Iqbal Survé’s businesses seem uncomfortably incestuous, given that the Financial Sector Conduct Authority is investigating possible share manipulation at all three of his listed companies. Dewald van Rensburg unpacks the potential red flags.

On 19 January 2019, a remarkable thing happened to the share price of Iqbal Survé’s controversial AYO Technology Solutions.

After holding steady at just above R22 for three months, the share suddenly collapsed, spiralling to the current level of R9.

It just so happens that 19 January was the day a downside protection agreement with the Public Investment Corporation (PIC) ended. This agreement lasted three months from 19 October and would have penalised AYO if its share price fell below R22.

This might just be happenstance.

It could also be that someone was buying shares at a price needed to avoid triggering the downside protection agreement and then stopped when the danger passed.

By far the largest buyers of AYO shares in this period (and indeed since it listed) were Survé’s family investment company Sekunjalo Investment Holdings – as well as his boutique asset management company, 3 Laws Capital.

Other activity came from a company linked to his brother-in-law, Khalid Abdulla.

These dealings in AYO shares are outside the purview of the Mpati Commission of inquiry into the PIC, which has been examining the PIC’s R4.3-billion investment in AYO.

However, the Financial Sector Conduct Authority (FSCA) is investigating possible share manipulation between May and October 2018 at all three of Iqbal Survé’s companies listed on the Johannesburg Stock Exchange (JSE): AYO, African Equity Empowerment Investments (AEEI) and Premier Fishing.

The FSCA has declined to give details about its investigations – so it is not possible to link the probe to specific share trades or specific parties (including Survé, Abdulla, Sekunjalo and 3 Laws).

The FSCA did confirm to amaBhungane that its investigations specifically deal with possible contraventions of sections 80(3) (c), (d) and (g) of the Financial Markets Act. These subsection deal with specific prohibited practices.

The first is “approving or entering on a regulated market orders to buy a security listed on that market at successively higher prices or orders to sell a security listed on that market at successively lower prices for the purpose of unduly influencing the market price of such security”.

The second is “approving or entering on a regulated market an order at or near the close of the market, the primary purpose of which is to change or maintain the closing price of a security listed on that market”.

The third is maintaining, at a level that is artificial, the price of a security listed on a regulated market.

“However we are not limiting the investigation to just those sections,” the regulator’s spokesman Alex Pascoe told amaBhungane.

Survé counters any suspicion of wrongdoing by stating that it was Sekunjalo that initiated the FSCA investigation in the first place.

In response to questions, he said via WhatsApp: “Dear Dewald. I have informed you that I am overseas travelling with time difference. I suggest you direct your questions on Ayo, Aeei … and 3 laws to those companies’ CEO. I am not aware that it is practice to ask questions of the shareholder. With regard to the FSCA it is Sekunjalo that has lodged the complaint and asked the FSCA to investigate the trading in the shares mentioned above.”

AYO faces a second FSCA investigation for possibly misleading the market as early as 2017.

This necessarily means that the investigation includes AYO’s first market announcement in December 2017 – its pre-listing statement.

According to a summons lodged by the PIC with the Cape Town high court on 29 May, the state pension fund manager was persuaded to invest the R4.3-billion in AYO based on misrepresentations of its prospects. (See here: Copy of Summons)

AYO is defending the summons.

PIC v Ayo: copy of Issued Summons and Particulars

The Mpati commission has heard that Dr Daniel Matjila, the PIC’s chief executive officer at the time, signed an irrevocable subscription for AYO shares even before the PIC investment committee had considered the proposed investment.

Matjila has yet to testify.

The downside protection agreement, negotiated long after PIC had already paid for the shares, represented a belated attempt to create some cushioning for the Government Employees Pension Fund investment.

It is not hard to see why a financial watchdog might be worried about possible share manipulation.

AYO is tightly held and thinly traded, meaning a small set of shareholders do all the buying and selling of shares which determines the share price.

An analysis of the company’s minor shareholders apart from the PIC, AEEI and AYO’s BEE consortium makes it apparent that most of the investors actually participating in the market did not buy those shares on the market, but have been selling them.

The major active sellers of shares since AYO listed include ex-Sekunjalo directors who, almost two decades ago, had the option of buying shares in AYO’s precursor, Sekunjalo Health. This company was meant to be listed back then but never was, leaving the directors with untradeable shares. Now they can convert their shares into AYO shares and, in principle, sell them. The lack of an active market has left them selling shares in dribs and drabs at ever-lower prices.

Other active sellers include businessmen who had their companies bought by AYO before it listed – and were paid partly in shares.

So who has been buying?

Mostly it has been Survé’s Sekunjalo and 3 Laws Capital who have bought 556,631 AYO shares between them in small tranches most months since April 2018.

They are the only shareholders who have only increased their shareholding without ever selling shares.

3 Laws Capital is 85%-owned by Sekunjalo and got a R470-million deposit from AYO almost immediately after the controversial PIC investment.

3 Laws had to return the R470-million to AYO (with interest) after objections from the then-executives of AYO, some of whom later gave damaging evidence at the commission.

