Monday, November 11, 2013

Even the PIC and GEPF must be accountable. But to whom?

Elephant charges

Moneyweb News


By TaffyDee •
If I was a Civil Servant I would be afraid - very afraid that these incompetents are looking after my retirement capital.
With R 7 billion invested in SANRAL - and who knows what other dodgy schemes they have hatched.
With their political masters calling the shots.......... be afraid, very afraid.

By Avatar

I have always been dubious of the competency that may exist at the PIC. Perhaps they should explain in detail the reason for objecting to the deal and what qualifications they feel they have to pass such judgement.


Two seemingly unrelated events happen to coincide. One is the opposition of the Public Investment Corporation to the R12,6bn bid by a Chilean company for SA industrial giant Adcock Ingram. The other is the disciplinary hearing of suspended Government Employees Pension Fund principal executive officer John Oliphant.

The timing overlap is fortuitous but fortunate. It gives both the PIC and the GEPF the opportunity to demonstrate their adherence to the good-governance principles of transparency and accountability that they demand of others. In particular, it concerns the criteria on which these foremost institutions make investment decisions.

On the Chilean bid, it’s suspected that the PIC’s opposition has less to do with price than politics i.e. for control of a leading South African corporate not to fall into foreign hands. On the Oliphant matter, it’s speculated that the GEPF motivation has less to do with internal procedures breached than political programmes obstructed i.e. on the funding of BEE-type transactions unsuitable for pension funds (see Elephant hunting and Elephant in the room.)

The PIC and the GEPF are joined at the hip. As manager of the R1,2 trillion in GEPF assets, the PIC invests under a mandate from the GEPF. What the GEPF wants and the PIC does must therefore reconcile. Up for discussion is whether the mandate terms are sufficiently clear and consistent to obviate confusion on where the buck actually stops.

Here’s the occasion to let it all hang out, right down to the dynamics of interaction between the PIC and the GEPF; more than this, between their respective board members and their respective executive teams.

The PIC board of directors is chaired by Deputy Finance Minister Nhlanhla Nene, an ANC member of parliament. The GEPF board of trustees is chaired by Arthur Moloto, an ANC member of parliament. Their political roles either complement or conflict with their board roles. Neither is ideal.

Ultimately, of course, the buck stops with government as the employer of GEPF members. If the PIC makes investments for the GEPF that are politically correct but prudentially vulnerable (recall the AfriSam impairment in the GEPF’s Isibaya fund), it impacts aversely on the discretionary inflation-adjusted annual benefit increases for the GEPF’s 1,5m members and pensioners. If the investment performance is so poor that the GEPF cannot honour its obligatory defined-benefit pension promises, the fiscus must make up the difference.

That’s why the Adcock Ingram and Oliphant controversies are matters for the public domain. The two institutions cannot be surreptitiously converted to arms for implementation of ANC or government policy without the public being told.

For instance, the PIC and GEPF propound policies for socially-responsible investment. But SRI is about securing improved risk-adjusted returns over the long term on measurable national-interest principles. It’s not necessarily consistent with what ANC factions might consider in the national interest, such as keeping out foreign investors (unsuccessfully attempted in the case of Wal-Mart) or taking strategic stakes in newspaper groups (as in Sekunjalo News & Media and Times Media).

In time, the PIC will doubtless have to elaborate on its Adcock Ingram stance. In time, once he moves to clear his name, the GEPF will have to defend its stance on Oliphant. There are mountains to be explored.

At the GEPF, Finance Minister Pravin Gordhan could still short-circuit the disciplinary process by appointing a committee of inquiry as he did at Sars on then commissioner Oupa Magashula. It’s been suggested that Gordhan cannot do this because he has direct powers over Sars that he doesn’t have over the GEPF, which operates under its own board and law.

Presuming this to be so, it would surely be competent for the GEPF board to request (on a nudge from Gordhan, if necessary) that he acts similarly on Oliphant. Gordhan reports to parliament on the GEPF and nominates half of its board.

Without intrinsic transparency, the Oliphant process can be closed and contentious. And long. There must at least be a possibility that, before adjudicating the merits and before reaching the courts, the GEPF inquiry will have to address a dispute over procedures; not internal procedures that Oliphant might wilfully or negligently have breached, and so serious as to justify the humiliation of pre-hearing suspension, but procedures related to the purported authority of the board itself.

The board’s term of office expired on September 22. Oliphant’s suspension was announced three weeks later.

However, on September 5 there appeared in the Government Gazette a general notice that the rules of the GEPF had been amended. It was published under the name of Moloto as “chairperson of the board of trustees” and “on behalf of the board of trustees”. The amendment had been made “in terms of s29 of the Government Employees Pension Law”.

The amendment substitutes rule 4.1.2 with this: “Subject to the provisions of rule 4.1.7, the term of office of a trustee shall be four years. In the event that a new trustee or substitute trustee has not been appointed at the expiration of such term of the office, the term of office of the existing trustee or substitute trustee would automatically be extended until the day before the date of the appointment of the new or substitute trustee”. (Italics used for new words.)

Obvious questions arise:

Why the amendment was necessary;
When, and under what circumstances, it was contemplated;
Who, if anybody other than the board itself, must approve it;
Whether a rule amendment by the board (gazetted by Molopo as GEPF chairman) can override the Government Employees Pension Law (an act of parliament promulgated by the President).
Now check s29 of the Law. Headed “Duty and power of the Board to make rules”, it deals with matters specific to the status and contributions of fund members. Try to find anything here empowering the board to extend its own term of office, limited by the Law to four years.

