How Brazil and SA measure up in the corruption stakes

Written by Ciaran Ryan. Posted in Journalism

Brazil jailed its corrupt leaders. SA lets them walk. Then Brazil reformed its economy. From Moneyweb.

SA’s debt servicing costs as a percentage of gross tax revenue – frightening. Image: Shutterstock
SA’s debt servicing costs as a percentage of gross tax revenue – frightening. Image: Shutterstock

Brazil and SA lend themselves to comparison: both are resource-rich, struggling with inequalities and have a long history of corruption.

There are also some key differences. Brazil jailed corrupt politicians and officials, while no high level officials in SA face jail time for corruption, notwithstanding last week’s arrests of four government officials after an investigation into the R255 million asbestos audit project.

Read: Corruption arrests, land sales raise SA spirits

Former Brazilian president Dilma Rousseff was impeached in 2016 after investigations into state-owned petroleum company Petrobas, of which Rousseff had previously been chair, revealed massive bid rigging to inflate contract prices, with a portion of profits being funnelled back to politicians and state officials.

In 2018, another former Brazilian president, Lula da Silva, was jailed for 12 years for corruption and money laundering. It should be pointed out that both Lula and Rousseff denied the charges against them and claimed irregularities in the way their cases were handled, helped by media bias and opportunism by political opponents.

This begins to look rather like former president Jacob Zuma’s new-found contempt for the Zondo Commission of Inquiry into allegations of state capture, which he appointed and promised to assist.

He now wants Deputy Chief Justice Raymond Zondo to recuse himself for supposed bias after ordering the former president to appear before the commission in November to answer allegations of state capture.

Brazil’s swift and decisive action

Alistair MacDonald, institutional portfolio manager at Franklin Templeton Emerging Markets Equity, told the Morningstar Investment Conference last week that Brazil dealt swiftly and decisively with its corruption scandal, punished those involved, and then embarked on a series of reforms.

It relaxed labour laws, reformed the pension fund system, equalised private and public pensions, imposed more rigorous standards for state-owned company appointments, and introduced changes in its mining code, overseen by an independent regulator.Read: Lessons for SA from Brazil

Perhaps most importantly, it introduced a spending cap bill which limits government spending growth to last year’s inflation rate – which means in effect zero real growth.

SA’s reaction …

Contrast this with SA, where budget deficits are exploding and negotiations to reduce the public sector wage remain unresolved. The state wants to save R233 billion over the next two fiscal years, but this seems unrealistic.

Once Brazil had put its high-profile corruption cases to bed and introduced reforms, its economy took off like a rocket (after slumping badly in 2015).

SA’s reaction …

Contrast this with SA, where budget deficits are exploding and negotiations to reduce the public sector wage remain unresolved. The state wants to save R233 billion over the next two fiscal years, but this seems unrealistic.

Once Brazil had put its high-profile corruption cases to bed and introduced reforms, its economy stabilised (having slumped badly in 2015 and 2016).

Source: IMF

There should be a positive message in this for SA, but there seems little passion for pursuing high level politicians.

Big fish more likely to walk free

As political analyst Justice Malala told the Morningstar conference, smaller fish are likely to cop the blame for corruption while the bigger ones walk free.

If we were to follow the Brazil model, we would have to deal decisively with corruption at the top level and then embark on reforms needed to address the oncoming train of unemployment and spiralling debt.

MacDonald said there are some signs of prudence in the board appointments at state-owned entities (SOEs), but still little sign of improvement at larger SOEs such as Transnet, Eskom and SAA.

While Brazil decreased the local content requirement for equipment purchases for oil and gas exploration, SA has introduced no such reforms.

SA’s mining regulations still do not address investor concerns over domestic procurement and ownership. Labour laws in SA are seen as inflexible and anti-competitive, and the ruling party has little appetite to face down the trade unions.

Source: Franklin Templeton Capital Market Insights Group, Bloomberg, Factset

Perhaps the most frightening chart presented at the Morningstar conference is that of SA’s debt servicing costs as a percentage of gross tax revenue.

Interest is now absorbing twice the tax revenue of 2010 in percentage terms. This cannot go on.

SA has been shielded from deteriorating terms of trade by high precious metals prices for gold and platinum group metals. Oil exporting countries have been devastated.

Yet SA remains locked in the old economy of commodities and industry. Asian economies are embracing the new economy of cloud technology and ecommerce, which has now surpassed the old economy of mining and industry as a percentage of national income.

That’s true for most Asian countries. It’s not true for SA.

Asia now accounts for nearly 40% of global IT hardware and semiconductor revenue, and about 85% global IT services.

In other words, virtually every other emerging market in the world is showing us a clean pair of heels.

Source: Franklin Templeton Capital Market Insights Group, Bloomberg, Factset

Eskom gets tough with errant municipalities, grabs cash and land

Written by Ciaran Ryan. Posted in Journalism

As it scrambles to recover R31bn in municipal back bills – raising interesting questions about the land issue in the process. This article appeared in Moneyweb and The Citizen.

If a single municipality has 139 farms, it seems certain that the state has a surfeit of land for distribution to the poor. Image: Waldo Swiegers, Bloomberg
If a single municipality has 139 farms, it seems certain that the state has a surfeit of land for distribution to the poor. Image: Waldo Swiegers, Bloomberg

Eskom recently attached 139 farms worth R2.5 billion from Matjhabeng municipality in the Free State, signalling a new front in the war with delinquent municipalities.

Read: Eskom attaches 139 farms of FS municipal council

The electricity utility has been known to attach cars, computers and bank accounts in settlement of municipal arrears, but attaching farms as security for debts owed is something new.

As of July 31, municipalities owed Eskom R31 billion, with 80% of this owed by just 20 municipalities.

Asked what prompted the attachment of these farms, Eskom replied: “To collect this debt, Eskom is implementing the contractual conditions as per the supply agreement such as interrupting supply, pursuing legal avenues consistent with good credit management processes. So far, these 139 farms are the only property of this nature that Eskom is holding as security to cover unpaid debt.”

Farms valued at an average of R18m each

The farms were attached as security for Matjhabeng municipality’s R3.4 billion debt. The municipality values the farms at R2.5 billion, or R18 million each on average (bear in mind this is gold mining country, and includes the town of Welkom).

That should raise eyebrows for all sorts of reasons, and it has.

If just one bombed-out municipality has 139 farms it can hand over as security for a debt, how many such municipal farms are there scattered across the country?

That’s a question Leon Louw, executive director of the Free Market Foundation, wants answered: “What on earth is a municipality doing with 139 farms to give Eskom for debt security? That [Matjhabeng] has farms at all, let alone 139 farms, should generate a political and media outrage, yet the scandal went unnoticed.”

Expropriation without compensation pressures

Louw’s outrage is directed at the pressure to implement expropriation without compensation (EWC) on the pretext that the willing buyer/willing seller model has failed and more radical land redistribution is needed. “It appears that municipalities are sitting on vast tracts of superfluous land.

