This article first appeared in Moneyweb.
Two cases involving state-owned companies illustrate the perils of taking politicians at their word.
The first involves Airport Companies South Africa (Acsa), which two decades ago enticed investors with the promise of a stock exchange listing. That never happened, leaving minority shareholders owning 4.2% with no exit option other than to sell back to Acsa.
Minority shareholders and Acsa have been locked in dispute over the value of the shares for the better part of a decade. The parties reached a settlement agreement in 2017, which was made an order of court. Acsa was ordered to buy back the minorities’ shares at fair value, which was to be determined by an independent referee.
When the independent referee, RisCura, came to a valuation of roughly R78 a share, Acsa – realising it would have to pay out about R700 million – hired a valuator of its own who arrived at a valuation nearly half this amount.
The government has since entered the picture, and has applied to the court to appeal the court order and rescind the settlement agreement.
Politicians in investors’ crosshairs
The minorities, in their replying affidavit, argue that government’s conduct is of such bad faith and its arguments so spurious that they are seeking personal cost orders against the key personnel involved: transport minister Blade Nzimande, deputy director-general of transport Rejoice Phewa, and the state attorney Dovhani Mphephu.
Should the minorities win this case and get cost orders against these individuals, we can expect a multitude of other cases seeking to hold government officials to account where they have used the public purse to pursue illogical or frivolous cases.
SA has cycled through multiple transport and public enterprises ministers since investors were first lured into Acsa in 1998. Times change, and promises made under one administration can be vaporised by the next.
Telkom had been through a reasonably successful privatisation around this time, paving the way for Acsa. Government’s entry into the dispute last year is predicated on the impact the settlement will have on state finances, though minority shareholders point out that the state has neither invested nor loaned a cent to Acsa since the early 1990s.
A lesson for investors
“There is a lesson here for foreign or local investors looking at interacting with state-owned companies,” says Alun Frost, financial advisor to the minority shareholders. “Exercise extreme caution. Promises to investors apparently mean nothing to investors. In our case, we have argued that the government has acted oppressively against the minority shareholders over a sustained period of time.”
There is another troubling aspect to the Acsa business model, adds Frost: it went from a purely commercial enterprise to a developmental tool of government. Evidence of this is the costly King Shaka International Airport in Durban, which Acsa was forced to take on its balance sheet. The initial budget of R3.5 billion was blown out of the water, with final costs tallying around R10 billion. Then government mismanaged the Acsa tariff regulator, which has been dysfunctional since 2006 – further impairing Acsa’s ability to generate reasonable returns.