AS IT HAPPENED: Ex-PIC head Dan Matjila to testify on VBS Mutual Bank

ICYMI: Matjila: I take ministers' calls, nothing 'improper' about meeting with them

Former PIC CEO Dan Matjila told the commission of inquiry that he did not find anything unethical about meeting with Cabinet ministers during his tenure.

Matjila on Tuesday made his sixth appearance before the commission, led by Justice Lex Mpati, which is investigating allegations of wrongdoing at the asset manager which oversees R2trn in state funds.

Advocate Jannie Lubbe led Matjila's cross examination, starting off with queries on a meeting with former intelligence minister David Mahlobo at OR Tambo in 2017. It was at this meeting, Matjila told the commission previously, that he met businesswoman Pretty Louw and her business partner who were seeking help for their business.

Mahlobo had asked Matjila to assist the business people. Matjila told the commission he had explained the investment process of the PIC to the parties present. After referring their proposal to the PIC's investment team Matjila was informed that the proposal does not meet the PIC's requirements. Matjila said he referred the business people to the Industrial Development Corporation, so that they could get help through the Black Industrialists Programme. Ultimately, businessman Lawrence Mulaudzi assisted the business in his personal capacity, on Matjila's referral.

Lubbe probed Matjila as to why he had accepted the minister's request to meet. To this Matjila responded that he viewed the minister as a stakeholder of the PIC.

"The minister called me, I would not disrespect the minister. I see him as one of the stakeholders in the PIC... When they (ministers) call I do want to know what the issues are."

Lubbe asked Matjila if he thought it was "improper and unethical" of a minister of state to call the CEO of the PIC to an airport to deal with a matter like this. Matjila did not agree that it was unethical.

"The minister called me and I went to see the minister. I have met ministers not only at the airport, some at their places for their convenience. I do not see anything unethical about meeting a Cabinet minister."

The inquiry has adjourned and will resume at 09:30 on Wednesday.

Matjila will return to provide evidence on VBS Mutual Bank, among others.

Matjila says due diligence was done on Naidoo.

The outcome was positive.

L102 is a wholly-owned subsidiary of L101.

The subsidiary was meant to raise funds to invest in STAR, says Matjila.

With the collapse of the share price, the protection kicked in.

Ultimately a third of the investment in the Lancaster portfolio was lost, compared to the 90% drop in Steinhoff share value in the open market.

All of the PIC's checks and balances were followed- it is an unfortunate consequence of the Steinhoff saga that PIC has lost value in the share price.

Matjila discusses Steinhoff Africa Retail, listed on the JSE in 2017. It changed its name to Pepkor, the aim was it to become an African retail champion competing among the likes of global retailers like Tesco.

This was part of PIC's vision of building pan African champions in various sectors in the continent. Like Eco Bank in the banking sector.

STAR made commercial sense and provide risk mitigation compared to Steinhoff.

A new SPV- Lancaster 102, a wholly-owned subsidiary of Lancaster was created.

As part of a risk management strategy- the PIC put together a derivative insurance structure for protection if the share price collapsed, says Matjila.

The allegation the PIC gave Naidoo R9.35bn is not correct.

The loan was to Lancaster - where the PIC on behalf of clients owned 50%, balance of 25% to Naidoo and his consortium and 25% to broad-based black empowerment groupings o be identified.

The PIC is represented on the board of L101. Steinhoff sought to sell a stake to a BEE partner as government requires. Lancaster took out loans from the PIC to buy sufficient shares in Steinhoff so that a black director could be on the board of Steinhoff, via Lancaster.

Lancaster deal

The purchase of 2.75 additional shares in Steinhoff, facilitated by J Naidoo, was done so through a structural investment product portfolio within the PIC. 

Matjila says that it was agreed when Lancaster was put together - the PIC would be represented by J Naidoo on the Steinhoff board.

Matjila said it was important to finalise those ahead of the closed period.

Matjila says the PIC had estimated anything between 2.5% and 3.5% to be represented on the board. 