“If the Matjhabeng municipality’s 139 farms are indicative of the rest of the country, the government has ample land for redistribution.”

Moneyweb reported on Sunday (October 4) that government is about to auction off almost 900 vacant or underutilised state-owned farms across the country, a move aimed at helping those discriminated against during apartheid.

Read: Corruption arrests, land sales raise SA spirits

It begins to appear as if there is far more state-owned land available for redistribution than has hitherto been admitted.

Eskom says the Matjhabeng farms remain the property of the municipality until the dispute has been resolved in an outstanding court case.

Eskom – like municipalities – is under huge pressure to gather every cent owed to it and rein in ballooning arrears bills.

It explains the motivation for the land attachments: “Over the years Eskom has done everything within the company’s legal constraints to recoup unpaid debts from municipalities. In addition to pursuing the legal route with individual municipalities, such as the recent action against the Matjhabeng and Maluti-a-Phofung municipalities, Eskom is actively engaging stakeholders such as the National Treasury, SA Local Government Association and the Department of Cooperative Governance and Traditional Affairs (CoGTA) to improve the payments by municipalities.

Eskom’s priority

“Our priority is to ensure that municipalities are in a position to settle their current accounts timeously. Working with National Treasury, we are ensuring municipalities adopt funded budgets that include the payments to Eskom.

“Eskom has over the years implemented many concessions such as reduced interest rates and increased payment days to make it easier for municipalities to settle their accounts.”

Earlier this year Eskom attached the cash accounts of another Free State municipality, Maluti-a-Phofung (which includes the town of Harrismith), which had run up arrears of R5.3 billion after defaulting on its electricity bill. By order of court, Eskom released R90 million of the municipality’s seized cash, sufficient to pay workers.

Also earlier this year, it attached furniture, cars and other equipment in settlement of a R2.3 billion arrears bill owed by Emfuleni municipality, south of Johannesburg. This followed a 2018 court order interdicting Eskom from cutting electricity supply to the municipality as this would prejudice customers who faithfully paid their bills.

Large businesses in the area, such as ArcelorMittal and Growthpoint, have lobbied to keep the lights on by paying Eskom directly, rather than repurchase power from the hopelessly insolvent municipality.

Read:Eskom gets Sheriff to attach Emfuleni assets

Emfuleni: Eskom not half done taking municipality’s cars, furnitureEskom agrees to release funds to Free State defaulter

Residents of municipalities such as Govan Mbeki in Mpumalanga complain that they are being cut off by the municipality for up to eight hours a day, even though they are dutifully paying their bills. It’s the same complaint heard in many other parts of the country.

Eskom says it does not intend to punish paying customers but has no other option than to cut services to the defaulting municipality, which is mandated by the Public Finance Management Act and the Electricity Regulation Act.

“Interrupting of supply is a condition within the supply agreement Eskom has with its customers and is based on sound commercial law practice whereby a service is discontinued when non-payment for such service occurs,” says Eskom in reply to questions from Moneyweb.

Soweto residents ‘punished’

Residents of Soweto, which owes Eskom close to R18 billion, say they are punished when entire areas are disconnected, regardless of whether the individual customers have paid their bills.

King Sibiya, president of the Lungelo Lethu Human Rights Foundation, disputes the R18 billion arrears figure and wants it subject to independent audit. Power disconnections have led to social protests and vandalism of Eskom infrastructure in Soweto.

Sibiya wants an independent tribunal established to hear the individual merits of each complaint before deciding to disconnect power from people who are often living in desperate circumstances.

Eskom replies that all its tariffs are regulated by the National Energy Regulator, and it has no leeway to negotiate separate tariffs or have preferential arrangements outside of what is regulated. Relief is available through the so-called Inclining Block Tariff (IBT), which is a form of subsidy to low-consumption residential customers. Government also assists indigent households by providing Free Basic Electricity (FBE), a scheme that is administered by municipalities.

All users must pay

“In order to enable Eskom to sustainably and reliably supply electricity to the country, all consumers of electricity must pay for their consumption. Non-payment of electricity does not only affect the security of supply for paying customers, but it also contributes to increased energy and revenue losses coupled with increased operational costs,” says Eskom.

Eskom the best bet for an accurate land inventory?

If Eskom starts going after municipal-owned farms as it has just done in Matjhabeng, we may end up with a far more detailed inventory of state-owned land than has hitherto been the case.

If Matjhabeng has 139 farms, it seems certain that the state is squatting on a surfeit of land for distribution to the poor.

The supposed scarcity of land may be entirely manufactured by those with political ambitions.

Eskom may end up as a major landowner if more municipalities default, which may take some of the steam out of the push for EWC, which is far from a top priority for ordinary South Africans.

Says Louw: “Various ‘land audits’ supposedly document how much land is private, government, traditional, white, black or undefined. But they are all nonsense. Their common bizarre flaw is that they estimate land distribution by the most irrelevant criterion, area. ‘Whites own 80% of the land’ is an absurd popular refrain.

“Land by area implies that a hectare of desert is as valuable as a hectare of Clifton.”

Emfuleni and Midvaal enter the record books, but for very different reasons

Written by Ciaran Ryan. Posted in Journalism

The neighbouring municipalities are on distinctly different paths. From Moneyweb.

Midvaal has taken the high road, employing the best professionals for the job instead of making political appointments. Image: Getty Images
Midvaal has taken the high road, employing the best professionals for the job instead of making political appointments. Image: Getty Images

Emfuleni includes the towns of Vereeniging and Vanderbijlpark, while Midvaal extends from Alberton in the south of Johannesburg to the Vaal Dam and includes the town of Meyerton.

Emfuleni recently entered the legal record books after being slapped with a R492 million default judgment for breaches of contract for the installation of smart meters. This is par for the course for this municipality, where residents complain of raw sewage sloshing through the potholed streets and rubbish going uncollected for months.

Read: Emfuleni Local Municipality shames itself into the legal record books

Contrast this with neighbouring Midvaal, a smaller and more prosperous municipality – and one of the best run in the country, according to Ratings Afrika’s Municipal Financial Sustainability Index (MFSI) survey.

Midvaal’s executive mayor is Bongani Baloyi, who took on the role in 2013 at the age of 26. He is now 33 and something of a legend in mayoral circles, having signed off on six consecutive clean audits and built up reserves of more than R2 billion.

Midvaal is a DA stronghold and Baloyi has a reputation of zero tolerance for corruption.

Emfuleni is ANC-run and is often in the news, but usually for the wrong reasons – not least of all for failing to turn up at court to defend the R492 million claim over a contract gone sour.

Creating ‘the Dubai of southern Africa’

Baloyi plans to turn his corner of Gauteng into the Dubai of southern Africa, attracting businesses to the area with a potentially tantalising offer: cheap and abundant water and electricity.

Read: Two municipalities, both ANC-run, tell the story of where it all went wrong

“Businesses are attracted to municipalities that are well run and deliver good quality services,” says Ratings Afrika analyst Leon Claassen.

