Mystery and going off script, how Takatso was appointed

If we are honest with ourselves, South Africa has not had a strong political leader since the passing of the great Former President Nelson Mandela. South African politicians have become synonymous with being shrouded in mystery and multiple occasions of going off script without any regard for the council that is provided to them by their advisors.

The South African airways business rescue was meant to be a case study singing the plaudits of the business rescue process and how it can add significant value to the fiscus. While this may have eventually been achieved, the process itself was shrouded in mystery and had its fair share of political pontificating that delayed the process.

In the end, we were provided with the option of a strategic equity partner for SAA which is privatisation robed in a different ball gown. Surely the process to settle on the Takatso Consortium should have been an independent process that was free of significant political influence? This was not the case. Public Enterprises Minister, Pravin Gordhan, is being taken to task for the mystery surrounding the appointment of Takatso. As another News24 article points out, Gordhan went off-script ignoring his advisors in the process. This could have significant ramifications for another political drama that is waiting to happen.

Subheadings and the last section were inserted by Turnaround Talk.

Mystery brought you to court

A News24 article points out that Legal action by a black-owned investment company that says it was “capriciously, irrationally and arbitrarily” excluded from bidding for SAA is set to force the decision-making process that selected the Takatso consortium out into the open.

The choice of Takatso as the preferred bidder for 51% of SAA for R51 last June has generated a great deal of controversy and public interest, as the selection process has been opaque and vital details have not been publicly disclosed. Gordhan has said that a non-disclosure agreement signed by participants prevents him from disclosing more information.

Toto Investment Holdings, which businessman Bongani Gigaba owns, has taken Gordhan, the Minister of Finance Enoch Godongwana and others to court. Gigaba wants the decisions that led to the sale and selection of Takatso overturned. His lawyers have also initiated a process under court rules to force Gordhan to deliver the record of proceedings on the decision.

Gigaba is a relative of former Public Enterprises Minister Malusi Gigaba, but the two are not close, according to his lawyer Sandanathi Gwina.

Going his own way

The News24 article points out that Toto, which is part of a BEE consortium that owns 24% of Richards Bay Minerals, had expressed interest in some of the assets of the SAA group but says it was not seriously entertained. In particular, it indicated that it was interested in a stake in SAA Cargo, SAA Technical or Mango. But it had also asked transaction adviser Rand Mutual Bank (RMB) to provide more detail on the business model of the new SAA to enable it to prepare its expression of interest (EOI) properly. Gigaba said in his affidavit that neither RMB nor the Department of Public Enterprises (DPE) responded to this request.

Gordhan has said that the department received more than 30 EOIs. RMB was engaged to sift through the offers, engage with serious bidders, recommend a strategic equity partner and advise DPE on structuring the deal.

But, claims Gigaba, RMB worked through the options and informed Gordhan that none of them met the conditions set by DPE, which included that government retains ownership control and that the partner has immediately available capital to inject into the business. After this, he says, DPE ended its contract with RMB, which then did not go through the subsequent stages of developing a transaction.

Among the bids rejected by RMB, says Gigaba, was an EOI from Harith General Partners, which had expressed interest in Mango. Harith is the parent company of what later became the Takatso consortium, together with airline leasing company Global Aviation.

Mystery surrounding disclosures

The News24 article points out that Gigaba says that Gordhan had neglected to disclose material facts about the role of RMB which ended long before the Takatso transaction came into view.

“RMB found that there were no suitable SEPs …This resulted in DPE ending RMB’s mandate and taking over the process.

“Harith and Global then made direct proposals to the DPE which satisfied the DPE’s requirements including the ability to provide funding to restart operations,” says the affidavit.

The News24 article adds that it is the fact that Toto, and presumably other bidders, were not informed about this second process in which Harith directly approached DPE that is the basis of Gigaba’s complaint.

Says the affidavit:

“It is and remains vague, amorphous and shrouded by secrecy. It is not a process which the Constitution requires that it must be not only open, transparent and accountable, but also fair, equitable, competitive and cost-effective.”

Going to the highest court

Gigaba wants the decision to select Takatso to be set aside on Constitutional grounds. He also claims that the transaction did not meet the Public Finance Management Act requirements and the Promotion of Administration Justice Act.

The parties have 15 days from the time the papers were lodged in High Court in the Western Cape at varying dates in the last week of June to respond with papers and to provide the record of decision.

Did Gordhan listen to RMB?

Another News24 article points out that In a presentation to Parliament’s Standing Committee on Public Accounts on 10 May, Gordhan said that the mandate of the transaction advisor (RMB) included three phases – phase 1: evaluation of expressions of interest against selection criteria; phase 2: to engage credible SEPs to develop a viable transaction proposal that meets the objectives set by the government; and phase 3: to the extent that a viable transaction proposal could be agreed with an SEP, to advise on the finalisation and implementation thereof.

However, RMB was appointed in July 2020 and ended its engagement in February 2021 without developing the transaction or overseeing its implementation.

It is also clear from a presentation to the interim board of SAA in January 2021 by the Department of Public Enterprises, that neither Takatso nor its parent company Harith General Partners was on the list of expressions of interest looked at by RMB.

the News24 article adds that, in it, five expressions of interest are ranked from one to five. The top-rated was a proposal from Air-A and Lufthansa Consulting, which included the sale of the Airports Company SA (ACSA). The second was a bid from a consortium led by Safair holding company ASL Holdings and Blue Sky Aviation. At the time of the evaluation, both groups said they had access to funding.

The third was a proposal from Kenya Airways, which required raising private equity funding and included a listing for the new company in Kenya and SA. Debt funding was available from the African Development Bank. The fifth was a proposal from Ethiopian Airlines, which came with no commitment to provide or raise funding.

The News24 article points out that, in its response on 29 June, the Department of Public Enterprises said it was not at liberty to disclose the offers it had received due to a non-disclosure agreement it had signed.

It pointed out though that “as a result of the extended duration of the pandemic, and its impact on both global and domestic aviation sector, some of the parties who had expressed an interest could not provide the capital required to operate the airline. All interested parties made it clear that the government had to take responsibility for all historic costs inclusive of bank debt. From the interested parties, Harith General Partners was willing to provide the funding for the new airline and it partnered with Global Aviation for aviation management expertise. The Takatso Consortium was formed by these entities.”

“Please note that this information has been provided an infinite number of times,” it said.

The department does not explain how Harith General Partners, which did not put in an expression of interest in SAA but had shown interest in Mango, became a preferred partner.

The selection of Takatso was in June 2021, before either party undertook a due diligence exercise. The sale and purchase agreement was signed eight months later, with outstanding conditions precedent that, if not fulfilled, will scuttle the deal. These include that the fiscus provide another R3 billion to SAA to cover outstanding liabilities.

But a stand-off between two successive finance ministers and Gordhan has meant that since February 2021, this money has not been forthcoming. Another application from the Department of Public Enterprises is in the pipeline requesting that the allocation be made in the October adjustment budget.

Avoiding a blackout

The arrival on the decision to appoint Takatso as SAA’s strategic equity partner is mystery indeed.

This is problematic bearing in mind the issues surrounding Eskom and the numerous advice provided to Government to consider privatization. It may not take the same form as the privatization of SAA; however, the mystery that surrounds the Takatso appointment cannot be played out in any reorganization of Eskom. We are already experiencing the worst year of loadhsedding to date and there is an urgent need for Government to come up with a workable plan to resolve the situation. This is not the time for mystery or for ministers of Gordhans caliber to go off script and ignore the advice of council. This is a time to put South Africa first.