Capitec blocks state capture payback
DAILYSTOCKDISH / 23 NOVEMBER 2019 - 16.06 / STAFF REPORTER
A Transnet pension fund has accused Capitec Bank of setting itself up to benefit from state capture abuses by blocking a major settlement for Transnet pensioners. Capitec says it is defending its empowerment credentials, but the pension fund says it is trying to take unfair advantage.
Banking group Capitec is trying to block the R500m settlement signed last month which would see Regiments Capital reimburse the Transnet Second Defined Benefit Fund (TSDBF) for the hundreds of millions it with help from the Gupta family network.
The payback would be funded by the sale of Capitec shares indirectly held by Regiments pursuant to a 2006 empowerment deal.
The settlement would see Regiments effectively transfer 810 230 Capitec shares to the pension fund (at a 10% discount to their market price) to extinguish the TSDBF claims.
Regiments owns 60% of a company called Ash Brook Investments 15, which in turn owns 100% of a company called Coral Lagoon Investments 194, which in turn owns the Capitec BEE shares.
Capitec now asserts that this 13-year-old BEE deal allows the bank to block the shares from being sold because it would dilute the bank’s empowerment.
Capitec has gone as far as to threaten invoking a “mandatory acquisition option” in the 2006 BEE deal to buy back the shares worth R1 100 each for R30 each (plus some interest) if Ash Brook directors or shareholders authorise the settlement.
Both the TSDBF and Coral Lagoon (which is majority-owned by Regiments) have gone to court this week attacking the bank’s attempt to veto the settlement, which requires Capitec’s consent.
They are effectively asking the court to order Capitec to approve. Capitec has yet to file its answer.
The TSDBF’s principal officer, Petrus Maritz, as well as Regiments director Litha Nyhonyha have, in affidavits, accused the bank of making a mockery of BEE legislation by enforcing unreasonably strict control over the sale of BEE shares.
They accuse Capitec of using its BEE concerns as a smokescreen to hide a more cynical motive: seizing control of the BEE shares at a massive discount to current market prices.
In his affidavit, Petrus Maritz, the TSDBF’s principal officer, provides a fiery summary of the fund’s view of Capitec’s veto:
“In short, it evidenced an attitude on the part of Capitec that it preferred to maintain its relationship with Regiments Capital, a primary agent of State Capture, until such time as it could exploit the opportunity created by the Fund‘s litigation … to force Coral Lagoon to sell its shares to a purchaser of Capitec‘s choosing or otherwise to orchestrate a commercial advantage to Capitec from the situation.”
The fund has been trying to extract damages from Regiments in court since 2017, claiming that Regiments acted as an agent for state capture.
The wrangling over the settlement highlights the dire state of the TSDBF and its members.
Maritz, in his affidavit, says its 46 955 members get R2 683 per month on average. The R500m settlement would amount to the equivalent of four months’ payment for every beneficiary.
The TSDBF has long been a scandal. A decision by Transnet in 2002 fixed the annual increase of pensions at a mere a 2%. This means that, after inflation, they get less money every year.
A class action by these pensioners resulted in a settlement earlier this year that will give the pensioners a 13%, 9% and 6% increase in 2019, 2020 and 2021 respectively. They also get lump sums of R10 000 in each of these years.
The applications against Capitec from Coral and the TSDBF have made public the frantic correspondence between them after the R500m settlement was signed on 8 August when Capitec’s consent became the major stumbling block to it being carried out.
The TSDBF even approached Capitec chair Santie Botha, with a plea to make a presentation to the Capitec board.
She came back with a letter claiming that the fund is “not a Qualifying Black Person” meaning that the settlement would dilute Capitec’s black shareholding and allegedly contravene the 2006 empowerment agreement.
The TSDBF disputes that this wording appears in the 2006 BEE deal – and also disputes it being branded non-qualifying. Maritz argues that the fund would qualify as “mandated investments” in terms of BEE codes governing empowerment in the financial sector.
Capitec has responded to amaBhungane questions by reiterating that the shares must stay in black hands.
Capitec chief financial officer Andre du Plessis told amaBhungane Capitec was being asked “to pay the price for Transnet’s mistakes”.
“Should Capitec support the disposal by Coral of its Capitec shares to Transnet, Capitec would be waiving its contractual rights under its agreement with Coral, effectively resulting in Capitec agreeing to a forfeiture of the direct black ownership of these Capitec shares. This would be contrary to the rationale for the issue of the Capitec shares to Coral in 2007…
“The effect of Transnet and Coral’s court actions is that persons and entities involved in State Capture will improperly benefit, since the settlement amounts to a significant discount to Transnet’s claims against Regiments, and related parties implicated in State Capture – at the cost of Capitec’s contractual rights.”
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER