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PIC forced BEE investors to share the spoils in Total SA deal, inquiry told

BUSINESS LIVE / 27 MARCH 2019 - 20:53 / WARREN THOMPSON

Entities seeking funding had to include parties nominated by the corporation, executive testifies

A BEE company that sought to borrow money from the Public Investment Corporation (PIC) to buy a stake in Total SA was coerced into merging with another consortium at the instruction of the state-owned asset manager.

PIC CEO Dan Matjila. Picture: SUNDAY TIMES

This was the testimony to the inquiry into the fund manager of Lawrence Muluadzi, a director of Kilimanjaro Capital (KiliCap), which was attempting to buy the BEE stake in Total SA in 2015.

Mulaudzi says KiliCap submitted a binding offer to buy the Total stake in July 2015 that included an unconditional undertaking from the PIC to provide the R1.7bn in funding.

But Mulaudzi later learnt that his company was not the only bidder that the PIC was backing.

“As Kilicap we found this to be strange because the PIC had signed a binding engagement letter with us which in our view implied exclusivity,” he said.

The agreement with the PIC included a commitment fee of R38m, the amount Kilicap would have been liable to pay to the corporation if it walked away from the deal.

Mulaudzi described how he was called to a meeting with PIC CEO Dan Matjila and told to form a consortium for the transaction with Sipho Mseleku from a company called Sakhumnotho.

“He told me we had to give Mr Mseleku 50% of the transaction and the fees that we would ultimately receive when the deal is approved.”

Mulaudzi stated how he and his co-directors at Kilicap realised they would not obtain the required approval letter from the PIC that had to be signed by Matjila.

He said in response to questions from commissioner Gill Marcus that should Kilicap not have merged with Sakhumnotho, it would have walked away from the deal and been responsible for paying the R38m commitment fee to the PIC.

Mulaudzi’s testimony also raised questions about the lucrative fees paid on the transaction to advisers appointed by the PIC.

In the case of Kilicap, the company appointed BNP Capital as its advisers on a “risk-based mandate” implying that fees to BNP would only become payable if Kilicap succeeded in its bid. This was to be based on 2% of the total value of the deal.

But following the merger of Kilicap and Sakhumnotho, the PIC allocated R100m for the payment of advisory fees to BNP and Sao Capital (the advisers of Sakhumnotho). This fee works out to 5.8% on the total deal value of R1.7bn. This is far above the norm of 1%-2% on a transaction according to testimony from the PIC’s Thipana Mongalo.

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LINK : https://www.businesslive.co.za/bd/national/2019-03-27-pic-forced-bee-investors-to-share-the-spoils-in-total-sa-deal-inquiry-told/

Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER

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