S. Africa Is Said to Seek $7.6 Billion From PIC for State Firms

  • Treasury is seeking funds for SAA, Eskom, Denel and PetroSA
  • PIC CEO Matjila unwilling to buy state’s entire Telkom stake

The logo of South African Airways sit on the tailfins of aircraft parked at O.R. Tambo International airport in Johannesburg.

Photographer: Waldo Swiegers/Bloomberg

South Africa’s Treasury is pressuring the continent’s biggest money manager to provide as much as 100 billion rand ($7.6 billion) to fund struggling state companies, according to two people with knowledge of the situation.

The Public Investment Corp., which manages state-employee pension funds and has about 1.86 trillion rand in assets, has been asked by the Treasury to buy its entire 12-billion-rand stake in Telkom SA SOC Ltd. to pay for a bailout of South African Airways, said the people, who asked not to be identified as the talks are private. PIC Chief Executive Officer Daniel Matjila has rejected the request, saying a purchase of the 39 percent shareholding would leave the company overexposed to the landline provider, they said.

Daniel Matjila

Photographer: Dean Hutton/Bloomberg

After a bailout for SAA, which is technically insolvent, the government needs cash for state power utility Eskom Holdings SOC Ltd., oil company PetroSA and defense firm Denel SOC Ltd., according to the people. The companies have been beset by allegations of mismanagement and corruption and the running of state firms was cited by rating agencies when they cut South Africa to junk in April.

Matjila is willing to buy about 2 billion rand worth of Telkom shares, which would boost the PIC’s stake to about 18 percent, the people said.

‘Clients Mandate’

The PIC will make investment decisions in terms of the clients’ mandate, it said in an emailed response to questions. PIC Chairman Sfiso Buthelezi, who is also deputy finance minister, isn’t currently taking questions on the PIC, the National Treasury said in emailed comments. He gave his full support to the board and CEO last week, it said.

The PIC has helped the government raise money before. In 2015 it bought the state’s 25 billion-rand stake in wireless carrier Vodacom Group Ltd. to raise funds for Eskom, which was struggling at the time with countrywide blackouts. The money manager has holdings equivalent to about 13 percent of the market value of companies that trade on the Johannesburg Stock Exchange.

The battle over the PIC’s leadership and funds represents the latest struggle over the management and independence of a state-owned company, with the pensions of public-sector workers including nurses and teachers at stake. On Thursday, the Federation of Unions of South Africa, the country’s second-biggest labor union grouping, said it would consider replacing the PIC with privately owned money managers if its members’ savings are used to bailout state entities.

Biggest Africa Fund Manager May See Funds Pulled by Unions

The impasse between the finance ministry and Matjila was behind last week’s accusation that the CEO used PIC funds to finance a personal project, the people said. Matjila, 55, denied the allegations, and his response was accepted by the board after a lengthy meeting. Buthelezi wanted to suspend Matjila and replace him with a more co-operative candidate and the board continues to investigate the CEO and deals he has overseen, the people said. After the meeting, the PIC’s board said it had confidence in the ability and integrity of Matjila and rejected allegations it wanted him removed.

“We are not aware of any new CEO being sought,” the PIC said.

The running of businesses including SAA led to clashes between President Jacob Zuma and former finance ministers Nhlanhla Nene and Pravin Gordhan, both of whom were fired. At Eskom, acting CEO Matshela Koko and Chief Financial Officer Anoj Singh have both been suspended after being linked to questionable contracts. An internal report found that Trillian Capital Partners Ltd., linked to the politically connected Gupta family, and U.S. consultant McKinsey & Co made 1.6 billion rand in fees, according to amaBhungane and Scorpio, two investigative journalism groups based in Johannesburg.

The Guptas are friends with Zuma and in business with his son. They are alleged to have used their connections to influence government appointments and the award of state contracts. Public Enterprises Minister Lynne Brown said Thursday Eskom should begin legal action against Trillian and McKinsey, which denies it has engaged in corruption.

In August, Finance Minister Malusi Gigaba told executives of the Congress of South African Trade Unions, the largest labor federation, that he can’t guarantee the government won’t attempt to make use of funds held by the PIC to recapitalize state-owned companies and fund other projects, Business Day newspaper reported, without saying how it obtained the information. That’s caused concern among labor unions.

“The union reserves its rights while considering options to stop any public servants’ pension fund money being wasted into SAA,” the Public Servants Association said in a statement on Friday.

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