Siyabonga Nene asked the PIC to finance a huge investment in Mozambique. He did not get that for himself, but the state-owned fund manager seemingly bent over backwards for his business partner – not least by depositing millions into an offshore account.

Twelve minutes’ drive from the Port of Nacala in Northern Mozambique lies the 35-hectare industrial complex that Momade Rassul Rahim built. Behind a three-meter perimeter wall there is a palm oil refinery, soap manufacturing plant, office blocks and a dozen or more warehouses.

It is here that on 24 February 2014 a large consignment of imported motorcycles caught fire, gutting a warehouse and leaving a mountain of mangled metal.

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Questions have since been asked of those bikes. Published research papers have linked them to the same people who allegedly ran a scam in which import duties on motorcycles were evaded by claiming they were for the ruling party, Frelimo; and that their petrol tanks had doubled up as vessels for trafficking heroin.

It may be premature to speculate whether Rassul was complicit in such crimes, although his arrest on money laundering, tax fraud and smuggling allegations last year will add to the suspicion. He did not respond to queries this week and has yet to stand trial.

More relevant for present purposes is how South African civil servants, through their pension fund, came to be Rassul’s business partners and majority owners of S&S Refinarias de Óleos LDA, the palm oil refining and associated business he had built at that site.

The short answer appears from records of the Public Investment Corporation (PIC), which state: “PIC has been approached by a South African company lndiafrec Trade & Invest (Pty) Ltd to establish and fund the consortium to facilitate a 50% acquisition of S&S Refinery LDA In Mozambique…

“Indiafrec … is the brain child of two young entrepreneurs, Muhammad Amir Mirza and Siyabonga Nene.”

Pause.

The PIC is the state-owned investment manager of government employees’ pensions. Its chair at the time of Indiafrec’s approach was Nhlanhla Nene, then deputy minister of finance. Siyabonga Nene is his son.

After rumours about the deal started circulating last weekend, Nene Snr used his appearance at the state capture inquiry on Wednesday to state: “I deny that I have ever acted inappropriately with regard to any investments made by the PIC. I deny any and every allegation that I knowingly acted to promote any funding from the PIC for any business involving my son.”

His spokesperson, Jabulani Sikhakhane, later told us: “Minister Nene only became aware of his son’s involvement in Indiafrec’s Mozambique deal when his son, in a casual father-son discussion, mentioned that he and his business partner had run into problems with a deal they had been negotiating with the Public Investment Corporation. At no point did Minister Nene discuss the Indiafrec transaction with the PIC.”

He denied any conflict of interest, pointing out that the deal was of such a value that it did not require the approval of the board Nene chaired.

“Conflict of interest would only have arisen if Minister had presided over a PIC meeting where Indiafrec’s funding proposal was being discussed… In any case, Indiafrec’s funding application was turned down,” said Sikhakhane.

The details of Nene’s knowledge and subsequent actions remain to be heard.

In the meantime, the available evidence suggests the PIC rushed eyes wide shut into a R1-billion investment that could only bring trouble, made not in the interest of government pensioners but founded on the need to gratify Nene Jnr and his business partner.

At the sharp end of the PIC’s efforts was Dr Dan Matjila, first as its chief investment officer and then as its chief executive, a position to which Nene Snr appointed him in December 2014, six months after becoming finance minister for the first time.

Relevant PIC motivations and transaction documents invariably bear Matjila’s signature – including when the PIC paid an R18.5-million “referral fee” into the freshly opened account of an obscure Emirati company represented by Mirza, the business partner.

When things fell apart between Mirza and Rassul, Matjila was still there, allegedly involved in negotiations to secure a $3.3-million (about R50-million now) settlement in favour of the same Emirati company.

Nene Jnr and Mirza did not respond to requests for comment.

The PIC said in a written response this week that “the suggestion that the investment was made to bestow patronage does not hold water”.

It said it handled the matter “in terms of PIC’s established investment process, which includes thorough due diligence and was approved in terms of the delegation of authority.

“The assertion that Dr Daniel Matjila, as the chief executive officer, makes all the investment decisions must be dismissed. Investment decisions in the PIC are made by the relevant committees in terms of delegated authority by the PIC board…

“It is equally important to state that, at no stage – from the time when the application for funding was received until approval – did the then chairman of the PIC board, Minister Nhlanhla Nene, become involved [in] investment processes.”

Half to Indiafrec

But back to the month of the burning bikes. That same February, PIC staff considered documents with a view to investing in S&S Refinarias, which was still building the plant, which would produce edible fats and soap from palm oil.

By the middle of March they put their signatures to a scoping report that envisaged acquiring 50% of the company in return for a $29.25-million investment. Half of that stake would go to Indiafrec, financed by the PIC.

Click on the evidence docket to access the information we used for our investigation.

It contained the line, subsequently repeated in other PIC reports and motivations, about Indiafrec having “approached” the PIC to fund the deal. It also said that Indiafrec was co-owned by Nene Jnr and Mirza.

Company registration records show that the two of them incorporated Indiafrec some 16 months earlier. Both were and remain directors. They also co-founded another company around that time.

Little is known about Mirza, an Indian national who appears to be in his early thirties and has given his address as a residential hotel in Fordsburg, Johannesburg.

Indiafrec out, Mirza in

In early April 2014, Rassul signed an “engagement letter” that the PIC had prepared. It recorded that the PIC and Indiafrec were interested in acquiring 25% of S&S Refinarias each and outlined next steps towards the potential investment, now envisaged to be $52.5-million.

