Tag: PIC

The Public Service Association (PSA) has reacted furiously to the Public Investment Corporation’s (PIC) R5bn loan to Eskom calling it an “illegal transaction” which the union feel has “betrayed” workers.

“The PSA in the meantime is consulting with its attorneys to urgently look at declaring the whole PIC board illegally constituted after the due date of the 12 February 2018 given to the PIC to prove its board’s legitimacy,” the union, said in a statement on Monday afternoon.

The union, which represents around 200 000 civil servants has written to the PIC to complain that none of the unions sit on the PIC’s board, which they claim contradicts the PIC Act.

“If we are able to prove the appointment of the board was illegal… it will be only right that all the decisions they took are [also] null and void,” PSA deputy general manager Tahir Moapa told Fin24 by phone.

The PIC Act of 2004 states: “The Minister [of finance] must, when appointing the board, have due regard to the nominations submitted to him or her by the depositors.”

The PSA said that all parties agreed in principle not to use the R1.9 trillion in the public servants pension fund, to bail out state owned companies (SOCs), until there’s agreement that governance has improved.

“It is now clear, we cannot trust both boards to look after our members’ pension,” the union said.

Cosatu supports lifeline

The Congress of South African Trade Unions (Cosatu) differs with the PSA and supports the R5bn lifeline to Eskom, but with conditions.

“We agree to it but with the understanding that no jobs will be touched [at Eskom], Cosatu spokesperson Sizwe Pamla commented to Fin24.

Pamla added that newly appointed Eskom chairperson Jabu Mabzua cut jobs as part of a restructuring process at Telkom, when he took over as chair of the board.

He said that workers’ pensions should be used to ensure SOCs aren’t privatised, in particular the power utility as this would lead to electricity price hikes.

“We have to look at the bigger picture, the interest pf public servants should reconcile with workers broadly”, he said.

Cosatu represents around 800 000 employees in the public sector.

Pamla said they will continue with the process of trying to have worker representation on the board of the PIC itself, instead of just at the Government Employee Pension Fund (GEPF) level.

Both Cosatu and the PSA , in September 2017, objected to reports that the PIC would bail out the flailing South African Airways (SAA) and demanded that the level of union representation on the board, be improved.

The PIC on behalf of the GEPF, advanced the R5bn bridging facility to Eskom for one month. The loan will fund the company’s operations during the month of February 2018. But three other South African banks will also have to help Eskom out, the PIC stated.

Following Eskom request for assistance with its liquidity challenges, the PIC said it conducted its own due diligence and obtained approval in line with its mandate and corporate governance requirements.

By Tehillah Niselow for Fin24

How Steinhoff affected us normal folk

Most South Africans who invested are poorer today due to Steinhoff’s business collapse and are asking for answers from fund managers.

But‚ many say‚ the business was so complicated‚ with its audited financial statements appearing so reasonable‚ that it was easy for investors to miss red flags pointing to the alleged multi-billion dollar fraud.

Steinhoff’s share price dropped from R46.60 at close of trading on Tuesday to R12.74 a week later. The company has reported a missing R100-billion in the company’s European operations.

Fund Manager Simon Brown said the easiest explanation is to say South African pension holders and investors are R160-billion poorer since the crash. As hundreds of funds would have lost money it is difficult to put an exact figure on the losses.

Many furious South Africans are demanding answers from investors. But multiple fund managers explained that until Tuesday the numbers looked reasonable and “fraud by its nature is subtle”.

The search for answers follows Parliament’s Standing Committee on Public Accounts on Monday calling for the Hawks‚ SARS‚ Reserve Bank and Independent Regulatory Board of Auditors to investigate Steinhoff’s implosion and financial losses.

Not everyone however‚ is buying the investors’ explanations‚ with some Steinhoff critics questioning the company’s executives “loose accounting practices”.

Futuregrowth chief investment officer Andrew Canter said they stopped lending money to Steinhoff roughly eight years ago.

He said they avoided Steinhoff for multiple reasons‚ which included their business’ horrendous complexity‚ involving different brands and companies across different jurisdictions in multiple currencies‚ along with their never-ending acquisitions which rendered year-on-year analysis difficult and credit ratios unreliable.

“If we can’t understand the business‚ why would we lend to it?”

Canter said key to Futuregrowth was being wary of the way Steinhoff’s management conducted business.

He said there were enough signs “which evidently some chose to ignore”.

“From what we know today‚ Steinhoff’s management appears to have been playing fast and loose with the tax laws and accounting practices.”

Investor Karin Richards who has looked back at the Steinhoff cash flow‚ and ratios investors use when scrutinising businesses since the implosion‚ however said: “There is nothing here for me that says ‘oh my … here is a big problem’.”

She said as a former auditor she had a better idea than the average person on how to “window dress accounts”. “But the numbers look reasonable.” She said many funds would have lost their first inflation bases gains in three years. Fund manager Keith McLachlan commented on how people started claiming investors should have spotted the fraud: “Everyone knew it was fraud‚ after the fact.

