South African government’s asset manager invested R11 billion in a BEE company and lost 100% of its money

The Public Investment Corporation’s (PIC’s) Isibaya Fund invested R11 billion in AfriSam and suffered a 100% loss in internal rate of return.

This was revealed by the Minister of Finance, Enoch Godongwana, in a parliamentary response to questions about the Isibaya Fund.

The Isibaya Fund was introduced in 1997 by the Government Employees Pension Fund (GEPF) and is managed by the PIC.

The Public Investment Corporation uses the Isibaya Fund as a specialised, unlisted developmental investment vehicle.

There is a strong focus on driving Black Economic Empowerment (BEE) and transformation as part of its socio-economic development agenda.

One of its biggest investments was AfriSam, a leading producer of cement, construction, and building materials.

The PIC, acting on behalf of the Government Employees Pension Fund, became an investor in 2008 by providing R6 billion in bridge funding.

This funding was allocated to a BEE consortium, Bunker Hills, to refinance and restructure its purchase of 85% of AfriSam’s equity.

“At the time, Afrisam was an operationally sound company and showed the potential to generate strong cash flows,” the PIC said.

However, this did not happen. The company became severely constrained by its highly geared capital structure.

Despite extensive restructuring to save the company, lenders eventually took over most of the business’s shareholding.

The Finance Minister’s data from the Isibaya Fund showed that the investment had an Internal Rate of Return (IRR) of -100%.

Simply put, the PIC’s Isibaya Fund has lost all their money in this investment, where the investment’s final value is zero.

Isibaya Fund under the spotlight

The Isibaya Fund is currently under scrutiny for its dubious investments, which have cost pensioners billions.

The Internal Rate of Return for the Isibaya portfolio, dating back to 1 March 2006, is 4.25%. This is well below the average market return.

This poor performance is mainly due to poorly thought-out and potentially corrupt investments, especially during the state-capture era.

The Mpati Commission in 2020 exposed the PIC as a politically captured institution plagued by poor governance, weak accountability, and corruption.

Its most severe findings concentrated on the unlisted investment portfolio managed by the Isibaya Fund.

It stated that the Isibaya Fund had been vulnerable to governance failures, political capture, and a disregard for internal due diligence.

These problems led to the Isibaya Fund investing in numerous companies where it lost most or even all its money.

An analysis of its investments showed that 23 companies in which it invested had an internal rate of return of -100%.

These companies include Berlin Beef, Concor, Daybreak, Educor, Independent Media, LA Crushers, Naturecell, Urban Lifestyle, and VBS.

Andrew Bateman, the DA’s deputy spokesperson on appropriations, said that the party will probe the billion lost at the Isibaya Fund.

It will examine how the PIC has lost billions of rands set aside for government pensions and other public purposes through reckless investments in its Isibaya Fund.

An example is the Daybreak chicken farm investment, which is now worth a small fraction of the PIC’s investment of approximately R2 billion,” said Bateman.

The DA has submitted detailed parliamentary questions to the Minister of Finance about the issue.

“He has already confirmed the losses on each investment. We must investigate why these deals were approved, who benefited, and who should be held to account,” he said.

Worst Isibaya Fund investments

South Africa	Investment	IRR
Afrisam	R11.038 billion	-100%
VIA Bounty	R1.374 billion	-100%
Independent Media	R888 million	-100%
Allied	R777 million	-100%
Urban Lifestyle	R499 million	-100%
S&S Refinery	R492 million	-100%
Daybreak	R483 million	-100%
Musa	R450 million	-100%
Educor Property	R400 million	-100%
Educor	R355 million	-100%
Concor	R315 million	-100%
Amalooloo	R188 million	-100%
Solar Cap – Orange	R168 million	-100%
Bayport	R149 million	-100%
Eden Gardens	R130 million	-100%
VBS	R110 million	-100%
Magae Makhaya	R83 million	-100%
Yalu	R75 million	-100%
ZarX	R68 million	-100%
Berlin Beef	R60 million	-100%
Ekuzeni	R52 million	-100%
Naturecell	R39 million	-100%
LA Crushers	R30 million	-100%