“Those that are able to sweeten that by showing a measure of energy independence from Eskom, and lower electricity tariffs, can expect to do even better. Quality of water and consistency of supply is another issue that concerns businesses.”

Read:Eskom gets Sheriff to attach Emfuleni assets (Mar 10)

Emfuleni: Eskom not half done taking municipality’s cars, furniture (Mar 11)

Midvaal is on the hunt for private sector partners to take over management of the distribution of electricity and roll out solar energy plants that will wean it off Eskom’s erratic supply, allowing it to offer cheaper energy than the rest of the country.

Another private-public partnership (PPP) will be inked later this year to recycle waste water and inject it back into the system, with surpluses being sold to Rand Water.


“The two issues that most concern businesses and residents in the area are electricity and water, and we realised some years ago we had to ensure we had some independence from both Eskom and Rand Water,” says Baloyi.

One of the key measures of municipal efficiency is the debtors’ collection rate: 92% at Midvaal, and about 75% at Emfuleni. That’s a huge difference, suggesting Midvaal’s residents are far more inclined to pay for services than their neighbours, based on their satisfaction with the overall quality of services delivered.

The Ratings Afrika MFSI survey takes a broad look at financial sustainability, measured around six components: operating performance, liquidity management, debt governance, budget practices, affordability, and infrastructure development. Municipalities are then given a score out of 100.

Midvaal’s results are exemplary. Emfuleni’s are miserable.

The infrastructure development figures are particularly revealing, with Midvaal earning a Ratings Afrika score of 77 against 21 for Emfuleni.

What this tells us is that Midvaal is not just maintaining its infrastructure, but adding to it. In Emfuleni, just 1.6% of revenue goes into maintenance and repair of infrastructure, against 3.75% in Midvaal.

Source: Ratings Afrika Municipal Financial Sustainability Index survey

Midvaal’s residents are all too aware of the wreckage lurking across the fence in Emfuleni, where the ANC has ruled for decades.

What accounts for this startling difference between two neighbouring municipalities?

“I would say all I have done is my job, and I’ve avoided making political appointments,” says Baloyi.

“The law is very clear as to what is expected and you cannot use local government as a vehicle for political appointees. We employ the best professionals for the job, and I understand my role as gatekeeper against those who want to line their own pockets unlawfully.”

Baloyi’s suggestion for neighbouring Emfuleni?

“I think the rot is so deep that you have cut off a limb. You have to tackle corruption and wastage without mercy.”

He adds that poor service delivery feeds a culture of non-payment, which is very difficult to budge once established.

Outclassing the ruling party

The DA has made a point of outclassing the ruling party where it really counts, at local government level. This, says Claassen, is where governance is of most intimate concern to residents.

The Ratings Afrika survey shows the largely DA-run Western Cape comes out on top with an average MFSI score of 59, with the Free State floating to the bottom with a score of 21. The national average is 37 (or 31 if the Western Cape is excluded).

Midvaal has a much smaller population of 130 000, against Emfuleni’s 777 000. That’s not the only difference. Midvaal has consistently run operating surpluses, while Emfuleni has clocked up deficits of close to R2 billion for the three years to 2019.

In 2018, Auditor-General Kimi Makwetu pulled his staff out of Emfuleni when one of those conducting an audit was shot.

Later, the ANC asked Reverend Gift Moerane, Gauteng provincial secretary of the South African Council of Churches, to take over as mayor and try to clean the place up.

In what was perceived as a brazen case of political gerrymandering, the Municipal Demarcation Board attempted to merge the two municipalities in 2013 but agreement was reached to abandon the idea in 2015.

Midvaal residents have seen what lies across the fence, and they want no part of it.

One Gupta company’s attempt to liquidate another stumbles in high court

Written by Ciaran Ryan. Posted in Journalism

Westdawn is seeking to liquidate Optimum Coal Mine. This attempt hit a wobble in the Joburg High Court. From Moneyweb.

Centaur went from having no significant claim against Optimum to being one of the largest creditors, and is now one of the companies in line to acquire Optimum. Image: Waldo Swiegers, Bloomberg
Centaur went from having no significant claim against Optimum to being one of the largest creditors. Its claim has been acquired by Templar Capital, which is now in line to acquire Optimum. Image: Waldo Swiegers, Bloomberg

Last week the Johannesburg High Court denied former Gupta company Westdawn’s attempt to stop publication of a revised business rescue plan for Optimum Coal Mine.

It’s a case of one former Gupta-owned company trying to liquidate another. Westdawn has a claim of more than R112 million against Optimum, and last week brought an urgent application before the high court to stop Optimum’s business rescue practitioners (BRPs) publishing a revised rescue plan on the grounds that the mine is factually and commercial insolvent, and that the BRPs acted with malice to thwart its winding up application.

Read: Optimum business rescue practitioners’ discretion questioned

Judge Raylene Keightley wasn’t buying it. She could see no evidence of malice, nor did she grant the urgent order to stop publication of the rescue plan. However, the winding up application will be heard separately in November, while the business rescue process continues in parallel.

Bouwer van Niekerk, attorney for the BRPs, says the judgment means all creditors will now be given an opportunity to study and vote on the revised rescue plan. Creditors will vote on the revised plan on Monday (September 28).

A total of eight Gupta companies were placed in business rescue in 2018 (though Westdawn was not one of them) after local commercial banks and Bank of Baroda withdrew banking facilities over suspicions of the Guptas’ involvement in state capture. The withdrawal of banking facilities prevented the Gupta companies from paying staff and creditors, forcing them into business rescue.

Read: Swarm of court cases engulfs former Gupta mines

Westdawn provided mining services, labour and equipment to other companies in the group. In an affidavit before the court, joint liquidator Thea Lourens says prior to the business rescue of the various companies, Westdawn advanced R202 million to another Gupta company, Islandsite, which was used to acquire plant and equipment for mining at Optimum.

Westdawn originally applied for the winding up of Optimum in November 2019, but the matter was referred to the commercial court for hearing.

‘Apparent collusive dealings’

Lourens says in an affidavit that since then, new facts had come to light relating to “the apparent collusive dealings between the business rescue practitioners of Optimum and various affected parties in the estate to the general body of creditors …” and the inability of the BRPs to rescue the company either by selling its assets or resuming trading activities.

The BRPs opposed the liquidation attempt, saying it lacked merit and urgency. It has also asked the court to strike out “vexatious” allegations against the BRPs, who are under a statutory duty to publish a rescue plan and convene a creditors’ meeting – something they say Westdawn is trying to circumvent.

Said Optimum BRP Kurt Knoop in his replying affidavit: “Westdawn’s voting interest in relation to the business rescue plan is a mere 2.61%. This court would clearly want to know at the hearing of the winding up application what the attitude is of the remaining 97.39% of [Optimum’s] creditors in respect to the plan.”

Knoop also argued that Westdawn had attempted to mislead the court as to its reasons for seeking Optimum’s liquidation, as the rescue of the coal mine is holding up the liquidation of Westdawn itself.

