The former chief executive of the Public Investment Corporation (PIC) Dan Matjila has defended the PIC’s decision to not follow typical investment processes when making an investment of R4.3 billion into Ayo Technology Solutions.
Matjila, in testifying before the PIC commission on Wednesday, explained that this course of action was as a result of tight time constraints and having to meet quorum challenges.
The Ayo transaction has been one of the most controversial deals the inquiry has been investigating. On the second day of the commission’s hearings, two senior employees were suspended after flouting governance and approval processes that related to the transaction.
Head of listed investments Fidelis Madavo received the news moments before he was supposed to take the witness stand before the inquiry.
‘Forced to rush’ the transaction
The commission would later hear from assistant portfolio manager Victor Seanie, who was also suspended, about how the PIC’s investment team was forced to rush the transaction through on Matjila’s insistence.
Seanie said that despite failing to complete due diligence, and without the requisite approval committee having had sight of the transaction, Matjila signed the irrevocable subscription form to purchase a 29% stake in Ayo at R43 per share.
Speculation as to why the transaction was concluded so hastily has been linked to Matjila’s supposed friendship with Sekunjalo Group chair and indirect owner of Ayo Iqbal Survé and the need to secure PIC money before the ANC elected a new leader at its Nasrec 2017 conference.
“Deviations are common in any business environment when circumstances necessitate such,” Matjila told the commissioners.
He said he was introduced to the opportunity to invest in Ayo by Survé in October 2018, then passed it on to Madavo to assess its investment potential. Ayo had planned to list on the Johannesburg Stock Exchange (JSE) on December 21, 2017, and would close its subscription period by December 15.
Previous testimony by members of the investment team tasked with compiling the Ayo transaction revealed that Ayo did not go through the first portfolio monitoring committee (PMC) meeting. This is where, if the committee agreed, it would have received the green light to undergo due diligence. It would then be referred to the second PMC meeting where the transaction would be approved.
No quorum, no meeting, no problem
Matjila told commissioners that PMC1 ad PMC2 were not different meetings but stages that a transaction was in. There were attempts to hold the PMC meetings scheduled for December 6 and 13 but they were postponed as the “relevant persons were either travelling or on leave and no quorum could be formed at those meetings”.
Chasing a tight deadline, Matjila said the PIC team decided to use Ayo’s draft pre-listing statement and began draft due diligence without going through PMC1.
Citing the general manager of listed equities Lebogang Molebatsi and the JSE’s prior testimonies to the commission, Matjila highlighted that the JSE-approved document contained “sufficient and proper, credible and verified information”, which investors can use to make decisions on a company that is yet to be listed.
Matjila said deviating from the PMC1 stage was common during initial public offerings because these were accompanied by JSE- approved pre-listing statements, which had all the legal, financial and technical assessments and information that would have been verified by external professionals.
He said it was “commended” that due diligence was conducted without PMC1 approval because it would not have been able to receive the approval on time.
Phone call appraisals
The Ayo deal team was not able to hold the meeting on December 13 either, again because the meeting did not quorate as the leader Madavo was travelling overseas.
Instead of waiting for the due diligence reports to be finalised, Matjila made phone calls to the acting head of risk Candace Abrahams, acting head of legal Winnie Setshedi and ESG (environmental, social and governance) head Matseko Taukobong to confirm if the work they had done at that stage recommended the conclusion of an investment in Ayo.
Matjila said all the parties gave Ayo the green light, adding that between December 14 and 15 all due diligence processes and reports were completed and included in the appraisal report.
Deal concluded without approval
Matjila signed the irrevocable subscription agreement on December 14 ahead of the PMC meeting that was meant to approve the transaction.
He said he was approached by Molebatsi, who had started his acting role as head of listed investments in Madavo’s absence just a few days prior.
According to Matjila, Molebatsi approached him with the Ayo subscription form in hand and asked him what should happen as the deadline to subscribe to Ayo shares in the private placement was the next day.
While Molebatsi testified that Matjila had instructed him to sign the irrevocable subscription form, and assured him that there was nothing untoward as the decision would be ratified at the next PMC meeting, Matjila said the decision to sign the form was not his idea.
Matjila said it was Molebatsi who proposed the idea, stating that he had tried to get the transaction approved through a round-robin resolution but that it was unsuccessful as the relevant people were on holiday.
This then led to him saying that he would co-sign with Molebatsi as a key individual to show that he supported the decision and then request that the PMC “regularise” the transaction as soon as they met.
Pressure to approve Ayo
Both Seanie and Molebatsi previously testified that the team was under pressure to ensure that the Ayo deal was approved at the R43 per share price, despite their belief that it was overvalued.
Uncertain of whether to adhere to Matjila’s instructions Molebatsi said he had called Madavo to get his opinion about signing the subscription form in his acting capacity and Madavo responded, saying that the CEO had a “higher power” and warned him to adhere to his instructions.
“I did not want to be accused of insubordination against the CEO,” said Molebatsi.
But Matjila denied placing pressure on anyone, saying the only pressure was to meet the listing deadline.
“I have not put pressure on anyone to make specific recommendations, including the valuation to ensure the deal worked,” said Matjila.
Today Ayo is trading at R9 per share and has been found to be ‘irregular’ by an internal PIC investigation. The state asset manager is undergoing a legal process to claw back its money, saying it was misled by the company.