Tag: PIC

Source: Engineering News

Finance Minister Tito Mboweni said last week that a Congress of South African Trade Unions (Cosatu) proposal to transfer some of Eskom’s debt to state-asset manager, Public Investment Corporation (PIC), which manages civil servant pensions, is a “good idea”, adding that all pensions – not just public sector pensions – should be considered.

While the proposal originally put forward by the labour union federation to more than halve the struggling power utility’s R450-billion debt-burden did not feature in the Budget, the minister was asked about it at a pre-Budget briefing with journalists.

While Mboweni said he did not want to talk much about Eskom – the key takeaway from his Budget was a proposed three-year R160-billion cut in public-sector wage bill – Mboweni said Cosatu’s proposal seemed like a good idea which called for more debate.

“If we go the pension route – it must be all of us. It can’t (only be) public servant pensions, it must be all pensions,” Mboweni said. “I think it is a good idea – must be encouraged. Other institutions can look at the option,” he added.

The minister said the extent to which the PIC’s existing exposure to Eskom debt would be converted to equity would move the debate further.

The PIC, which manages over R2-trillion in assets, invests on behalf of government employee pension funds.

The original proposal by Cosatu, distributed to media on February 3, proposed a debt package to reduce Eskom’s debt from R450-billion to R200-billion through the creation of a special purpose finance vehicle, involving a social compact between government, the PIC, the Development Bank of Southern Africa and Industrial Development Corporation.

While the union at one stage expected that President Cyril Ramaphosa would make an announcement about the plan in his State of the Nation Address earlier in the month, it later said that negotiations would continue for a few more weeks.

Nazmeera Moola, head of SA investments at Investec Asset Management, said on Thursday that while she did not think the Cosatu proposal was a bad plan, any debt restructuring plan devised for Eskom would only be a temporary solution for the power utility’s many problems. She believes Eskom needs an operational plan if public and private asset managers are going to back it.

Moola was speaking at News24 Frontline’s panel discussion on the Budget on Thursday. Public Enterprises Minister Pravin Gordhan and Cosatu’s Parliamentary Coordinator Matthew Parks also took part in the discussion, led by News24’s editor-in-chief Adriaan Basson.

“I strongly believe that Eskom’s issues are not just financial. Financial issues are not the biggest problem – there are operational issues, there are corruption issues,” Moola said.

“Without an operational plan for Eskom, a financial plan is a temporary band-aid. If we just lift the debt of Eskom and leave it operating as it is, we will be in exactly the same position in five years’ time,” Moola said.

Impact investing

She said converting PIC debt to equity, “with a sound operational plan”, may make sense.

Things get tricky when it comes to private funds, which are defined contribution funds – meaning members are entitled to what they contributed, Moola said.

Support from the private sector in the form of impact investing could be an option, Moola explained.

“This [impact investing] is something all asset managers, including ourselves, are on board with. This idea that you can use long-term contractual savings to make investments in the economy, that raises potential growth and gives members adequate returns,” she said. But for this the private sector must be convinced that there is governance, profitability and that entities are run in a manner that makes sense. Examples of impact investing are funds that are invested in infrastructure projects across Africa, she explained.

Moola said this is a better option than the prescription of assets – which dictates to pension funds what to be invested in, even if the financial return is not viable.

Similarly, Gordhan stressed the importance of repairing operations at state entities. “Whether it is Transnet, Eskom or SAA, all of them have damaged operations because the focus was on stealing and not on making entities as efficient as they could be,” he said. Once entities operate efficiently, they can make money and be less dependent on the fiscus, he added.

Commenting on the proposal of using pension funds to deal with Eskom’s debt, Gordhan said that using pension money is just one dimension of the “ultimate solution” being sought. “These things [State-owned enterprises] need to start operating,” he said.

Gordhan also called for stakeholders to engage in meaningful debate to find creative solutions, and not to be distracted by the “bogey woman” or prescribed assets, being touted as an option. “We can find answers. It is not about prescribed assets versus something else,” he said.

No blank cheques

Parks shed more light on the Cosatu proposal, saying that it should be a combination of bonds and equity investments in Eskom. He said it was not a bailout or a “blank cheque” for Eskom. It instead should be considered as “conditional” investment, which all players – government and the private sector – can contribute to.

“We want the PIC to have a stake in Eskom, with a seat on the board, to force Eskom to restructure, clean up, deal with corruption and wasteful expenditure,” said Parks. Currently there are 30 conditions to this proposal, he added.

PIC has 15 days to recoup AYO billions

By Sibongile Khumalo for Fin24

The PIC says it has appointed Gwina Attorneys to assist it in recovering the R4.3bn capital it invested in AYO Technology Solutions.

The state asset manager confirmed on Tuesday that it was issued a compliance notice on February 21 which requires it to recover the capital investment made to AYO within 15 business days of the date of the notice, and provide the commissioner of the Companies and Intellectual Property Commission (CIPC) with confirmation.

According to the notice, it must also recover any interest that may have accrued on the investment within six months.

The CIPC stated that based on the available turnover figures, the PIC did not act in good faith and in the best of interest of the company when “it decided to invest the disproportionate amount of R4.3bn in AYO”.

The watchdog added that the PIC failed its fiduciary responsibility and put the PIC in jeopardy. According to the CIPC, failure to comply with the notice may result in prosecution, with a maximum fine or 12 months imprisonment.

The PIC said it was looking into the matter.

On Tuesday afternoon, AYO said it believed there were no grounds for the CIPC to order the PIC to recoup its investment in the company.

It said it had not seen the compliance notice, but added that it believed the notice was possibly influenced by a disinformation campaign of “media houses and individual journalists”.

In a notice to shareholders on Tuesday afternoon, AYO said: “Both the PIC and AYO should have been consulted and had sight of the notice.”

It added: “AYO further believes that CIPC, by failing to inform and provide it with a copy of the Notice to the PIC, has acted contrary to the provisions of the Promotion of Administrative Justice Act.”

The CIPC was established under the Companies Act to assist with registering companies, monitoring disclosure of information on business registers, licencing business rescue practitioners, and monitoring compliance with relevant financial legislation, among other things.

AYO is linked to businessman Iqbal Survé, the executive chairman of Independent News Media, who holds an indirect stake in AYO through African Equity Empowerment Investments. Survé once described Matjila as a friend, according to evidence by PIC Assistant Portfolio Manager, Victor Seanie.

PIC may not be willing to bail out Edcon

By Ann Crotty for Financial Mail

The PIC is so fixated on its own survival it’s probably not in the mood to consider the survival of other chronically poorly managed entities, even those in the private sector.

It’s been almost 12 years since private equity firm Bain thought it would be a brilliant idea to spend R25bn taking one of the country’s most successful clothing retailers private, load it up with tax-deductible debt and pocket lots of profit.

Read more here: https://www.businesslive.co.za/fm/fm-fox/2019-02-07-edcon-bondholders-trapped/

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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