The Public Investment Corporation (PIC) says it was owed R709 839 328.45 by Iqbal Survé’s Sekunjalo Independent Media (SIM) as at 31 May last year.
This debt stems from the PIC’s funding of SIM’s takeover of the Independent Media group in 2013.
With punitive interest that would easily be over R800-million by now, which really belongs to the Government Employees Pension Fund, managed by the PIC.
There is only one problem: SIM claims that the debt does not exist. And even if it does exist, it ranks so far behind other large debts that in practice it will never have to be repaid.
SIM might very well be right thanks to the actions of Dr Dan Matjila, the PIC’s former chief executive, outlined in court papers recently obtained by amaBhungane.
The documents show that after dragging SIM to court with a liquidation application in November 2019, the PIC was stumped when Survé surprised them with a secret agreement signed by Matjila in December 2017.
It was a so-called “subordination agreement” annexed to SIM’s responding papers and it showed Matjila had made astonishing concessions to SIM which drastically weakened the PIC’s position.
The agreement states:
“In order to assist the Company the Creditor agrees … to subordinate for the benefit of the other creditors of the Company, both present and future, so much of its claims liabilities and obligations of whatsoever nature and however arising against the Company as would enable the claims of such other creditors to be paid in full”
If SIM were ever to be liquidated the PIC “will not prove or tender to prove a claim in respect of its subordinated claim, which proof would reduce or diminish any dividend payable to other creditors”.
Due to a roughly R1-billion debt owed to Chinese funder Interacom by SIM – which is effectively broke – a subordination agreement in practice extinguishes the PIC’s claim because the Chinese would be paid out in full before the PIC got a cent.
Another clause reads:
“…no shareholder of the Creditor shall take or enforce any action arising from any event of default howsoever arising against the company.”
In other words, the PIC is effectively banned from taking legal action to protect its rights.
Then there is the clincher. The subordination will in effect be permanent.
“The Creditor hereby agrees that, until such time as the assets of the Company, as fairly valued, exceed its liabilities as fairly valued … it shall not be entitled to demand or sue for or accept repayment of the whole or any part of the said amount owing to it …”
So if the agreement stands the PIC has no claim on the money it is owed unless SIM somehow reverses its hopeless insolvency.
The papers also claim the existence of this agreement came as a shock to the PIC.
In June last year the PIC, under new leadership, launched another court application to claim back the money from SIM – this time including an attempt to quash the Matjila agreement.
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In its particulars of claim the PIC states:
“Before SIM annexed the Subordination Agreement to an answering affidavit delivered relating to an application issued by the GEPF against SIM to place the latter in winding-up …the PIC (alternatively. the GEPF) had no knowledge of the existence of this Subordination Agreement”
The subordination agreement adds to the litany of claims that Matjila repeatedly prejudiced the pension fund to make deals that favoured Survé.
This agreement accompanied an equally hard-to-justify “Share and Claims Sale Agreement” that amaBhungane has previously reported on here.
Both these agreements were tied to the failed listing on the JSE of Survé’s “African unicorn”, Sagarmatha Technologies, in which the PIC was set to sink billions of rands.
AmaBhungane has also recently reported on how the South African Clothing and Textile Workers Union (Sactwu), another funder of the 2013 SIM takeover of Independent, finds itself in the same bind as the PIC.
Like Matjila, Sactwu general secretary Andre Kriel was persuaded to sign the same subordination and claim sale agreements.
A rush to sign off
The PIC court papers show how Matjila rushed to sign off on the Sagarmatha deal alongside the share-and-claims and subordination deals with Survé before the PIC’s relevant investment committee could even formally consider it.
As it turns out the committee rejected the deal – not knowing Matjila had already signed it, endangering hundreds of millions of rands belonging to government pensioners.
A major chunk of the debt related to the 2013 Independent deal was due for repayment in August 2018, but it was clear much earlier that there would be a default.
According to the court papers, between August and September 2017 SIM started having meetings with the PIC about “the GEPF’s exit strategy from its investments in SIM and Independent Media; and/or a potential investment opportunity in the subsidiary company [i.e. Sagarmatha] that Sekunjalo Holdings intended to list on a recognised stock exchange”.
The deal Survé had in mind was that the PIC would give up its loan claims, as well as its shares in SIM and in Independent itself, in exchange for Sagarmatha shares.
These Sagarmatha shares would allegedly be worth R1.5-billion, but this figure was based on a valuation provided by Survé’s own company.
This neat escape trick was captured in a Survé letter to Matjila dated 14 September 2017 asking him to simply personally sign off on the deal: “Please accept this offer by countersigning in the space provided below upon which a binding agreement will come into existence”.
At this point Survé was already making outlandish claims about the international interest in his supposed technology venture which largely consisted of a bailout for Independent:
“We are pleased to announce that Sagarmatha has also attracted to its advisory board and as shareholders, technology billionaires from the USA. Holland, China, Singapore and India.
Sagarmatha will more than likely have at its listing some of the world’s prominent technology billionaire investors as shareholders and as members of its international advisory board signalling a significant vote of confidence in Sagarmatha.”
AmaBhungane has previously reported on how Survé’s claims about his company were about as real as the African unicorn. (Unicorn is colloquialism for a technology start up worth more than a billion dollars.)