According to JSE records, 3 Laws Capital invests in only three listed companies: Survé’s AEEI, AYO and Premier Fishing.

Investment director Arthur Johnson did not respond to emailed questions around what else the company might own and did not respond to follow-up messages and phone calls.

In February 2018 AYO’s share price briefly crashed from R43 to R24.

In March, during which 3 Laws started buying AYO shares, the share price recovered back to R43, but publicly available data does not provide sufficient information to conclude that it was 3 Laws that pushed the price back up.

Survé’s Sekunjalo is the largest buyer of AYO shares. In the past year, it has bought tiny amounts of AYO shares practically every month.

There is nothing wrong with that in principle, but in combination with 3 Laws, it completely dominates the market for AYO shares – and even small trades can have a large impact of the share price because the market is so thin.

Asked about these purchases, Survé previously said that Sekunjalo “invests in many companies on the JSE and sees AYO as an attractive long-term investment. Sekunjalo generally invests in companies and takes a long term view like Warren Buffet…”.

As mentioned above the AYO share price was, from October to January, maintained at exactly the price needed to avoid triggering a downside protection agreement with the PIC.

This period saw Sekunjalo particularly active with its small investments in AYO.

There is another strange investor in all three Survé companies on the JSE, tied to Survé’s brother-in-law Khalid Abdulla.

It was, until December 2018, simply known by its registration number K2011146299 when its name changed to Kata Strategic Investments. AEEI CEO Khalid Abdulla joined it as a director in October 2018.

Before that, the sole director was Leonardo Altini whose family company Miramare Investments is AEEI’s second-largest shareholder after Survé.

Like 3 Laws, Kata seems to invest only in AYO, AEEI and Premier Fishing.

Kata’s strategy with AYO is, however, puzzling.

The company started off with 145,250 AYO shares after listing. In May it transferred these shares to the other Altini company, Miramare Investments. A few months later in December Miramare then sent the same 145,250 shares back to Kata.

Altini told amaBhungane that the movement of the shares took place “off market”, meaning they were not sold but simply moved from one entity to the other. That implies the transfers could not have affected the AYO share price.

During May, when the shares evidently went from Kata to Miramare, the AYO share price however staged a remarkable but short-lived improvement from R25 to R36. Someone was even offering to trade them for R43 in the busiest day of trading in the share at the end of May. The reverse transfer of the shares happened in November, in the middle of the downside protection agreement.

JSE rules require off-market trades to be reported if a director of the company whose shares are being traded is involved. Abdulla is a director of Kata and AEEI, but not AYO. Despite AEEI controlling AYO, this means there was no requirement to report the trade.

The PIC case

Allegations of manipulation and collusion also emerge from the summons delivered by the PIC in an attempt to get its money back – or, more precisely, the sum of R4,290,654,165.00 plus interest at the rate of 10.25% per annum from 22 December 2017.

According to the PIC case, AYO misrepresented key parts of its investment case, including:

that it was a foregone conclusion that AEEI’s 30% shareholding in BT Communication Services South Africa (BTSA) would be transferred to AYO;

that it was a foregone conclusion that certain of BTSA’s existing primary customers would move to AYO;

that the optimistic revenue and profit forecasts put forward to the PIC represented the genuinely held views of AYO and had a realistic prospect of being achieved; and

that AYO had a number of other deals lined up and close to conclusion, whereas there was no realistic expectation such agreements would be concluded.

AYO filed its intention to oppose on 12 June, but is yet to deliver its detailed response to the claims.

Interestingly, AYO provided the PIC with a draft pre-listing statement on 24 November 2017 and a final one on 13 December 2017 that have different forecasts. The later one projected profits of R1-billion instead of R900-million in the first version.

The draft pre-listing statement also said that investors were going to be given the option of subscribing at between R28 and R43 per share. In the final one, this was simply R43 with no allowance for lower bids.

The PIC also brands as a sham the claimed market interest in the listing, purportedly expressed via a large over-subscription for its pre-listing private placement offer.

The PIC summons alleges: “Certain investors had been approached by AYO and requested to put in subscriptions for shares in terms of the private placement on the assurance that such offers for subscription would not be accepted by AYO, but that the entire private placement would be placed with the PIC and that the other subscriptions were only required to create the false impression that there was genuine demand for the private placement AYO shares at the issue price of R43 per share.”

The summons claims the investment was unlawful due to former PIC chief executive Dan Matjila’s flouting of the procedure.

It alleges: “Dr Matjila had represented to Dr Survé and other representatives of AYO that, regardless of the PIC’s legal obligations and internal requirements, the PIC would participate in the AYO listing. Dr Matjila procured that the PIC entered the subscription agreement, acting in concert with and with the knowledge of representatives of AYO.”

Matjila is still due to put his side of the story to the Mpati commission.

The PIC claim also alleges: “AYO did not intend to use the entire proceeds of the private placement for the purposes reflected in the pre-listing statement but intended to divert certain of the funds to related party companies to facilitate the repayment of existing debts and/or for alternative purposes.”