The BRPs say there were three potential offers to buy the mine, one of them from Templar Capital, which acquired Centaur’s claims in Optimum. Templar’s offer to buy involves the conversion of debt into equity and the resumption of creditor payments once the mine is cash-positive.

Optimum Coal Mine is currently on care and maintenance at a cost of about R10 million a month.

A key bone of contention for the Westdawn liquidators is Eskom’s claim for R1.27 billion which was reduced from about R5 billion after arbitration, with Eskom’s voting weight being fixed at 24%. Westdawn says the BRPs were then required to publish an amended rescue plan, which was not done. The BRPs replied that the revised rescue plan is in the process of being finalised.

‘Undue preference’

The Westdawn liquidators also objected to the settlement in full of a R1 million claim from another Gupta company, Oakbay, which they say represents undue preference of one creditor over another and removes Oakbay as a potential obstacle in arbitrating a settlement with Eskom, the largest creditor. Westdawn claims the costs of this arbitration have been billed to creditors.

Read: Third attempt to wind up Oakbay heads to court

The BRPs argued the claim of undue preference does not apply as Optimum has not been liquidated. Judge Keightley did not address these issues, which will be dealt with separately in a later court hearing.

Westdawn also raises questions as to how Centaur went from having no significant claim against Optimum to being one of the largest creditors as a result of penalties levied for failure to meet monthly coal supply thresholds.

Westdawn joint liquidator Chavonnes Cooper has claimed the Companies Act is unconstitutional as it allows business rescue plans to be accepted on a vote by creditors, which she claims can be manipulated by the practitioners.

In a liquidation process the meeting is led by an independent third party from the Master’s office and creditors are afforded an opportunity to object to the treatment of their own or another party’s claim. Over and above that, there is a legal obligation on liquidators to investigate claims.

Read: Optimum business rescue practitioners’ discretion questioned

The BRPs argue that Westdawn was abusing court processes by bringing an urgent application and interfering in the rescue process.

They say it is up to the majority of creditors to decide on the best way forward for the mine.

EFF sees a way for the state to grab ownership of the Reserve Bank

Written by Ciaran Ryan. Posted in Journalism

By expropriating its 802 private shareholders without compensation. From Moneyweb.

Lawyers point out that expropriation without compensation is unconstitutional as things stand. Image: Moneyweb
Lawyers point out that expropriation without compensation is unconstitutional as things stand. Image: Moneyweb

There are 802 private shareholders of the South African Reserve Bank (Sarb) and the Economic Freedom Fighters (EFF) wants their shares expropriated and handed over to the state.

Last month it introduced the South African Reserve Bank Amendment Bill, which many see as a not-so-subtle attempt at nationalisation. It may be a long shot – parliament’s own legal advisors say it probably doesn’t pass constitutional muster – but the EFF seems determined to give it a go.

The DA didn’t like the way the EFF had pushed its private member’s bill before the committee, when it had already been declared unconstitutional by parliament’s advisors. The EFF briefing went ahead anyway.

While the Sarb has been hailed as a bastion of independence and good governance, the EFF sees it otherwise. In a recent presentation to parliament’s Standing Committee on Finance and Select Committee on Finance, EFF deputy president Floyd Shivambu claimed the Reserve Bank presides over a banking and insurance sector owned by the white minority, where racial profiling allows discriminatory practices against black people (this is denied by the banks but there is some evidence the EFF may not be entirely off the mark).

The Sarb further presides over sophisticated cross-border illicit financial flows, resulting in tax avoidance and base erosion, said Shivambu.

“The Sarb is toothless, evidenced by its inaction when the banks fixed the currency,” says the EFF in its parliamentary presentation.

This refers to the ongoing currency rigging case involving up to 28 banks in 2017.

A campaign run by Dear South Africa elicited several thousand responses, the majority of them coming out against the bill.

Says one Dear South Africa commentator: “In my opinion, the amendments are a preliminary to temporary elected politicians having unprecedented control over state finances. This is an unhealthy risky situation in the world of finance. Looting would be that much easier, and checks and balances would be nigh nonexistent if such politicians could change controls at will.”

Says another: “For once I agree with Julius Malema. Those in control where there are no checks and balances have robbed us blind.”


“It’s madness,” says Dawie Roodt, senior economist at Efficient Group.

“The economy is in depression and they are aiming at something – ownership – which is irrelevant for now. Ironically, nationalising a central bank at a time when private monies [such as cryptocurrencies] are gaining traction is likely to boost them even more.”

Roodt previously sounded the alarm over a possible motivation for nationalising the Sarb: in 2018 it had assets of R170 billion on its balance sheet belonging to the state but not available for state spending. A good portion of this was accumulated when Trevor Manuel was finance minister and tax revenues exceeded budget projections. Manuel handed over R70 billion to the Sarb with the express instruction that it may not be used in future for state spending.

It was a smart move, and there are no doubt keen eyes on this pot of money at a time when it could solve a lot of problems.

Further expanding on its motivation for introducing an amendment bill, the EFF cites this famous quote attributed to Mayer Amschel Rothschild (founder of the Rothschild banking dynasty): “Permit me to issue and control the money of a nation, and I care not who makes its laws.”

The party says the Sarb’s private ownership structure is majority white and does not reflect the demographics of SA, “and we are proposing a law, an amendment that will take shares from 800 odd private shareholders [and give] to 57 million South Africans”.

Global perspective

Research by the EFF suggests just nine of the roughly 240 central banks in the world have private owners. Only in Italy, SA and the US does the state have zero shareholding in their respective central banks. Most of the others are owned 100% by the state.

The proposed amendment bill will vest the power to appoint Sarb directors with the minister of finance, who will also have the power to appoint its auditors.

The EFF wants Section 10 of the Sarb Act to be amended to remove its power to “form shares” for issue to private owners, as these will henceforth be owned by the state.

Section 13 of the Sarb Act outlines certain prohibited businesses, such as the purchase of its own shares, or the purchase of shares in a bank (without the minister of finance’s approval). The proposed bill seeks to remove these prohibitions, which would allow the Sarb to purchase its own shares, buy shares in a bank, and remove limitations on its ability to purchase government bonds from National Treasury.

Also up for amendment is Section 21 of the Sarb Act, which limits the Reserve Bank’s share capital to two million shares of R1 each (R20 million).


The Reserve Bank’s mandate is to protect the value of the rand in the interests of balanced and sustainable growth, to supervise the banking sector, and to act as lender of last resort to the commercial banks.

The latest financial results show the bank holds total assets of about R1 trillion, an increase of R264 billion over the 2019 figure due to high values for its gold and foreign exchange reserves.

Though the bank made net income of R7 billion for the year ended March 2020, dividends paid to shareholders is capped at R200 000. Hence, there is little financial benefit to owning Sarb shares other than participate in shareholder functions such as electing directors and getting a bird’s eye view of events in the high cathedral of financial control.

And who exactly are the shareholders identified by the EFF?

