In April 2019 the investment arm of the South African Clothing and Textile Workers Union (Sactwu) hit Sekunjalo Independent Media (SIM) with a R295,6-million claim for failing to repay debts related to the buyout of Independent Media in 2013.
SIM is the company through which Survé controls the newspaper group while Sactwu Investments Group (SIG) is one of the minority shareholders of SIM that gave Survé R150-million to fund the 2013 takeover. With interest this debt has doubled and constitutes 15% of the union company’s assets.
One of the larger funders, the Public Investment Corporation (PIC) has also launched a separate liquidation application.
SIM was due to repay the debt and interest by 14 August 2020, subject to SIG being entitled to demand immediate repayment in the case of a “default event”.
On 8 April 2019 Sactwu’s lawyers wrote to SIM calling up the loan and citing the admissions made by Survé at the Mpati commission of inquiry into the affairs of the PIC that Independent Media had failed to repay its multi-billion rand debt to both the PIC and the Government Employees Pension Fund.
SIM disputed the claim but it has already taken more than two years for the case to get to court, in part because SIM resisted disclosing internal documents that might help Sactwu prove its claim.
In December last year Sactwu was finally forced to launch a separate court case to compel SIM to disclose information.
Things came to a head with a court date set for 5 May this year – for SIG’s application to force SIM to hand over documents, not for the actual claim.
Days before going to court SIM came forward with most of the outstanding information sought and the parties abruptly settled the dispute around documents.
This had the effect of keeping evidently sensitive information about the ailing Independent Media group out of court and consequently out of the public eye.
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From the court papers that have been filed in the Western Cape high court Survé’s company comes across as cynically exploiting the trust – or naivety – of its partners to sidestep the R300-million debt.
SIM failed to acknowledge questions or answer them despite assurances from its PR company that they were received.
On the other side of the coin the papers suggest the union was easily taken for a ride and that it was poorly served by its general secretary, André Kriel, who signed the agreements on behalf of SIG.
Taken for a ride?
SIM’s pleadings in response to SIG’s claim seem to lay bare how Survé ran circles around Sactwu – allegedly getting the union to sign away its entire R300-million debt and 8% shareholding in SIM in exchange for shares in another Survé company, Sagarmatha Technologies, that turned out to be practically worthless.
Even if the debt still existed, Kriel signed a separate subordination agreement putting the debt at the back of a queue of very significant creditors – meaning that the debt will almost certainly never have to be repaid.
What’s more, SIM claims that Africa’s largest asset manager and custodian of all civil servants’ pensions, the PIC, fell into the exact same trap.
It is unambiguously SIM’s position that it owes the PIC nothing whatsoever because it too signed up for Sagarmatha shares in exchange for the moneys owed.
In the PIC’s case the “disappearing” and subordinated debt would be well over R1-billion. This consists of loan debt and preference shares overdue for redemption.
This might explain why the PIC liquidation application has seemingly languished since November 2019 although the asset manager would not be drawn on this when contacted by amaBhungane.
In response to detailed questions the PIC simply replied that “this matter is indeed before the court”.
In the Sactwu case the union’s claim is based on a “default event” that occurred when SIM missed a repayment to the PIC.
SIM’s first defence was that it didn’t have to repay a non-existent loan.
To understand how Sactwu and the PIC allegedly signed away hundreds of millions of rands belonging to workers and pensioners we have to return to 2017.
The Sagarmatha gambit
By 2017 it was clear that Independent Media was struggling and that SIM would not be able to repay the loans raised to fund the takeover.
But Survé’s Sekunjalo group was paving the way for an audacious plan to expand its technology business and rescue its media business with several billion rands in new funding from the PIC, then still controlled by Survé’s friend Dan Matjila.
Survé was going to list two companies on the JSE: Ayo Technology Solutions and Sagarmatha.
In the case of Ayo R4.3-billion was successfully raised from the PIC in a rushed process circumventing key safeguards and waiving protections to secure some part of the investment.
Ayo did list, but while the PIC paid R43.00 per share they are now trading at R3.50. There is a court process underway where the PIC is trying to recoup pensioners’ money.
A mere three months after Ayo, the listing of Sagarmatha was being pushed through with a target of raising R7.5-billion from investors. As with Ayo it was very likely that the “investors” were in fact mainly the PIC, led by Matjila.
Both listings were effusively promoted by Independent Media but when subjected to outside scrutiny it was clear that the companies were not worth nearly what they claimed. They intended to use the money principally to bail out, buy or subsidise other Survé companies.
In the case of the Sagarmatha listing the intention was to pay off all SIM and Independent Media’s debt and also buy out minority shareholders including the PIC and Sactwu. This would be done by giving everyone Sagarmatha shares.
The PIC would in effect be giving Survé money and forgiving his debts to the PIC in exchange for the shares, which were given an extraordinary pre-listing valuation, as amaBhungane revealed here.
Kriel defended SIG’s acceptance of Sagamatha shares in exchange for the money it is owed and the 8% of SIM it owns.
According to him the union accepted the value attached to the shares by SIM itself: “SACTWU did not conduct an independent evaluation or independent due diligence. It relied on the representations of value made to it, as subsequently confirmed by independent expert opinion of the value of the share price,” he told amaBhungane in written replies.
The “expert opinion” Kriel is referring to is one complied by a California company called Redwood Valuation Partners and included in Sagarmatha’s pre-listing documentation.