Deals with yourself

Indeed, AYO no longer has R4.3-billion left after paying out generous dividends, largely to AEEI, paying fees, mostly to AEEI, acquiring companies seemingly also tied to AEEI or its associates and then lending money to those companies.

At last count, at the end of February 2019, AYO had R3.5-billion left before subsequent dividend payments of R120-million. This is according to its financial statements for the six months to the end of February.

Since listing AYO has embarked on a trajectory that mainly benefits AEEI.

That’s no surprise as it is AEEI that effectively controls AYO despite owning only 49% of it.

This was admitted in AEEI’s recently released financial results covering the six months to the end of February. AEEI reclassified AYO as a subsidiary which allowed it to declare a profit instead of what otherwise would have been enormous losses. It also muddies the waters around acquisitions funded with PIC money.

AEEI’s profits depend on AYO and AYO’s profits depend on the PIC cash.

The problem with AEEI and its control of AYO is that a remarkable exodus of directors has turned the company into an almost entirely Survé family affair.

Effective 21 January the 10-member board was reduced to five people.

The acting chair is Survé’s sister Aziza Amod, the chief executive is his brother-in-law Khalid Abdulla and one of only two independent directors is his other brother-in-law, Ismet Amod.

AEEI is now not only majority-owned by Survé but run by his family and by its own admission in control of the R4.3-billion the PIC invested in AYO.

Many of the AYO deals that benefit AEEI or close associates are now well-known, but others are hidden in the books and some deals amaBhungane can unveil for the first time.

The most ambitious, but failed, use of PIC money was meant to be the purchase of AEEI’s 30% in BTSA. This would have sent R1-billion of the PIC money straight to AEEI (61%-owned by Survé) at a price the former AYO executives allege was inflated.

AYO would by now have spent half of the PIC money had its investment at 3 Laws not been reversed and its flagship BTSA deal gone ahead. Instead, it has used a not-insignificant R700-million we know of. Some 31% of that was dividends.

Apart from BTSA and the investment in 3 Laws Capital, the list of related party deals has continued to grow from the well-known to the obscure. They are:

The fees for arranging the listing of AYO went to an AEEI subsidiary ( R57.7-million )

An inter-company loan was immediately repaid to AEEI ( R80-million )

A recurring fee to AEEI was put in place equal to 1% of AYO revenue in its first financial year end ( R6.4-million ) which would then simply escalate by inflation every year irrespective of how AYO performs

An AYO guarantee to pay an AEEI bank overdraft was granted (currently R35.7-million )

A range of related-party acquisitions ensued. The first was 55% of Sizwe Africa IT ( R165-million ) in which AEEI chair at the time, and the ANC’s chaplain-general, Vukile Mahana held 15% of the shares. Share registers show that Mehana’s company Loxisource sold 10 percentage points of its 15% interest to AYO. This means he got R30-million and retains 5% of the company .

Ayo then proceeded to pay out handsome dividends mostly stemming from interest on the PIC cash left in the bank ( R100-million in November 2018 and another R120-million in April 2019) which mostly went to AEEI.

AYO apparently funded AEEI’s acquisition of SAAB Grintek Technologies (renamed SGT Solutions) in a transaction with a number of moving parts. In their respective financial results AEEI said the “group” bought 80% of SGT for R100-million with R60-million cash up front. AYO said it acquired 40% of the same company without providing a price. According to share registers procured by amaBhungane, AEEI first used a shelf company called Mainstreet 1653 to buy SGT. Then, in March 2019, AYO buys 40% of Mainstreet from AEEI. The important part is that AEEI paid R60-million up front for SGT via Mainstreet while AYO’s interim results show it also recently lent R60-million to Mainstreet. In other words, AYO apparently debt-funded AEEI’s acquisition and then bought part of the acquisition from AEEI afterwards.

In December 2018 AEEI bought a company called Global Command and Control Technologies from SAAB Grintek Defence for an undisclosed sum. It owns 25% of this SAAB subsidiary that sold it the company. AEEI then sold 24% of global command to AYO for R3.6-million and a R11.4-million loan. AYO announced this acquisition without disclosing who it was bought from . Share registers show it bought it from AEEI.

Now that it apparently controlled 76% of Global Command, AEEI had the company spend R23-million on acquiring the rights to certain technologies from SAAB Grintek Defense. AEEI owns 25% of SAAB Grintek Defense.

In testimony at the Mpati Commission the JSE’s General Manager for Issue Regulation, Andries Visser, said that the exchange is investigating “every single one” of the related party deals.

No comment

AEEI has not responded to any of amaBhungane’s detailed questions directed at CEO Khalid Abdulla through his personal assistant, PR company and subsequently to him personally. Only the PR company at least acknowledged receiving them and promised to forward them. DM

The amaBhungane Centre for Investigative Journalism , an independent non-profit, produced this story. Like it? Be an amaB Supporter to help us do more. Sign up for our newsletter and WhatsApp alerts to get more.