Finance Minister Tito Mboweni (with 10 000 shares, according to the EFF presentation), DA shadow minister of finance Hill Lewis (10 shares), Anton Rupert Trust, Absa Bank, Discovery Limited, FirstRand Bank and Nedcor, to name a few. It would make sense for Mboweni and the DA to own shares to keep an eye on things at the Reserve Bank.

But as lawyers have pointed out, expropriation without compensation is unconstitutional as things stand.

The Constitutional Court has ruled that expropriation must be accompanied by compensation. Advocate Noluthando Mpikashe, the parliamentary legal advisor, told the standing committee that the law is vague as to what is considered just and equitable compensation, and that the EFF bill can expect a rough ride through the Constitutional Court.

Data dump ‘spills the beans’ on Mirror Trading International

Written by Ciaran Ryan. Posted in Uncategorized

Suggests MTI has taken in deposits of R4bn, while founders reportedly received R309m. From Moneyweb.

All bitcoin transactions are visible on the blockchain, so it is possible to trace where MTI-invested bitcoin came from and where it went. Image: Shutterstock
All bitcoin transactions are visible on the blockchain, so it is possible to trace where MTI-invested bitcoin came from and where it went. Image: Shutterstock

A group called Anonymous ZA dumped what it claims to be the entire transaction history of Mirror Trading International (MTI), which has been accused of being a Ponzi scheme – a claim denied by the company’s management.

MTI disputes the accuracy and completeness of the data dump. The Financial Services Conduct Authority (FSCA) says it is aware of the data leak and is looking into it. Last month the FSCA said it was investigating the activities of MTI for conducting unlicensed forex trading, and its claims of returns as high as 10% a month. The FSCA advised MTI members to ask for their money back.

Read: FSCA investigating Mirror Trading International

MTI’s argument

MTI’s head of marketing Cheri Marks confirms there was a security breach of the company’s administrative portal. “Yes, it was a criminal act. Yes, we will be pressing charges and everyone publishing the personal information illegally obtained we will refer to our legal counsel. The security breach has been fixed and the information leaked is inaccurate and incomplete at best.”

Marks says MTI is fully compliant with all relevant laws, and is the subject of unwarranted smears and rumour mongering over its referral marketing methods (where commissions of 10% are paid for introducing new members). These commissions are paid by MTI and are not deducted from members’ deposits.

“We have 170 000 members worldwide with roughly 17 000 bitcoin. There is nothing in law that prevents us from using referral marketing. No-one has ever asked for a withdrawal and not received it. We get people daily asking us for withdrawals and we honour all of them without fail.”

She adds that the FSCA has been given access to live trades to prove that profits are generated by trading rather than new bitcoins receipts, as has been claimed by some. “We don’t make promises about returns, and we explain the risks, which is what any responsible company should do.”

The company has an 18-month verifiable trading history with only one negative day of trading, she adds. Some have questioned whether this is possible, to which Marks replies: “The bot is an amazing development. Sure, it makes many losing trades and results vary, but only one day since we started has it ended in a loss.”

When MTI stopped trading forex, it shifted to crypto trading and “our members are happy and informed,” says Marks. “We chose to be in relatively unregulated markets like crypto for the very reason that we cannot suddenly be stopped from trading and have our accounts frozen. We are helping over 170 000 people grow their bitcoin portfolios at a time when governments have failed them, the banking system has failed them, employment is at an all-time low and businesses are failing by the minute.”

Warning signs

However, FSCA is sticking to its guns.

“Our advice had not changed since we issued our statement on MTI last month,” says Brandon Topham, head of investigations at the FSCA. “We recommend clients ask for their money back without delay. Our investigation into the company is ongoing.”

The fact that MTILeaks was able to grab the entire transaction history, apparently without hacking, points to “low budget” and shoddy website security, according to one source who asked not to be named.

“All data was acquired using simple enumeration and scraping techniques on the site. No hacks were performed because the lack of basic security did not require it,” says a statement by MTILeaks.

“If your bank gave you access to any other customer’s data in such an insecure fashion, would you trust them to trade with your Bitcoin?”

But what’s inside the database may be of greater interest: it suggests the company has taken in deposits of more than R4 billion since inception and paid out R309 million to the founders. Total withdrawal requests by members reportedly total R2,9 billion, leaving “money in the bank” of R1.3 billion after withdrawn amounts and cancelled withdrawals are accounted for.

Members push on

Several MTI clients contacted Moneyweb when we previously reported on the company to reassure us they were receiving returns as promised.

Read: Get-rich-quick scheme pulls a crowd, despite regulators calling time-out

One MTI client says he was able to verify forex trades reported by the company as accurate. The company says it has stopped trading in forex in an effort to remain compliant with regulators and switched to trading bitcoin using computerised algorithms. That claim has also raised eyebrows in the crypto community.

Switching from trading one asset class to another virtually without pause – and apparently without a break in profits – has the skeptics is disbelief.

In a statement issued last month by Globalcrypto, MTI refuted allegations that MTI’s multi-level marketing systems is a Ponzi scheme, and that “members are able to add or withdraw their funds (bitcoin) at any time, with no complication or fees.” CEO Johann Steynberg added that MTI wants to change the reputation of the online passive income generating industry and ensure that the company is professionally managed and complies with all regulations.

Yet regulators in Texas and Canada recently sounded the alarm over MTI’s business practices. The company is accused of making misleading claims about its returns, while the Quebec Financial Market Authority listed MTI as a company that solicits investors illegally. MTI clients are rewarded with 10% commissions of new sign-ups.

Read: Joining MTI may end in tears

A separate analysis of MTI by South African blockchain researchers shows that by the first week of August 2020, a total of 15 351 bitcoin had been sent to various addresses controlled by MTI. That’s worth $170 million (R2.78 billion) at current bitcoin prices.

MTI only accepts deposits in bitcoin. Some local exchanges have reported a spike in demand for Bitcoin in recent months, at least some of which is destined for MTI. “We started to notice this some months back and began questioning people who appeared to be elderly and buying Bitcoin to participate in MTI. Though we didn’t have much information at the time, we advised caution,” says one crypto executive who asked not to be named.

All bitcoin transactions are visible on the blockchain, so it is possible to trace bitcoin destined for MTI and where it originated. The majority of these bitcoin are purchased on crypto exchanges such as Luno, VALR, Binance and Coinbase and then shipped to addresses controlled by MTI. Crypto exchanges have no control over the destination of bitcoin sent by customers, though some have started to question clients and advise them against it.

The data dump suggests that of the bitcoin received by MTI, a total of 3 755 appear to have been sent to online sports betting site and a further 845 to FXChoice, a Belize-based forex trading broker.

In June FXChoice said it blocked MTI’s trading account after investigating its high return claims and its use of multi-level marketing to attract new customers. “Before the account was blocked, [MTI] executed just a few trading operations, which were performed manually, large and incurred substantial losses,” says a statement from FX Choice, adding that it is still waiting for documents to confirm the source of funds.