“Intuitively‚ if one ignores the complexity of the Steinhoff business‚ if it was obviously fraud‚ not only would the stock market have seen it‚ but the auditors would have picked up on it long before it even saw the light of day.

“Nothing in the Steinhoff financial statements really screamed fraud or deep obfuscation of the numbers.

“At best‚ it perhaps looked like a business that was growing a bit too fast. At worst‚ it showed a business whose fundamentals weren’t particularly great. Fraud by its very nature is subtle.”

Wits governance expert Alex van den Heever‚ however‚ said that one needed to question why some investment and equity loan companies saw the red flags‚ but others didn’t.

“That some firms didn’t pull their funds despite other companies’ concerns points to a bit of an ‘old boys club’ operation with people just accepting the word of others in the industry.”

Brown said the financial industry needed introspection.

“Should we not at least as an industry that after looks after people’s pension have some introspection how we got this wrong?

“There are a lot of people saying I can’t see fraud‚ but I can’t see a quality business. Yet‚ we put R400-billion in pension money into this business.”

The R400-billion is when business was R95 a share some time last year.

Financial analyst Stuart Theobald agreed that numbers appeared reasonable but said people trusted Steinhoff main shareholder Cobus Wiese. “Wiese had a certain halo effect. People had committed faith in his abilities to manage complexity and stay on the right side of the law‚ while sometimes going close to the line.”

By Graeme Hosken and Katharine Child for The Sunday Times
Image – The Sunday Times

Needy state eyes private pension funds

Concerns that politicians view the Public Investment Corporation (PIC) as a cash cow will loom large over discussions to establish an overarching pension fund for South Africa.

The new fund wants to consolidate the more than 5 000 public and private retirement funds into one giant mandatory institution, possibly under government control.

The new centralised retirement fund or National Social Security Fund (NSSF) will centralise current retirement funds estimated to be worth R3trn. It aims to force South Africans to save for retirement, as well as cross-subsidise lower income earners.

It also plans to cut administrative costs and streamline all public and private retirement funds as well as the Unemployment Insurance Fund into a single integrated structure.

All income earners will be required to pay 12% of their annual salary to the NSSF, creating the multi-trillion rand fund.

But labour and investment analysts have warned that unless the centralised retirement fund has good governance structures in place, it could potentially be used to bail out failing state-owned onterprises (SOES).

Slow negotiations at Nedlac

The new fund’s negotiations are taking place at the National Economic Development and Labour Council (Nedlac) over the next few months. When government released the proposal in November 2016, it said the complexity of the issue would require multilateral negotiations at Nedlac.

While progress has been slow at the Nedlac task team on a potential model for the NSSF, unions especially are adamant that real checks and balances be put in place for this potentially massive fund.

Labour concerns

While it is still unclear what the NSSF’s structure will be, organised labour appears to have learnt its lesson from the PIC.

The Federation of Unions of South Africa (Fedusa) sent its senior negotiators to Nedlac’s Comprehensive Social Security Task Team to negotiate on the NSSF.

Fedusa has been leading the calls against government’s alleged attempts to meddle with state pensions, and has once again threatened to ask the Government Employees Pension Fund (GEPF) to terminate its contract with the PIC.

“When you to create a national pension fund, contributors have to be part of the governance structures,” said Fedusa general secretary Dennis George.

He admits the PIC lacks some of these governance structures and laments the “high amount” invested in SOEs.

Trade union federation Cosatu maintains it has always opposed the current format of the PIC, which gives the finance minister powers to appoint board members in consultation with Cabinet members.

The PIC Act of 2004 isn’t specific about the influence the GEPF or trade unions should have in determining the board of the PIC, only stipulating that the finance minister should have “due regard” to the nominations made by the depositors.

“This has allowed government and Treasury a disproportionate amount of power over workers’ pensions,” said Cosatu president S’dumo Dlamini.

He added that “government has always sought to decide on our behalf, we are talking about workers’ pensions or deferred salaries, we want to always have a say… who is representing there, can’t be purely the prerogative of government and Treasury”.

Cosatu has requested a meeting with Finance Minister Malusi Gigaba to discuss its concerns around the PIC.

‘Trust has been lost and will never come back’

Asief Mohamed, chief investment officer at Aeon Investment Management, agrees with organised labour’s insistence for greater checks and balances in a future centralised retirement fund

“It needs to have an independent board which represents labour and employers… there should be a strong mandate. It’s all about governance, which is crucial,” Mohamed said.

A labour representative who has been attending the NSSF sessions at Nedlac but is not authorised to speak to the media, told Fin24 that there used to be implicit faith in the PIC’s ability to generate returns for its 1.2 million civil servants.

But he warned that “trust has been lost and it will never come back”.

He added that labour has requested the parliamentary standing committee on finance to intervene at the PIC as there is a fear that people are trying to raid the coffers ahead of the ANC’s elective conference in December.

The initial phase of the engagement process on the NSSF at Nedlac is scheduled to conclude in March 2018.

By Tehillah Niselow for Fin24

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