As amaBhungane has previously reported this opinion was based on questionable “financial and non-financial information and assumptions made by management”.
Sign on the dotted line
Crucially, both Sactwu (via SIG) and the PIC allegedly entered into two agreements with SIM in the run-up to the listing.
One was the “Share and Claims Sale Agreement” and the other was a Subordination Agreement.
The Share and Claims deal was the one that would transform SIG’s R300-million loan into Sagarmatha shares. In the case of the PIC more than R1,5-billion consisting of debts and shares would disappear, to be replaced with Sagarmatha shares.
Kriel, who also heads the union’s investment company, now claims he and his co-directors never actually signed the agreement – seemingly an opportunistic argument.
Copies attached to the court papers show that Kriel and his Sactwu colleagues did initial every single page, including the bottom corner of the final signature page. They also all signed a board resolution approving the agreement on 22 November 2017.
But no one actually signed the proverbial dotted line on the last page of the document as the designated representative of Sactwu. It might have been an oversight, but the union has tried to exploit it as best it can in its court papers, stating: “No director of the Plaintiff executed the sale agreement and accordingly the sale agreement was not concluded and it did not take effect.”
Even though the agreement was expressly tied to the listing of Sagarmatha, it never expressly said that the listing had to succeed. Instead the “effective date” is the day the JSE approves it and a notice is published on the stock exchange’s news service SENS. That happened on 28 March 2018.
The Sagarmatha listing was aborted after the JSE withdrew its approval, based on technical shortcomings in meeting the listing requirements.
Sactwu is now trying to argue its way around this apparently shoddy drafting:
“On a proper construction or alternatively by virtue of a tacit term to the sale agreement, if the listing…did not occur on or about 6 April 2018, the Effective Date of the sale agreement would be deemed not to have occurred and the sale agreement would be regarded as being of no force or effect,” SIG’s claim states.
A R300-million phone call
Even if the Sactwu (and PIC) debt still exists, SIM argued that it cannot be made to repay it thanks to a remarkable subordination agreement Sactwu signed (as did the PIC allegedly).
Apart from Sactwu and the PIC, SIM has a major creditor in the form of a Chinese consortium called Interacom. It is owed just shy of R1-billion which, due to the subordination agreements, ranks above the other funders’ debts.
If the PIC really is bound by an agreement like this, it could be another explanation for its half-hearted liquidation application: It would not receive any dividend from a liquidation.
The circumstances under which Kriel signed the SIG subordination agreement on 1 December 2017 are particularly embarrassing – painting him as a naïve and incompetent manager of union members’ money.
According to Sactwu’s court papers it only took a phone call from Takudzwa Hove, the chief operations officer of Independent, to convince Kriel that the agreement was both necessary and harmless.
“Mr Hove, representing the First Defendant, orally made the following representations to Mr Kriel, representing the Plaintiff…The subordination agreement would only be utilised by
[SIM] in the context, and for the purpose, of the listing of Sagarmatha, if and when the auditors of Sagarmatha and/or the Johannesburg Securities Exchange (“JSE”) required the Plaintiff’s claim to be subordinated for purposes of the listing of Sagarmatha.”
Hove, according to Sactwu, emphasized: “The subordination agreement would in any event lapse and be of no further force or effect, one week after the date on which Sagarmatha was scheduled to be listed on the JSE exchange.”
This of course didn’t happen.
Sactwu complained: “In addition to being false, the representations made by Mr Hove were material, and made by him on behalf of the First Defendant with the intention of inducing the Plaintiff to enter into the subordination agreement…Such error on the part of Kriel was reasonable and justifiable, entitling the Plaintiff to resile from and terminate the subordination agreement.”
According to Sactwu, using the subordination agreement to repudiate debts at this point “exhibits bad faith, constitutes unconscionable conduct on the part of the First Defendant and would result in gross injustice or gross iniquity to the Plaintiff”.
The problem for Sactwu and Kriel is that the explicit terms of the agreement clearly opened the union to precisely this kind of danger. It doesn’t once mention the listing of Sagarmatha. Instead, it records that the subordination “shall remain in force and effect for so long only as the liabilities of the Company, as fairly valued, exceed its assets, as fairly valued”.
That means the subordination remains in place until SIM’s hopeless insolvency is reversed – a very unlikely prospect after the Sagarmatha listing got scuppered. Had the listing gone ahead the subordination really would have disappeared anyway – but only because the debt itself would have been swopped for shares.
Kriel maintains there is no way he could have suspected Hove was allegedly lying.
“SACTWU firmly rejects your implied assertion of carelessness and/or incompetence… As its pleadings make plain, material but false misrepresentations were made to SACTWU and there was no reason at all for SACTWU to doubt or call into question the representations made to it by a senior SIM executive,” he told amaBhungane.
“There was certainly no reason at that time for SACTWU to disbelieve the representations made by the Chief Financial Officer of SIM.”
As a further defence he points out that a far larger and more sophisticated investor made the same mistake.
“The GEPF [Government Employee Pension Fund, managed by the PIC] was the other significant loan creditor of SIM. There was certainly no indication from SIM that the GEPF had refused to sign its identical subordination agreement. It has only subsequently transpired that the GEPF has put in issue the validity of the execution of the subordination agreement executed on its behalf by [PIC’s] former CEO.”
Considering the dire state of SIM’s finances Sactwu may be hoping that the PIC doesn’t beat it to the punch to try and reclaim its substantially larger claim on Iqbal Survé’s shrinking pockets.