Marks says the FXChoice statement is misleading. “We chose to move our funds to another broker who understands crypto before FXChoice made that statement. FXChoice is a forex regulated broker and it has frozen a few hundred bitcoin belonging to MTI shareholders – not member-owned bitcoin. We didn’t want to be at the mercy of a regulated broker that has to act on rumours generated in the press. We are in the process of supplying the financial information FXChoice requested.”

The MTILeaks database shows a payout of R1,45 billion to members, of which R360 million was in the form of bonuses for referring new members. Marks says this is also misleading since attributing a rand value to bitcoin withdrawals depends on the timing and the price of bitcoin, which is changing all the time.

“MTI has never and will never discourage members from withdrawing, we want them to see the fruits of our service to them. In August this year MTI effected 34 734 individual withdrawals to the value of 5933.85 bitcoin without any limitation. The fact that the biggest issue with MTI is our CEO’s willingness to share the bot’s functions with members is ridiculous to say the least.”

“The ‘shortfall’ in bitcoin claimed to be factual by Anonymous ZA is based upon the assumption that MTI is not trading, which is not the case. MTI remains focused on servicing its members and delivering on our brand promise, which we have done an exceptional job of to date,” Marks says.

In a statement issued to members last month, Steynberg writes: ”The time has come, to for once and for all, address and reframe the reputational perception issues of regulators, the media and potential members about this industry, through MTI demonstrating that a genuine bona fide business and brand using an innovative business model of integrity can exist and grow sustainably in this sector. I am personally very determined to see this through and together with and supported by MTI’s professional advisors, this process is now underway.”

MTILeaks is available here (you need the Tor browser to access it).

Small-town residents join hands in tyre burning

Written by Ciaran Ryan. Posted in Journalism

Far away from Sandton and Constantia, the water does not flow and dinner by candlelight is a nightly affair. From Moneyweb.

When supporters from the EFF, the ANC, DA and FF+ join forces to express their discontent, it’s clear there’s a problem. Image: Ayanda Ndamane, African News Agency/RealTime Images via Reuters
When supporters from the EFF, the ANC, DA and FF+ join forces to express their discontent, it’s clear there’s a problem. Image: Ayanda Ndamane, African News Agency/RealTime Images via Reuters

One has to marvel at the resourcefulness of South Africans grown accustomed to life without running water and with candles as a source of light.

They seem to get on with life as best they can, with private contractors stepping in to remove refuse bags for a small fee, and farmers trucking in borehole water to towns like Bethal in Mpumalanga.

Where local government has all but given up, private enterprise fills the void.

Three weeks ago, angry residents of Bethal and nearby eMzinoni in Mpumalanga – black and white – expressed their outrage over power outages lasting up to 12 hours a day by burning tyres and blocking entrances to the town. You know you have a problem when the EFF, ANC, DA and FF+ supporters join in the tyre burning.

Political alignments discarded

Political alignments are discarded in times of crisis, and local businesses have been stepping into the role government promised to fill during lockdown, by providing food parcels to the poor.

Bethal resident Michelle Rademeyer has run a soup kitchen for years, but never has it been more needed than this year, during lockdown. Her notable soup kitchen helped many of the poorest in this agricultural town avert starvation.

“A lot of people would like to move to other towns like Secunda, which are not as badly run, but rental costs there are higher,” she says. She will stay and continue running her catering business in Bethal, relying on gas and batteries to make it through the dark nights.

Read: Is this the future of small town South Africa?

Residents of Bethal, which falls under the Govan Mbeki Municipality, have complained of up to four power outages a day. Residents say the load shedding is not the fault of the municipal manager, but of Eskom’s ‘maximum notification demand’, where the lights are switched off when electricity usage exceeds a predetermined cap.

And when the lights go out, the water pumps and cellphone signals stop working.

“Buy a generator,” was the advice given by a Govan Mbeki Municipal call centre operator to one resident asking when the power would come back on. Refuse remains uncollected for the last three weeks, and many of the poor in nearby eMzinoni are living on bread, if they can afford it, says Rademeyer.

Written campaigns don’t work …

Tyre burning seems to get the attention of local authorities far more effectively than letter-writing campaigns. The protesters were threatened with arrest if they continued – which they did, at least for a few days.

The Govan Mbeki municipal manager was suspended recently by the executive mayor for apparently doing a poor job, but Rademeyer isn’t so sure. “I think the municipal manager Felani Mndebele was the one person here who was trying to do something to improve conditions….”

However Mayor Thandi Ngxonono is apparently sticking to her story that the municipal manager is to blame for the “poor service delivery” – a clichéd obloquy for failed municipalities.

When local governance has broken down, the finger-pointing starts.

Dangerous territory

Last year in Mogalakwena municipality in Limpopo, two local ANC leaders, Valtyn Kekana and Ralph Kanyane, were apparently executed after investigating alleged corruption. Kekana was chair of the municipal public accounts committee and was shot in a crowded taxi rank hours after tabling a report into corruption in the municipality, which was declared by the Auditor-General (AG) to be one of the worst in the country after running up R1.1 billion in irregular spending. Residents were outraged at the killings and many believed it came from a rival faction within the municipality. Many are calling for the mayor to be removed.

Two years ago the AG pulled his staff out of Emfuleni, south of Joburg, when one of his auditors was shot. Some go about their work with police escorts.

Read: AG: How to improve the state of our municipalities

One mayor of an ANC-run municipality, who shall remain nameless, told us of receiving a visit from local mafia businessmen within days of assuming her position.

The purpose of the visit was to ensure that the corrupt contracts under the previous administration would remain in place.

Like many other mayors battling corruption-infested administrations (they do exist), she seldom moves without bodyguards.

Corruption creep

A million miles from Sandton and Constantia, many rural municipalities have become orphanages for discarded cadres who couldn’t make it on the national stage.

It’s time, says Ratings Afrika analyst Leon Claassen, to replace the cadres with professional managers and implement systems that have proven themselves workable in many parts of the country. It will be a slow and painful path back to solvency, but there is no other option.

Read: Other than in the Western Cape, municipalities are failing miserably

Survey after survey repeats the same mantra. Quality of life where it really counts, at the local level, is degenerating. Says Rodger Ferguson, former Cope parliamentary researcher: “The state of governance at the municipal level is 10 times worse than it is at provincial or national level. In just about every municipality you’ll find a symbiotic relationship between the local political gatekeeper and some external Gupta-like groups.”

In the Greater Tzaneen Local Municipality, water and power outages are the primary concern for local residents. The dams in many parts have run dry and potholes have gone unrepaired for years. At the stroke of a pen, Maruleng Municipality in Limpopo changed property valuation rates from agriculture to commercial as a way of bumping up revenue. It’s a tactic that many municipalities will be considering as a means of financial salvation. The problem is getting residents to pay at a time of grinding economic depression.

What to do?

Ferguson has spent the better part of 20 years researching ways to improve local government, and even he seems to be consumed by apathy.