Other options for the pIC would be to buy shares in the open market - but those shares would not give the PIC special rights. A lot more shares would have had to be bought to get a board seating. A critical mass of between 10% and 15% would entitle the PIC to call a board meeting and impose resolutions to be voted onto the board.

The PIC has a comprehensive model on Steinhoff in the listed equities department, Matjila says.

"They knew the stock quite well."

The strategy to buy shares was more to structure the transaction to allow BEE to come in.

Marcus argues one individual on Steinhoff's board is not a BEE deal.

Matjila says the idea was to broaden BEE participation over time.

Marcus says it appears that decisions were made because of timelines.

She asks if it is right to make investments of "this scale" under the pressure of a timeline- which impacts the quality of the decision.

Matjila says that within the PIC there is always time pressure. Time is important when it comes to getting a decision out.

A R10bn transaction within the PIC environment in the listed space is not extraordinary because of the size of the portfolio.

Shares of R10bn or more have been traded in a short space of time because the asset is known to the PIC.

Matjila says the PIC did not feel it was necessary to go to the client- the GEPF - to change the mandate or reduce investment in Steinhoff, because the stock was performing well. The only way forward was to influence the governance, Matjila says.

Matjila says Steinhoff was one of the best stocks at the time. But there were concerns of governance. The PIC wanted to be heard- which is why they opted the route for Naidoo to represent the PIC on the board.

"Governance is extremely important in the performance of companies. The return generation of any company is normally due to an appropriate board able to drive wealth creation and manage the risk of the company. That is why representation on the board was critical for us."

Matjila says that J Naidoo who proposed that PIC buy more shares in Steinhoff then represented the PIC on the Steinhoff board.

Matjila does not have the monetary figure of the loss in the investment into Steinhoff following its collapse.

But Matjila says the drop of the Steinhoff share was 95%.

PIC says there has been objections as the rotations are costly.

But the PIC has argued the cost of collapse is greater than the collapse of rotating an auditor over time. 

Matjila wants to know where the auditors were when the malfeasance was carried out.

Like any investor, the PIC was and always will be dependent on audit reports to make prudent investor decisions.

The PIC proposed to the independent regulatory board for auditors that mandatory auditor rotation for companies- which prevents the same auditor serving a company for more than 10 years. 

Matjila says the PIC exposure in Steinhoff represented less than 1% of the PIC's assets under management- but were material in value.

It was one in over 300 securities in the PIC portfolio- so the loss was thoroughly cushioned.

A single stock could not collapse the entire portfolio which is well diversified.

The portfolio can survive one or two of these disasters. But if this happens on a bigger scale- it will have a dire impact on the portfolio.

Matjila says the retail group, with a global presence - Steinhoff was considered a "sound investment" and the "darling of the JSE" and other stock exchanges around the world.

Matjila says the question should not be why was the PIC duped by Steinhoff- but rather who was not duped by Steinhoff? 

The fully orchestrated malfeasance at Steinhoff was committed over years and there is no way a prudent investor would have detected these irregularities.

Matjila says the losses incurred through the PIC investment in Steinhoff was significant and deeply regrettable.

I take full responsible as the head of the PIC.

Buying 3.5% of shares brought the PIC closer to the benchmark weight, Matjila says. These shares carried special voting rights.

The PIC would get a board seat.

In most cases the company can consider giving a board seat if you own more than 10% in share capital.

Matjila says Steinhoff was the "darling of the stock exchange".

But the PIC could not address its governance issues at the retailer because it was not represented on the board.

PIC was happy to invest a further 3.5% to increase its weighting in Steinhoff. The PIC was 10 basis points underweight - this is why more shares had to be purchased. The 3.5% stake improved its position slightly, but the PIC was still underweight - the key reasons was to close the underweight position and use the shares with special voting rights to get onto the board.

Matjila says these interventions were ultimately not successful.

The PIC voted against Steinhoff at AGMs- where certain resolutions were voted against.

For example in 2015, the PIC voted against the listing on the Frankfurt stock exchange- the PIC lost as the retailer listed in Frankfurt.

