Prior to selecting the Takatso Consortium as strategic equity partner for SAA, there was a shortlist of about five potential candidates.
- Prior to selecting the Takatso Consortium as strategic equity partner for SAA, there was a shortlist of about five potential candidates.
- The DPE announced a public-private partnership with the consortium last Friday.
- According to the DPE, the names of the other candidates on the shortlist cannot be made public due to confidentiality agreements.
The shortlist of potential strategic equity partners for SAA cannot be made public due to confidentiality agreements, according to the Department of Public Enterprises (DPE).
The department on Friday announced the successful bidder: Takatso Consortium, comprising the investment group Harith and Global Airways, which runs an aircraft “wet” lease business and also owns low-cost airline LIFT, which started operations in December last year. As part of the deal, which is still subject to due diligence, the DPE will dilute its shareholding in the airline to 49%, and assign 51% to the consortium.
Two weeks ago, Public Enterprises Minister Pravin Gordhan told Parliament that initially there were about 30 expressions of interest in becoming a strategic equity partner for SAA. This was either an interest in SAA as a group or for part of it – for example, its cargo business.
“We then appointed a transaction advisor to screen these, because often in these types of situations you get people expressing an interest, but not having the money. That narrowed them down to about five,” Gordhan said at the time. “The new interim board then had the opportunity to interact with those on the shortlist earlier this year, and then narrowed it down even further due to our choices, but also where airlines or airline groups involved themselves became impacted by the prolonged pandemic.”
The DPE responded on Monday that it will not be able to disclose the names of the parties that submitted expressions of interest for SAA as the department is bound by confidentiality undertakings. It said this is a norm in transactions of this nature to have those confidentiality undertakings.
“We are legally not obligated to do so due to signing of non-disclosure agreements (NDAs) as this is commercially sensitive information. Disclosure could have an impact on share prices of certain parties and market signalling around incumbents. These points are standard in any mergers and acquisition process,” the department said.
The involvement of Harith has raised some eyebrows, giving the damning findings against it by the Mpati commission of inquiry into allegations of impropriety regarding the Public Investment Corporation (PIC).
Tshepo Mahloele, then PIC head of corporate finance, spearheaded the creation of Harith, which was founded to invest in African infrastructure projects. He subsequently resigned from the PIC but continued to run the fund.
The Mpati commission found in its report, released in March last year, that “Harith’s conduct was driven by financial reward to its employees and management, and not by returns to the Government Employees’ Pension Fund (GEPF)”.
The commission found that Harith charged “significantly high fees”, which came to more than 8% per year. Also if the PIC terminated its contract with Harith Fund Managers, it had to pay a 12 months’ management fee plus 13% of the market value of all investments.
“It is the commission’s view that there is no question that the approach taken provided easy access to PIC funds, influence and including an enhanced ability to secure additional investment, including from the GEPF,” the commission found.
Mahloele said during an interview after the announcement of the SEP with the DPE, that the fees in question were market related.
Analyst Peter Attard Montalto of Intellidex says the disposal of state assets is a far more straightforward process than procurement.
The DPE was required to get National Treasury to sign off and then manage the process through the investment bank RMB as well as with a team of internal advisers working directly with Gordhan.
“It is not obvious to me that the Public Finance Management Act (PFMA) practices and associated rules were not undertaken. There is an open question on what influence was exerted and the likely lack of serious interest from serious players through much of the process and till towards the end, but that is not the same as due process issues,” said Attard Montalto.
“It would be quite something if this announcement [about the deal with the consortium] was made without National Treasury approval and Cabinet agreed only to a minority stake.”
In terms of the PPP-deal, the consortium will plough R3 billion into SAA over a three-year period.
Harith told Fin24 on Monday that it is important to note that future capital and planning of SAA will be determined after the completion of the due diligence exercise. “At this stage, given the impact of Covid-19 on the aviation sector, travel restrictions and the fact that negotiations on the structure of certain aspects of the transaction are still under way, it is premature to affirm numbers on the future capital requirements,” the company responded.
The aim is to create a viable national airline, which will no longer need state funding and may even be listed on the JSE in future. SAA should start domestic and regional services later this year, and international flights after that, according to Gordhan.