“I’d hate to be an official in local government today,” he says. “You either capitulate to the crooks or you get hounded out.”

He recounts his time as a municipal government advisor in Kwazulu-Natal and intersecting with corruption at the local level. “I’d be driving down the road and a bakkie with tinted windows would pass by and I would cringe, expecting a bullet to fly through the window.”

Ferguson believes local governance is getting worse, especially now that National Treasury is under huge financial pressure. During lockdown it allocated R20 billion for local government bailouts, but this tap will eventually run dry.

Citizen Satisfaction Index

The latest South African Citizen Satisfaction Index survey conducted by Consulta looks at eight metros and finds Cape Town has the best citizen satisfaction rating for the seventh year in a row.

“Overall, the results show that citizens’ expectations of local government delivery of services are very far from being met, with a particular concern around the trend in the widening of the gap of expectations to quality,” says Ineke Prinsloo, head of customer insights at Consulta.

A major contributor to the below-par performance is the negative perception of reliability of services.

“Citizens’ expectations are increasing, and the index’s year-on-year decline points to an increasing dissatisfaction with the perceived decline in quality in service delivery.”

What are citizens’ main concerns? Water and electricity supply, refuse removal, unkempt streets and billing.

Precisely the services that municipalities are supposed to deliver.

SA crypto pioneer Luno finds a US buyer

Written by Ciaran Ryan. Posted in Journalism

Born in Cape Town, Luno came to dominate the crypto market in Africa and has now been bought by Digital Currency Group. From Moneyweb.

Luno introduced a million South Africans and five million people across the globe to Bitcoin. Image: Chris Ratcliffe, Bloomberg

Luno introduced a million South Africans and five million people across the globe to Bitcoin. Image: Chris Ratcliffe, Bloomberg

Having built a customer base of five million in more than 40 countries since launching in Cape Town in 2013, Luno came to dominate the cryptocurrency market in SA and other countries such as Nigeria.

Last week the company announced that it had been 100% bought by US-based Digital Currency Group (DCG), which has investments in some 160 companies involved in cryptocurrency and blockchain development.

AlphaCode, the fintech investment arm of Rand Merchant Investments and an early investor in Luno, announced that it had sold to DCG having achieved a 25% to 30% internal rate of return (IRR).

Luno was first into the SA market, introducing a million South Africans and five million people across the globe to Bitcoin.

It has since introduced trading in other digital assets such as Litecoin, Bitcoin Cash, Ripple and Ethereum.

SA has one of the highest Bitcoin penetration rates in the emerging world, with nearly 11% of internet users having purchased crypto assets.

This compares with 20% of the UK population, and about 25% across Europe.

Luno was founded by Marcus Swanepoel (CEO), Timothy Stranex, Pieter Heyns and Carel van Wyk, who departed the group in 2019. The existing directors will stay on, helping to implement the next phase of growth, which promises to be nothing short of a financial revolution.

Aiming for a ‘better financial system’

The company says it wants to upgrade one billion people worldwide to ‘a better financial system’ by 2030.

Luno, like many others in this space, sees a vastly different future for money in the relatively near term, where cryptocurrencies and digital assets – including ‘tokenised’ stock exchange shares – become the norm.

Says Swanepoel: “As the industry evolved over the past few years, it became clearer to me that the most effective way to upgrade the world to a new, better financial system – at scale – is by having a company and business model that is deeply integrated across the entire industry and value chain, and importantly also one where these parts are able to maintain their own identity and brand while ‘loosely coordinating’ between one another.

“There is only one crypto company in the world that has managed to lay the right foundation for this, and that is DCG,” says Swanepoel.

“So when the opportunity came up to become a fully-fledged part of the DCG family, we took the opportunity without any hesitation.”

Luno CEO Marcus Swanepoel. Image: Supplied

For Luno, as with most crypto exchanges, 2020 was a record year in terms of new customer sign-ups, spurred by the Covid-19 pandemic and fears over the future of money.

“It’s been an astonishing growth story over the last seven years,” says Luno GM for Africa, Marius Reitz.

“We were launched at a time when people didn’t know much about Bitcoin or cryptocurrencies, so a lot of our early work was educating the public on cryptocurrencies, their risks and benefits. We went from nothing to five million customers in seven years in more than 40 countries, and we [tend] to dominate crypto trading in some of those countries, so it was inevitable that we would attract attention from serious investors.”

Read: Naspers-backed crypto platform Luno starts African hiring spree (Jun 2019)

Luno is now headquartered in London, with regional offices in Cape Town and Singapore.

No price has been disclosed for the Luno acquisition, though DCG first acquired a small stake in 2014 during an early round of fund raising. Other early investors were Naspers and Balderton Capital.

Like many investors in this space, DCG sees a radically different future for money based around technologies such as Bitcoin, Ethereum and blockchain, and Luno will form a key part of its growth strategy.

Globalcrypto reports that DCG enables its subsidiaries to operate as independent companies, providing leadership, partnership, and investment capital to help scale the businesses.

The Luno leadership team will remain entirely intact and Swanepoel will lead acquisition efforts in his role as CEO.

Reitz says Luno’s future plans include deeper penetration of the UK and European markets, and the US at a later stage. The company recently launched a crypto exchange in Australia, and has a presence in several European countries.

Read: Naspers-backed Luno takes Bitcoin-trading exchange to Australia

Dominique Collett, head of AlphaCode, says Luno is the company’s first investment exit, and was well within its target internal rate of return of 25% to 35%.

“We have enjoyed working with the Luno team and still believe in the potential of cryptocurrencies and Luno’s solid growth potential. We supported management selling the business to DCG as it is very well positioned to leverage the platform. We wish the Luno team and DCG all the best and will be watching their future success with interest.”

How a tiny by-product metal is making billions for PGM producers

Written by Ciaran Ryan. Posted in Journalism

Rhodium now accounts for up to a third of their revenue. From Moneyweb.

Platinum has been steadily eclipsed by rhodium and palladium. Image: Siphiwe Sibeko, Reuters
Platinum has been steadily eclipsed by rhodium and palladium. Image: Siphiwe Sibeko, Reuters

Looking at the share price charts of Implats and Amplats, you’d imagine the lockdown had no impact on production whatsoever.

That’s not true: Amplats suffered a 25% drop in production in the first half to June, and reported a 585 000 ounce Covid-related loss of output. The impact on Implats was less severe, with tonnage and refined output down 14% due to Covid-19 for the full year to June.

The results announced last week by Implats were stunning. Buried in the detail is the impact of a formerly insignificant metal called rhodium, which accounts for just 6.5% of Implats’s output but 25% of revenue. It’s a similar story at Amplats, where rhodium accounts for 7.5% of platinum group metal (PGM) output but 34% of revenue.

Source: ShareMagic

The rise of rhodium

In January rhodium prices were already considered absurdly high at over $8 000/oz, with many analysts expecting a correction. That has not happened. Not by a long shot. This week rhodium traded at $13 300/oz, a 10-fold rise over the last decade.

