The controversial R6bn investment made by the Public Investment Corporation to facilitate a BEE transaction between the AfriSam consortium and the Holcim cement group was valued by auditors KPMG at only R1,2bn at the end of the 2009-10 financial year.
The controversial R6bn investment made by the Public Investment Corporation (PIC) to facilitate a black economic empowerment (BEE) transaction between the AfriSam consortium and the Holcim cement group was valued by auditors KPMG at only R1,2bn at the end of the 2009-10 financial year .
The impairment was far bigger than the R2bn write-down provided for in 2008-09 by the Government Employees Pension Fund, on whose behalf the investment was made.
The fund was so unhappy about the imprudent investment in 2008 that it reined in the investment discretion of the PIC, SA’s largest fund manager.
The PIC’s chief investment officer, Daniel Matjila, confirmed in its 2010 annual report tabled in Parliament on Friday, that the investment in AfriSam had been “materially impaired”. H e pointed out that the R1,2bn was a mark-to- market valuation in line with international accounting standards and “is not necessarily indicative of the returns that can be expected upon exit of this transaction”.
The PIC became an investor in AfriSam when an empowerment consortium, Bunker Hills, applied for funding to restructure and refinance its purchase of 85% of AfriSam’s equity. Mr Matjila said at the time that AfriSam was operationally sound with the potential to generate strong cash flows.
“The R6bn transaction was based on a typical leveraged buyout, private equity model where the valuation was based on anticipated future cash flows,” he said. “Since the transaction was concluded in 2008 the local and global economies have slowed significantly, affecting the financial performance of all companies in the cement industry.”
AfriSam, while still operationally sound, was constrained by its highly geared capital structure, he said.
The AfriSam investment represented about 16% of the total assets of the Isibaya Fund, a dedicated socially responsible investment vehicle. The Government Employees Pension Fund believed this was an overconcentration of risk and decided to limit the PIC’s investments on behalf of Isibaya to single exposures of no more than 5% of total assets.
Beyond this, the PIC would have to ask for its approval.
Former CEO Brian Molefe strongly rejected suggestions that the investment was made to benefit friends of former president Thabo Mbeki , including Mr Mbeki’s former adviser, Titus Mafolo, who held shares in AfriSam.
The PIC’s R6bn investment allowed the AfriSam consortium to finalise the R16,4bn deal with Swiss cement group Holcim and to replace the bridge financing facility provided by Holcim.
The deal gave the AfriSam consortium 85% of Holcim’s 54% stake in Holcim SA, as well as the 46% stake previously held by local construction company Aveng . It gave the PIC a 20% stake in AfriSam .
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