Then go to rule 4.1.7. It relates to the service of individual trustees, not to the entire board. For instance, it provides that a person ceases to be a trustee when he or she resigns, is sequestrated or becomes mentally unfit.

It also says that the trustee’s service period ends when “his or her term of office expires”. Logically, the individual trustee’s term must expire when the board’s term expires after four years. On a common-sense interpretation, the individual’s term could not then be “extended” because his or her continued service becomes dependent on his or her appointment to a new board.

Look next at rule 4.1.2. Prior to the amendment, it restricts a trustee’s term to four years. Consequent to the amendment, it allows for the term (of the individual, not the board) to be extended.

This is all rather curious. First, the legislature must have had a reason for the four-year restriction. Second, the restriction and the extension appear to contradict one another. Third, for a trustee’s term to extend onto a board whose term has expired is incoherent.

Go figure.

Allan Greenblo is editorial director of Today’s Trustee (, a quarterly magazine mainly for trustees of retirement funds.



Moneyweb News

Author: Sasha Planting|
11 November 2013 16:58
CFR Pharmaceuticals defends bid for Adcock Ingram

The other alternatives are from the kindergarten.

CAPE TOWN - CFR Pharmaceuticals CEO Alejandro Weinstein hinted that the South American pharmaceutical giant might walk away from multi-billion rand offer to acquire Adcock Ingram if the deal fails to win the support of the Public Investment Corporation (PIC) and by extension the government.

Weinstein stopped short of saying that PIC support was essential, but stressed its importance. “When you are moving the centre of gravity of a company like CFR into SA; when you are shutting down production facilities in other destinations and increasing manufacturing in South Africa; when a deal is as transformational to a company as this is, support becomes more important than just votes. We would like the support of all the voices in the country.” He was addressing journalists in a conference call, just hours after touching down in the country.

Last week the PIC announced that it would not support the Chilean company’s R12.6bn cash and shares offer for Adcock Ingram. “Due to its non-binding nature, the terms of the offer cannot be considered to be final, with some of them still uncertain,” said PIC CEO Elias Masilela in a statement. “The PIC has considered the CFR proposal based on the current terms and available information, specifically taking a long-term view on our investment in Adcock.”

Weinstein admits to being surprised by the statement. In the eight months since the offer was first announced, CFR representatives have meet with the PIC three times to explain the economic and financial benefits of the deal. “We have solved each and every issue in the last eight months. We have written agreements with BEE partners and product suppliers. This deal does not only benefit shareholders, but all South Africans,” Weinstein said. “We would like to meet with them [the PIC] to understand [their objections].” He added that in meetings with government, officials had expressed support for the deal but he declined to name names of the officials or departments involved in the discussions.

The price and structure of the deal are not up for negotiation. “The deal has been priced and structured to perfection. We are trying to satisfy a number of issues. There is potential for investors to get cash, shares and exposure to a growth company. We have strong shareholder support for that proposal.”

Weinstein defended the deal saying it is the only deal on the table to offer real long-term value. “We are the only ones bringing new markets, new products, and filling up spare capacity. Adcock lacks [product and geographic] diversification. We will provide immediate access to markets in Latin American and South East Asia. We believe we can solve the long term issues facing the company.

“The other alternatives are kindergarten alternatives.”

Doing nothing, he believes, will send the Adcock share price back to R50.

The valuations from Bidvest and private equity company Actis - the two offers in the public domain - are lower than CFR’s offer. Bidvest made an unsolicited offer at around R63 for Adcock in March.

CFR is offering the equivalent of R73.51 a share for Adcock. It will be paid in a mix of cash, ranging from 51% to 64% of the price, and CFR shares. If the deal goes ahead, CFR intends to obtain a secondary listing on the JSE.

At this point Adcock Ingram has written support for the deal from 45% of shareholders. The PIC holds about 18% of Adcock’s shares. Other shareholders are yet to put their views in writing.

By 16:39 Adcock was down 0.92% to R67.50.

Author: Chris Spillane, Bloomberg |
11 November 2013 14:28
PIC said to reject share portion of Adcock's CFR bid

Adcock biggest investor would prefer an all-cash offer.

Public Investment Corp., the largest shareholder in South African drugmaker Adcock Ingram Holdings Ltd., doesn’t want CFR Pharmaceutical shares as part of a $1.2 billion takeover offer by the Chilean company, according to a person familiar with the fund manager’s decision.

PIC, South Africa’s biggest money manager with an 18.6% stake in Adcock, would prefer an all-cash offer, the person said, declining to be named because its discussions about the proposal haven’t been made public. The possibility of Adcock falling under foreign ownership as a result of a takeover by Santiago-based CFR isn’t an issue, the person said.

CFR, Chile’s largest drugmaker, said in July it would pay R12.6 billion ($1.2 billion) in cash and shares for Adcock as it seeks to expand in other emerging markets. The company said it would settle as much as 51% to 64.3% of the purchase through cash and the balance with new CFR shares.

PIC said on Nov. 6 it wouldn’t support the proposal because it wasn’t in the investor’s best interests. Adcock needs 75% of its shareholder base to back the deal for it to go ahead, its chairman Khotso Mokhele said in September. The company has received support from 45% of investors, it said Oct. 30.

Adcock declined 0.8%toR 67.60 as of 1:21 p.m. in Johannesburg. The CFR offer values the drugmaker at R73.51 per Adcock share, according to both companies.

PIC didn’t immediately respond to an e-mailed query seeking further comment. The company oversees the pension funds of South African government workers.

©2013 Bloomberg News


No comments:

Post a Comment