Dan Matjila, the former Public Investment Corporation (PIC) CEO, has absolved himself of all blame for the asset management firm’s decision to invest a cool R4.3-billion in the Iqbal Survé-linked Ayo Technology Solutions, whose investment prospects were based on highly ambitious revenue and profit forecasts.

Instead, Matjila has laid the blame squarely on the due diligence and deals team at the PIC, which manages more than R2-trillion in assets on behalf of the Government Employees Pension Fund and other social security funds.

Despite market watchers saying that the PIC overpaid for its investment in Ayo in December 2017, Matjila believes the price tag was reasonable and based on attractive investment prospects. However, Matjila said he wasn’t involved in the Ayo due diligence process — his team fulfilled this function.

“I don’t do due diligence myself. I was merely a CEO and I believed my team. I trust that they arrived at an (investment) figure that they were comfortable with,” Matjila said on Monday 12 August at the conclusion of his four-week long testimony at an inquiry probing corruption allegations at the PIC.

Other witnesses at the inquiry have testified that Matjila wasn’t “merely a CEO”, saying he was actively involved in the Ayo investment. The PIC’s suspended assistant portfolio manager, Victor Seanie, has testified that Matjila was a close friend of Survé, which influenced the fund manager’s decision to invest in Ayo rather than commercial merit.

By many accounts, the PIC’s decision to invest in Ayo has become one of the asset manager’s biggest financial disasters since it was corporatised in 2005.

Ayo JSE listing

Ahead of Ayo’s JSE-listing in December 2017, the PIC paid R43 a share for a 29% stake in the company — an investment it shelled out R4.3-billion for. The PIC was the only investor to subscribe for shares in the company.

Ayo’s illiquid shares have dissipated in value by more than 75% since its listing to R8 — meaning that the PIC has lost more than R3-billion from its initial investment.

And before Ayo’s listing, it appears that the PIC didn’t interrogate the company’s allegedly inflated revenue and profit forecasts, which were contained in its draft pre-listing statement.

A pre-listing statement details the number of shares a company plans to sell to investors and their value. It also explains the company’s financial performance that investors can use to determine the value of shares.

In Ayo’s pre-listing statement, the company forecast revenues of R4.43-billion in 2018, which would swell to R7.74-billion in 2019. Its forecast profit after tax trended upwards, with Ayo expected to achieve R13-million in 2017, R750-million in 2018 and R1-billion in 2019.

These forecasts were questionable because Ayo wasn’t a highly cash-generative business. And the realisation of Ayo’s projected revenue and profit after tax hinged on the conclusion of its technology deal pipeline, among them the successful purchase of a 30% BEE stake in British Telecom SA from African Equity Empowerment Investments (AEEI) for R950-million. In other words, its expected revenue and profit profile was speculative and based on hypothetical scenarios.

This prompted the PIC inquiry’s assistant commissioner, Emmanuel Lediga, to question Matjila on why the asset manager would accept revenue and profit projections of Ayo without probing the numbers. After all, the numbers influenced the subscription price of Ayo shares.

Lediga said: “I’ve been in the investment industry for a long time. I have never seen such blue-sky projections being accepted. These kinds of figures should run some (alarm) bells that you cannot have a big increase in revenues every year when the deal pipeline has not been bedded down.”

Matjila sees it differently, saying the PIC relied on the Ayo pre-listing statement and figures provided by the company.

“To expect us to sniff that the numbers have been stretched is a huge ask. I am just a CEO and taking advice that says the transaction is worthy of pursuing because the price is right… When we invest (as the PIC), we do projections. If you get projections correct, then you will be the best sangoma under the sun. Investments is about guessing and risk management.”

Matjila still believes in the potential for Ayo to succeed with its strategy of becoming an investment holding company with a portfolio of technology investments. He believes the controversies surrounding Ayo were a contributing factor to his ousting from the PIC on 23 November 2018. BM