The PIC also voted against the reappointment of a Steinhoff board member.

They also voted against the management board to issue shares to the extent of more than 5% of the company.

The PIC also wrote to Steinhoff in 2017, following the collapse of its share price, that it wants Christo Wiese to step down, for two non-executive directors to be appointed on the board and for PIC representation on the board, among other interventions.

The inquiry adjourns for lunch.

It resumes at 14:00.

Matjila- don't do it all at once, do it in a staggered way.

Do it with research so that the timing of investments can be done efficiently, he adds.

Matjila says the collapse in the Mozambican currency could not be foreseen.

He says that this should not prevent further investments in African countries with soft currencies - to safeguard against the effects the PIC should make sure it has a diversified portfolio to withstand such cycles. 

Matjila says there is a process whereby PIC employees must follow when they plan to invest in a security where the PIC is involved in.

There must be a declaration of interest.

"There is a through process the employee must follow when they want to buy shares on the stock market," Matjila adds.

An employee can invest in the same entity the PIC is investing in - but there are controls to ensure the investment is not made when the PIC is investing.

Marcus notes it is a $63m investment and asks how much is owed.

Matjila says the $63m is still outstanding. 

Lediga asks if the PIC learnt from the experience.

Matjila says the PIC did a case study to find out what went wrong - and what mitigants to put in place to avoid a similar situation in future. The PIC does case studies for transactions gone wrong.

The issue of currencies in the continent is a big challenge. The easiest would be to price everything in dollars. "Our exposure is dollarised, but I am not sure the company would have been able to sustain that kind of strategy. That meant full currency exposure unfortunately," he said.

Matjila said these currencies cannot be hedged. The PIC took a naked position on the currency- "The lesson is we probably should not have gone in the area very quickly," he said. "We probably should have better understood the macro issues better," he added.

Lediga asks if the PIC considered the currency risk.

Matjila responds- it is about hindsight.

The PIC was happy in deploying money in SADC and Mozambique.

"We understood the challenges and complexity in deploying money far away," he said.

The PIC had invested in Nigeria and had invested in a power station in Mozambique before.

Lediga asks if the PIC was correct in taking a risk in investing in Mozambique, especially as the PIC was embarking on a new strategy to expand into Africa and into greenfields operation run by an entrepreneur- not an established business.

Matjila says, "I think it was correct, in hindsight we see problems."

Matjila said the plant was complete and nearing commission. The unit was 90% ready to produce. 

The most expensive aspect was the raw material which more than doubled in cost - because of the weaker Mozambican currency, which dropped by more than half, it created a problem.

Matjila said other than that he saw the facility itself and was happy with it.

Matjila says he did not find it improper that he helped coach Nene's son on business and investments.

Lubbe asks if he views it as a conflict of interest.

"I saw it as knowledge sharing and coaching. This is something I am passionate about."

Lubbe asks if his son joined an entity of Dr Iqbal Surve on the same basis.

Matjila says his son has never joined an entity of Surve's and the information is incorrect.

The deal complied with the relevant PIC processes, Matjila confirmed.

Matjila responds to media reports about the S&S Refinery deal specifically allegations.

One relates to the PIC making an investment in a dilapidated oil refinery in Mozambique.

To this Matjila responds - poor governance, the collapse of the Mozambican currency resulted in cost to the investment.

Matjila believes the plant is a world-class facility.

A strategic partner has been roped in to operate the facility and restore its production and in the long run, profitability.

Matjila said he also advised them on their cement business.

The S&S Refinery deal was introduced to the PIC by Siyabonga Nene and his business partner Amir Mirza.

Nene was introduced to Matjila by former finance minister Nhlanhla Nene, when he was deputy finance minister and chairperson of the PIC board.

Matjila said the former minister asked Matjila to coach his son on business and investments. he accepted- this practice is common in the private sector.

Matjila said he advised S&S Refinery to find a professional adviser in putting together an investment proposal.

S&S Refinery was also pursuing a coal deal.