PIC inquiry: R4.3bn Ayo deal approved in record 3 weeks

The PIC’s R4.3 billion Ayo Technology Solutions deal took centre stage at the inquiry on Wednesday, with recently suspended assistant portfolio manager Victor Seanie explaining to the commission how the transaction was pushed through without proper due diligence. 

Just last week, we learnt that Seanie and the PIC’s executive head of listed investments Fidelis Madavo had been suspended for “blatant flouting of governance and approval processes”.

Read: Ayo investment passed on by Matjila – suspended PIC exec

Much of the inquiry has revolved around understanding the process Africa’s biggest asset manager undertakes before making final investment decisions, with today’s testimony querying the definitive powers held by the CEO docket.

Seanie’s testimony was detailed. He revealed, for example, the exact day he first made contact with the Ayo team: “On 16 November 2017 at around 10:15, I was instructed by the executive head of listed investments [Madavo], through his personal assistant, to immediately attend an introductory meeting with Ayo.”

His testimony indicates that the Ayo deal was troubled from the beginning: “I requested Ayo’s pre-listing statement from [Abdul] Malick Salie [Ayo’s head of corporate finance and business development] via email on 17 November 2017 at 15:50,” said Seanie. “Mr Salie only emailed me Ayo’s pre-listing statement a week later on 24 November 2017 at 08:01.”

Despite this sluggish response, Ayo received an approval in record time by PIC standards. “The Ayo process was unusual in that it seemed to me Ayo was dictating time frames to the PIC,” said Seanie.

Company	Time for approval	Estimated transaction
Vodacom Tanzania	11.7 weeks	R841 million
RH Bophelo	9.9 weeks	R400-500 million
Sagarmatha	11.7 weeks	R3-7.5 billion
Ayo	3 weeks (measured until December 15, 2017, the closing date of the Ayo private placement)	R4.3 billion

Seanie’s testimony contradicts the PIC’s motivation for firing him. He said he made an effort to query the deal by, for example, making a “professional judgement call to allocate team members [from the risk and legal departments] to assist on the Ayo IPO.”

This would later be cited as one of the reasons for his suspension, since he did not get approval from the portfolio management committee (PMC).

One has to wonder then: was the Ayo deal set to get approval without a due diligence report – and if it wasn’t, would Seanie’s sanctioning of due diligence activities be reason to suspend him?

Audacity

An equally troubling revelation by Seanie is that Ayo dictated the listing share price. “When companies offer their shares in an IPO, it is normal for the company to negotiate the IPO share price based on the demand for its shares from mainly institutional investors,” said Seanie. “The PIC listed equities team was never engaged to negotiate an IPO price for Ayo.”

Despite the warning signs, former PIC CEO Dan Matjila signed the Ayo subscription agreement on December 14, 2017 – even though the portfolio monitoring committee (PMC) had not approved it. “I thought signing the subscription agreement was highly irregular because I had never seen it happen before and the PMC had not yet approved the Ayo transaction,” said Seanie.

Today’s testimony shed light on some good practices at the PIC, even though they were ignored in the case of the Ayo deal, such as ‘downside protection’ (basically a transaction involving the purchase of an option to hedge a long position).

Seanie’s testimony also shed light on past transactions such as the Vodacom Tanzania deal, where downside protection was put in place (understandable given the policy uncertainty in the Tanzanian market).

But his testimony reveals that despite the warnings around the Ayo deal, downside protection was only proposed by Matshepo More (then chief financial officer, now acting CEO) on December 20, 2017 – despite Matjila having signed the Ayo subscription agreement on December 14.

“I found this very strange and irregular because Ms More was aware that the irrevocable subscription agreement had already been signed on 14 December, and she had already signed the Ayo payment memo on 19 December,” said Seanie.

The inquiry resumes on February 25.