Following Survé’s daring gambit to have Matjila sign off without further ado, the Johannesburg Stock Exchange apparently raised unspecified concerns (it would later be the JSE itself that scuppered the Sagarmatha listing months later).
A second letter dated 1 December 2017 was sent by Survé to Matjila.
“Subsequent to comments received from the Johannesburg Stock Exchange (JSE) in relation to the Original Offer Letter, we hereby substitute and replace the Original Offer Letter with this offer letter and the contents hereof in order to address the concerns of the JSE”.
This time around the offer at least contained some of the normal checks and balances one would expect in a deal purportedly worth R1.5-billion.
This included the condition that “each party acquires the necessary approvals for them to enter into the Sale Agreement”.
For the PIC that condition would be the consideration of the proposal by its Private Equity, Priority Sector and Small Medium Enterprise Fund Investment Panel (PEPPSFIP).
This panel did meet to consider the Sekunjalo proposal a few days after Survé’s letter – on 6 December.
It roundly rejected the core basis of the deal: getting paid in Sagarmatha shares of doubtful value. Sekunjalo claimed the shares were worth R39.62 each. The PIC’s internal research came up with a value of R7.06.
Instead of these shares, the panel insisted on a cash payment for the GEPF’s “exit” from Independent. The panel would also not make a commitment to investing in Sagarmatha.
For all practical purposes, these conditions amounted to a wholesale rejection of the deal.
But not for Dr Dan.
Unbeknownst to his colleagues Matjila had already signed Sekunjalo’s offer on 1 December, the day it arrived in the mail.
Still acting alone and, according to the court papers, “without any authority, unlawfully alleging to represent the GEPF” Matjila signed the full Share and Claims Sale Agreement on 13 December, heedless of the committee’s decision.
The secret subordination agreement, which cut off exit from the Sagarmatha pipedream, is not properly dated but a signed copy is included in the court papers.
The PIC’s arguments to repudiate the subordination deal are based on Matjila’s alleged lack of authority to make investment decisions of this magnitude without jumping through any number of hoops involving the PEPPSFIP and other executives. None of that happened and no due diligence was done, claims the PIC.
Matjila told amaBhungane that he was unaware of this latest litigation between the PIC and SIM until we brought it to his attention.
“For the record though it is important for me to record that I have never acted outside the Company mandate and delegated authority whilst I was the Chief Executive of the PIC [and that] I had no pre-existing relationship with Dr Surve, whom I have only met in the course my work at PIC like many other Investors and PIC clients.”
See Matjila’s full response here.
In testimony before the Mpati commission of inquiry in July 2019 Matjila had said that “there was a continuous engagement with Dr Surve and the reason for this was not because of friendship per se but I and my colleagues were worried that the PIC was increasingly exposed to high risk”.
Survé told other PIC employees that he considers Matjila a “good friend”, according to other testimony at the commission.
The PIC is trying to wriggle out of the Share and Claims Sale Agreement on two bases. One is that Matjila had no power to sign it. The agreement should also not be read to force the PIC into trading its claims on and shares in Independent and SIM for useless Sagarmatha shares.
The agreement was explicitly tied to the Sagarmatha listing. The “effective date” at which the share swop was deemed to happen was, according to the agreement, the day that an announcement was made on the JSE’s SENS news service indicating how many shares are getting listed on the exchange.
That announcement went out on 28 March 2018 even though the listing ultimately failed.
Nothing in the agreement however said that it was conditional on the listing succeeding – even if that seems like an obvious inference.
The PIC is arguing the agreement must be read to imply “that the sale and exchange …would only be implemented upon the successful listing of Sagarmatha’s ordinary shares on the JSE (“Listing”) within a reasonable time after the signing of the [agreement]”.
The subordination agreement is different. It makes no explicit reference to the Sagarmatha listing at all.
After the listing fell away the subordination agreement appears to remain in force, unless SIM’s hopeless financial state is dramatically reversed and “the assets of the Company, as fairly valued, exceed its liabilities as fairly valued”.
Here the PIC’s argument is that Matjila had no authority to sign the deal without going through the PIC’s checks and balances.
Same old story
The listing of Sagarmatha was a transparent attempt to bail out SIM and Independent Media by having the PIC forgive its debt and in addition invest several billion rands more.
It would have been the culmination of a series of increasingly generous PIC investments in Survé companies that started with the listing on the JSE of Premier Fishing in March 2017.
The fishing company was 100%-owned by African Equity Empowerment Investments (AEEI) which is Survé’s main investment vehicle. For the listing it sold 45% of the company with 23.75% going to the PIC for R278-million.
The manoeuvres to help SIM escape its debt obligations in December 2017 coincided with Matjila’s even more damaging actions in relation to the listings of Survé’s Ayo Technology Solutions that same month.
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Once again he allegedly circumvented the PIC’s internal processes in order to invest a staggering R4.3-billion in Ayo. As with Sagarmatha, the Ayo shares Matjila made the PIC buy were grossly overvalued.
In the Ayo case the investment was forced through with Matjila allegedly signing an “irrevocable agreement” to make the investment on 14 December, two weeks after sealing the irregular SIM deal and a mere day after signing the share-and-claims agreement. This signature again predated a formal consideration of the deal by the PIC a week later.
The PIC is also trying to get its money back from Ayo, again relying on the argument that Matjila had gone rogue.