Inside the PIC’s meltdown

It is the mother of all poisoned chalices. This week, Patrick Dlamini was suspended as CEO of South Africa’s largest asset manager, the Public Investment Corporation (PIC), over a loan made to a company in 2013, long before he was appointed.

From the outside, it seems like Dlamini is taking the fall for the questionable R333.2m loan made to a company called Acapulco, which allowed it to buy 25% of the Lanseria Airport 13 years ago. As one insider tells Currency, “it is 200% wrong” that he should be placed on ice, not least because he has only been in the job for a year.

“Patrick followed the right processes, and appointed PwC to investigate what went wrong in the valuation of Lanseria. This is public money, you need to know how it’s spent. But now he is being made a scapegoat,” he said. 

Officially, Dlamini was suspended as a “precautionary measure” so that allegations made by an anonymous whistleblower are probed. But it’s clear not everyone believes this was warranted. 

The decision was taken at a PIC board meeting on Monday, where nine directors voted to suspend him, while two felt the allegations did not warrant this. Since then, two of those directors, Thabi Nkosi and Nosiphiwo Balfour, have quit. 

More critically, this fallout has shone a spotlight on a more significant fissure: between finance minister Enoch Godongwana, who is understood to have wanted Dlamini to remain, and deputy finance minister David Masondo, who evidently feels the opposite. Masondo, as deputy finance minister, chairs the PIC’s board.

Significantly, Godongwana yesterday distanced himself from the move against Dlamini, saying: “The decision to put the CEO on precautionary suspension was taken by the board – the government is not involved.” 

This apparent rift between the country’s top two finance officials, and the factions on the board, has evoked damaging memories of the PIC’s nadir a decade ago. At the time, a slew of politically motivated investments, which went belly-up, revealed shoddy or inept management. 

This was meant to have been fixed. A commission chaired by retired judge Lex Mpati made 308 recommendations in 2020, the bulk of which were implemented by the PIC’s new board. It was meant to herald a new era of clean governance, at the institution which manages R3.6-trillion on behalf of more than 1.2-million government employees. 

Instead, the PIC finds itself back in crisis. 

Asief Mohamed, chief investment officer at Aeon Investment Management, says he believed that after the Mpati commission, the PIC had cleaned house. “It’s worrying to learn that it might not be the end of it,” he says.

Another industry insider says a strong PIC, with the ability to make sound investments and assist companies to prosper, is vital. But a PIC in perpetual turmoil “risks destabilising the entire savings industry”. 

This sounds overly dramatic, but some fear the reality may be worse. 

Inside Hollywood

PIC insiders have dubbed the PIC “Hollywood”, since five of its top six executives are in acting roles. 

CFO Batandwa Damoyi is now acting CEO, which means someone has to act in her role, while chief investment officer August van Heerden was removed this week, with Leon Smit appointed to act in his role. There is also an acting head of risk, and an acting COO. Chief technology officer Makano Mosidi, the only permanent executive, must be very nervous indeed. 

The investment team is just as unstable: there is an acting head of listed investments, acting head for fixed income, and an acting head for unlisted investments. 

“How do you operate the continent’s largest asset manager like that? What sort of message does this send to investors about stability at the organisation? Who would want to work at the PIC if you’re a serious black investment professional?” says one insider. “The PIC is seen in the market as the place where your career is put to the grave.”

Workers whose savings are managed by the PIC are dismayed. 

Reuben Maleka, who heads up the Public Servants Association, which represents government employees, says this puts the PIC right back where it was a decade ago, with allegations of shoddy investment decisions, political fallout and compromised returns. 

“You wouldn’t have expected that so soon after the Mpati commission we’d find ourselves here again, with the CEO suspended, and talk that governance has been short-circuited,” he tells Currency. 

The lack of transparency hasn’t helped. Details of the whistleblower report are sketchy, which means the precise accusations that Dlamini is facing aren’t clear. 

This is poor, since Maleka says every cent that public servants invest with the PIC must be accounted for. “Right now, there are allegations that the money that our members invested pretty much vanished into thin air. We can’t have the fund being compromised by this.”

Private sector asset managers are also watching this fallout with horror. 

Mohamed says these scandals are bad for market credibility.

“Investors want to come into a market where they can trust it’s good governance, whether it’s in the private sector or public sector,” he says. “If it is perceived that all entities, state-owned or private sector, don’t have good governance, we’re going to chase away capital.”

Quit and run

So what actually happened in the Lanseria transaction? And how can one transaction like this cause so much devastation in the PIC’s boardroom?

The story goes back to 2013, when Acapulco, run by Kagiso Matjila, was given a R333.2m loan by the PIC to buy 25% of Lanseria Airport, an airline hub in the north of Joburg that has struggled financially for a number of years. 

