIC put together a comprehensive policy on how to finance SOEs going forward and the nature of interventions required to entice the PIC to put more money in these entities.

The PIC did not increase its bonds in Eskom, apart for the R5bn bridging loan facility He reiterates that Eskom has not defaulted in payments.


11 Jul 10:00

Matjila says even its unlisted investments outperform benchmarks.

Across all asset classes there have been contributions to the PIC's overall performance.

He adds that markets go through cycles - it is important to capture opportunities when other portfolio classes come under pressure. 


11 Jul 09:56
Matjila says post corporatisation of the PIC in 2005, the corporation started working towards complying with the King Codes for governance. 

11 Jul 09:50

Matjila explains that in terms of the PIC's mandate, it delivered in terms of returns outperforming benchmarks.

Lediga asks if the mandate just relates to financial returns and not operations.

Matjila says the mandate relates to financial returns but the PIC does comply with the FAIS Act which relates to systems and processes.


11 Jul 09:47
Matjila says all transactions follow the investment process – but there can be deviations which are administrative in nature and not in terms of policy.

11 Jul 09:43

Marcus however points out evidence of shortcomings at the PIC which were heard by the inquiry which contradicts with Matjila's statement. She asks him to respond.

Matjila says he understands her point but the PIC has done exceptionally well in delivering on its mandate. However, it is not without problems which is why the commission was set up to understand the problems and how to deal with them.


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