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- HCI, which provided part of the funding Ithuba needed to launch national lottery operations, says it is still entitled to exercise oversight over Ithuba.
- Ithuba, on the other hand, says because it has paid back HCI's loan and interest, the owner of eMedia has no right to "meddle".
- HCI says another judgment will be handed down soon to clarify the matter.
Just as it seemed that the four-year-long mudslinging between the national lottery operator, Ithuba and its creditor, HCI, could soon come to an end, the two are again at odds about what courts, arbitrations and even competition authorities have said regarding the eMedia owner's right to step-in in the running of the national lottery operator.
Ithuba and HCI have been at loggerheads since 2015, shortly after the former won the bid to run the National Lottery operations for eight years in 2014. At the core of their conflict is R325 million loan that HCI advanced to Ithuba to help it launch the national lottery.
Ithuba was required to secure R905 million to start its operations after successfully bidding for the licence to operate what is now a R7 billion-a-year operation.
Although Ithuba CEO, Charmaine Mabuza, says the company raised most of the funds it required to launch, HCI says without its loan, the lottery would not have been established and it has a right to exercise oversight when Ithuba is in breach of its financial covenants - breaches HCI believes have been there since 2015.
On Monday, Ithuba was looking forward to cutting all ties with HCI by 5 August when the management agreement between the two comes to an end.
But now, HCI says it is not over yet because another judgment on whether HCI indeed has the right to oversee the running of Ithuba is expected "shortly".
HCI executive director Yunis Shaik said already an arbitrator instructed Ithuba and Zamani last year to afford HCI its step-in right, but the two have not complied.
"Ithuba and Zamani are directed to afford HCI Invest the right of oversight over the manner in which Zamani renders service to Ithuba. Ithuba and Zamani refuse to comply with the Award and have instituted a review, and judgment is to be handed down shortly," wrote Shaik.
What exactly did the arbitrator say?
HCI has accused Ithuba of several breaches of the funding agreement between the two companies. The matter that was referred to an arbitrator was HCI's concerns about Ithuba's management company, Zamani, overcharging the lottery operator for services. It said Zamani had been paid management fees of 4.67% of Ithuba's gross revenue, when it was only entitled to 3%. Ithuba denied this.
Shaik said HCI's estimates show that excess fees that will be paid to Zamani over the full term of the lottery licence will amount to around R819 million.
"In our view, the overreaching is shocking and in breach of the funding agreements and the Bid made by Ithuba for the licence," he said.
In July 2019, the arbitrator ruled that because of this, HCI was indeed entitled to exercise its right to management oversight. But a few months later in November, the Johannesburg High Court dismissed HCI's takeover bid, saying the company needs to get regulatory approvals from the competition authorities, among other parties.
Ithuba said the arbitration award also confirmed that Ithuba could exercise its right for voluntary repayment of the loan on 29 April 2020, a payment which the company has made.
Mabuza said: "The real issue at hand [is] why refuse to accept your loan repayment? Why the undue interest in the affairs of Ithuba when your loan has been repaid? Why the meddling?"
The oversight ruling dispute
Since the November ruling said HCI needs to get regulatory approvals from the competition authorities, the National Lotteries Commission and the Department of Trade and Industry, Ithuba maintains that HCI has no step-in rights and HCI insists it does.
"Respectfully, in our view, the Lotteries Commission has completely failed in its 'duty to take active steps of oversight to ensure probity and legality'. Apart from failing in carrying out its duty, it has frustrated our right to exercise oversight by failing to process our application for probity," wrote Shaik.
But Mabuza said this matter is pending in various applications before the High Court and the Competition Tribunal before the NLC and the DTi can consider the HCI oversight application. Before the Court and Tribunal make their ruling, Mabuza said HCI has no oversight right.