Platinum, on the other hand, is down nearly half since 2010. The palladium price is up eight-fold over the same period.

Platinum has been steadily eclipsed by what were previously considered by-product metals – rhodium and palladium. Ironically, platinum fell victim to its own success, having traded at a high of over $2 200/oz in 2008 during the commodity super-surge.

Car manufacturers saw the risk of being dependent for virtually all platinum supplies on a region of the world where labour relations were souring and politics uncertain.

Manufacturers started switching to palladium, used in the manufacture of autocatalysts for petrol-driven vehicles, which traded at a substantial discount to platinum a decade ago.

This brought Russia firmly into the PGM driving seat as it had stockpiled palladium for years as a by-product of its nickel mining. Those stockpiles were unwound over the next few years, and as demand started to outstrip supply, the palladium price shot up more than four-fold.

Huge impact

SA producers account for more than 80% of global rhodium supply, a result of the relatively unique PGM geology in the sub-continent.

Though it accounts for a small percentage of total ounces produced, the impact on the bottom line is huge.

This is reflected in the latest results from Implats, which reported a four-fold increase in free cash flow for the year to June – with palladium accounting for 37% of its revenue, rhodium 25% and platinum 27%.

Source: ShareMagic

Johan Theron, Implats group executive for corporate relations, explains how a little bit of rhodium goes a long way.

“The importance of rhodium has exploded since the VW emissions scandal [where VW was found to be fiddling emissions from its vehicles]. Rhodium used to be a relatively insignificant part of our total business mix, but now it is substantial, because it is used as autocatalyst element for both diesel and gasoline vehicles to reduce nitrous oxide emissions. Stricter emission standards on both diesel and petrol vehicles have pushed the rhodium price to where it is today.”

Historically, platinum accounted for about 75% of Implats’s revenue. It now accounts for slightly less than half of all PGM ounces produced but just 27% of revenue. The changing dynamics of the PGM market, and a steady shift away from diesel, are reflected in the financial performance of producers.

At the PGM Industry Day in Johannesburg this week, Minerals Council of SA chief executive Roger Baxter outlined the devastation caused by the lockdown to PGM production – by June, it was down about half since the start of the year, though producers say production has ramped up substantially since then.

Sources: World Bank, Stats SA, SA Reserve Bank, Minerals Council SA

Baxter also highlighted the risks facing PGM producers who face unrelenting inflation pressures while changes in rand PGM prices are subject to wild swings.

For now, the inflationary pressures are overwhelmed by lofty commodity prices. PGM producers will be hoping rhodium and palladium’s crazy run is far from over.

Acsa minorities back in court after losing bid to be bought out at fair market value

Written by Ciaran Ryan. Posted in Journalism

Potential buyers of SAA might want to study the Acsa case before taking the plunge. From Moneyweb.

Three years ago it was simply a case of ‘at what price’ the agreed-upon deal would be concluded, then government stepped in and stopped it. Image: Supplied
Three years ago it was simply a case of ‘at what price’ the agreed-upon deal would be concluded, then government stepped in and stopped it. Image: Supplied

As South Africa tries to drum up foreign investor interest in South African Airways (SAA), potential buyers would be well advised to study the case of the “oppressed minority” shareholders in Airports Company of SA (Acsa), which manages the country’s nine largest airports.

That’s according to Alun Frost, who is advising minority shareholders who were enticed into buying 4.2% of Acsa two decades ago on the promise that the company would be privatised and listed.

That never happened, and the minorities want out. Three years ago it seemed both sides had come to an agreement, which was made an order of court, with the only question remaining: at what price?

SAA, now in business rescue, is flogging off its surplus fleet and looking for equity investors to refloat the airline. “My advice to anyone considering buying SAA is to take a close look at the case we have been fighting against the government to be bought out at a fair market price,” says Frost.

Broken promise, compromise, backtracking 

“We were originally promised a listing for Acsa, which never happened. Government took the minorities’ money and left us to hang, fighting us every inch of the way when all we wanted was fair market value for our shares,” adds Frost.

“This does not look good for any promises made by the government to outside shareholders or foreign investors going forward.”

After much to and fro in court, it was decided to appoint an independent valuer to come up with a price. Both sides agreed on RisCura as the independent valuer, and it came up with a price of R78 a share, equivalent to R1.6 billion if 4.2% of minorities chose to sell.

The deal was made with government’s consent, with Acsa agreeing to buy back the minorities’ shares. This was then made an order of court.

Once RisCura had finalised the valuation, Acsa’s major shareholder (government) leapt into the fray, arguing that the proposed share buyback would violate the Public Finance Management Act (PFMA) and devastate Acsa’s finances.

Read: Airports Company heads to court over shareholder dispute

Government asked the Johannesburg High Court to rescind the court ordered agreement, and last month got its wish when Judge Seena Yacoob granted the rescission application on technical grounds.

The minorities are now appealing that decision. Final resolution of the case is still probably some years off, with any decision likely to be appealed to the higher courts by the loser. It has already been five years since the case was first launched.

Minorities – all of them empowerment shareholders funded by pension funds – have pointed out that the share buyback agreement does not violate the PFMA, which only applies to transactions involving “significant” shareholdings. This means National Treasury does not have to be notified, nor does the finance minister have any legal interest in the case. Judge Yacoob disagreed, and ordered that the minister be joined to the proceedings.

The government also claimed this agreement bound it to a future financial commitment, which minorities say is untrue as Acsa is self-financing.

“Given the quantum of funds involved, government probably feels it is worth it to spend up to R50 million on legal fees to fight this case and deny minorities fair redress,” says Frost. “This doesn’t look good for anyone investing in SA on the promise of privatisation, now or in the future. The government can change its mind at any time and try to litigate its way out of broken promises.”

‘Oppressive conduct’

The RisCura valuation included compensation for “oppressive conduct” as defined under the Companies Act. This is where one or a group of controlling shareholders acts in a way that oppresses minority shareholders.

The oppressive conduct claimed by the minorities included the commercially irrational decision by Acsa to build the new King Shaka International Airport (KSIA) in Durban under pressure from government, with the project costs more than doubling to almost R10 billion. KSIA only made a R10 million profit in 2019 while operating at 80% capacity.

This was followed by another “irrational” decision by the dysfunctional regulatory system to drop airport tariffs. Frost says this was inconsistent with Acsa’s objective to earn a commercial return in each financial year.


We pay dividends and don’t need bailouts: Acsa boss (Sep 2019)

Acsa seeks state guarantees for $594m in new debt (May 2020)

Acsa to slash capex budget by 95% (Jun 2020)

Airports group ACSA gets new funding, shelves projects (Aug 2020)

Acsa originally offered to buy back minority shares at R12.87 per share, which was less than half of what they were worth on an audited net asset value basis. On this basis, minorities argued that Acsa’s balance sheet was materially overstated and should be impaired by about R6 billion.

The lesson to be learned in all this for potential SAA buyers: caveat emptor.

Source: Acsa 2019 annual report