It was a large sum to lend to Matjila, an otherwise anonymous businessman who seems to have had stakes in an assortment of businesses, from fisheries and painting firms to oil refineries, security and cleaning services. 

And the prospects of repaying the loan took a knock when Covid hit the country in 2020, which led to two airlines, Comair and Kulula, imploding. 

The upshot was that Matjila never repaid the loan, which grew to more than R600m once interest began compounding. By 2023, when Matjila was meant to have refinanced that loan, Acapulco defaulted, and the PIC took over those shares in Lanseria. 

But Matjila ended up in a long legal process demanding he be paid out for some of the “value” created in Lanseria over the years. A long arbitration process followed, with a key point of contention being the value of Lanseria. 

Three different valuations were obtained for Lanseria. The last one, by a company called Crowe, said the value had risen by more than R1.7bn. Based on this, Matjila initially asked for more than R1bn for his shares. 

The PIC rejected that Crowe valuation but, after a long arbitration battle ended in Acapulco’s favour, the state-run asset manager finally agreed to settle this case once and for all by paying R411m last October. Its lawyers had argued that any fight over this had “limited prospects of success” and carried “potential litigation risks”.

On the face of it, it seems iniquitous that Acapulco, which had never repaid the original R333.2m loan and had defaulted, should be repaid this amount. Especially when this money comes from pensioners’ savings. 

Dlamini, acutely aware of this mandate, then appointed PwC to examine the valuation of Lanseria, and determine whether it was right that the PIC had paid this R411m. 

Excerpts of that PwC report, leaked to a number of media outlets, say the valuation of Lanseria was grossly inflated. Crowe’s valuation “contains double counting” while the arbitration award in favour of Acapulco “seemingly did not consider or was not presented with all relevant information”, according to Business Day. 

While the PIC was obliged to pay, its staff could have acted earlier in the process. Instead, they allowed the process to be “expedited”, which reduced the scope to reduce the ultimate payout. The asset manager’s staff largely decried responsibility for what happened. 

In this context, it would seem that Dlamini did the right thing by taking steps to ensure the pensioners’ money was spent correctly. 

Matjila, however, was furious, and lodged a R900m claim against Dlamini for his “unlawful interference” in reopening a case that he believed was settled. 

He also accused Dlamini of not recusing himself from this case, even though he was previously a director on Lanseria Holdings and had a professional relationship with Tshepo Mahloele, who runs Harith, also a shareholder in Lanseria. 

Matjila’s allegations are eerily similar to the whistleblower report, which ultimately led to Dlamini’s suspension.  

The Mail & Guardian newspaper reported that the 26-page whistleblower report, dated June 9, took issue with Dlamini’s appointment of PwC, and his relationship with Harith. The whistleblower said Dlamini should be placed on “precautionary suspension” over this. 

This week, those on the board sympathetic to Matjila’s argument did just that. 

Vicious cycle

For Bantu Holomisa, the founder of the United Democratic Movement, this debacle shows precisely why politicians should never be on the boards of state-run entities like the PIC. 

As it was, the Mpati commission said the practice of appointing the deputy finance minister to chair the PIC should be discontinued, and an independent chair be appointed.

“Had they implemented the Mpati commission’s findings, the situation would be better today. To clean this mess, we should not appoint a politician to be the chair of the PIC,” he says.

Holomisa says part of the problem is that there are unqualified people at all levels at the PIC, including on the board. And this allows poor decisions to be taken, especially when it comes to the PIC’s Isibaya Fund, which invests in unlisted companies.

“Rather invest that money to develop South Africa’s infrastructure. At least we will have guarantees that the PIC would have better investment results than giving it to people who fail to service their loans,” he says. 

This governance point is echoed by Khaya Sithole, an independent analyst, who says the PIC is hamstrung by its architecture. “You get told to appoint a political deployee as a chair of the board when ideally you could have chosen someone else,” he says. 

This, he says, is the one single recommendation from Mpati that “the ANC government pretended never existed at all”. 

Given this politicisation, it is perhaps unsurprising that it keeps finding itself mired in scandal where, as Sithole puts it, “non-commercial considerations are so fundamentally entrenched that it gets stuck in the same problems time and again”.

Dlamini, who only celebrated his first year in the job last month, must be wondering why he ever agreed to step into an organisation where every executive is seemingly only one anonymous whistleblower report away from the departure lounge. 

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_{Top image collage: Gallo Images/Brenton Geach (David Masondo); Ashraf Hendricks/GroundUp (Enoch Godongwana); Rawpixel; Currency.}