Up to that point, Nene Sr was the deputy finance minister and PIC chair.

The following month, May, he was appointed finance minister. Although he would no longer be the PIC chair, it now answered to him as its sole shareholder on behalf of the state.

Sikhakhane maintained this week: “The Minister of Finance is very far removed from the day-to-day business of the PIC and there’s no requirement for the PIC to report to him on investment deals.”

Two-and-a-half months later, in August, the PIC’s formal approvals kicked into gear. Matjila signed an “appraisal report” motivating the investment to a PIC investment panel consisting of executives and directors, which approved it.

But now the deal structure was different: First, the appraisal report contained a claim that Nene Jnr “has since resigned” from Indiafrec – which appears untrue given that company records still reflect him as a director.

Second, it envisaged Mirza personally rather than Indiafrec acquiring a stake. He, the PIC and Rassul with his wife would hold 33% each. The envisaged PIC investment was now $62.5-million, which would go to loan finance and the PIC’s stake but not Mirza’s.

And third, the report motivated and the panel approved a $1 726 500 “referral fee” to Mirza who now, rather than Indiafrec, got the credit for having “introduced the potential investment”.

In short: Nene Jnr and Indiafrec, the company he shared with Mirza, had been written out of the deal and substituted with Mirza alone – who would no longer have his stake funded by the PIC, but would get a very large fee supposedly for introducing the PIC to the opportunity.

Nene Jnr’s exit appears consistent with what an ANC national executive member told us Nene Snr had told him: “He said his attention [about his son’s involvement] was drawn when he was deputy minister. He said he asked him to pull out of this thing.

“He said the relationship had nothing to do with the PIC, but he told the son to get out of it.”

The PIC this week initially commented that it did not fund Indiafrec as its “BEE policy at the time did not apply to projects outside South Africa”.

It later supplemented the comment, saying: “We also wish to state that one of the other considerations in this specific transaction was a potential perception of conflict of interest, given that Siyabonga is related to the then chairman of the PIC board.”

But was the son’s exit real?

Events to follow, including his alleged presence during attempts to recover the $3.3-million settlement and the emergence of the obscure Emirati company may cast some doubt on that.

R18m offshore

The PIC paid the $1 726 500 referral fee (R18.5-million then) in early September 2014, some weeks after the PIC investment panel’s approval.

This was after Mirza and Rassul had given written assurances that the PIC could also partner with Rassul in other business opportunities, a condition which appears to have been inserted to assuage internal concerns.

Large questions around the payment include:

Was it due?

Indiafrec had come to the PIC asking to be funded. It was not an independent party bringing a rare investment opportunity. Although the investment panel approved the fee, its minutes included this apparent reservation: “High cost… R17-million [sic] why should the PIC be responsible to pay that[?]”

The PIC commented that it was “disingenuous” to regard the payment as undue. “It is industry practice to pay referral fees in certain instances. PIC deemed it appropriate in this circumstance to pay a referral fee … for introducing investment opportunities in Mozambique which, at the time, PIC identified as a country with good investment prospects.”

Even if justified, why so much?

The fee was calculated at 1.5% of the total project value of $115.1-million rather than the PIC’s intended investment of $62.5-million then. The latter would have been a more rational measure as the PIC’s returns would be determined by its level of investment, not total value.

Why offshore?

Mirza invoiced in the name of Zaid International Trade and Investment, a United Arab Emirates “free zone” company with an account number that attached bank documents show had only just been opened. Emirati free zone companies, which the Guptas had used to great effect to launder money, are typically instantly registered, tax free and thoroughly opaque.

Did Nene Jnr benefit?

Nene Jnr had as much apparent reason to benefit as Mirza as their joint company Indiafrec had made the “introduction”. Zaid International’s opaque ownership as a free zone company does not help dispel concerns that he was to benefit too.

The PIC commented: “With regards to the ownership of Zaid International Trade and Investment, the PIC understood this to be a company wholly-owned by Mr Amir Mirza.”

Sikhakhane, the minister’s spokesperson, said that Nene Jnr had “no involvement” in Zaid International.

Mirza in, Mirza out

The referral fee having been paid, PIC staff got back to the actual investment.

That same month, September 2014, staff bounced a new structure around, one remarking in writing that “I have discussed this with Dr Dan [Matjila]. He is happy with the structure at the moment.”

He was referring to a breakdown that showed the PIC’s stake rising to 45% of S&S Refinarias but its loan finance contribution decreasing to give it a total commitment of $53-million. The remaining 55% was to be held by a special purpose vehicle in turn held 60/40 by Rassul and Mirza, of which the former would seemingly finance the latter’s stake.

The PIC investment panel approved the amended structure in October, after which the money started flowing: $18-million for the 45% shareholding in November and $35-million in loan finance by July 2015.

Soon, the intended special purpose vehicle was set up to hold the remaining 55%, Mozambican company records show. But there was a catch: The shares were divided between Rassul, his wife and a third Mozambican national – nothing for Mirza.

Again, the PIC appears soon to have bent over backwards to help the ministers’ son’s business partner.

PIC at the settlement table

A lawyers’ letter sent on Mirza’s and Zaid International’s behalf to Matjila last year states that “over and above” the referral fee, Mirza and the Emirati company “had an original entitlement to the allocation of shares” in the special purpose vehicle.

“For various reasons … this initial intention did not proceed and a settlement agreement was concluded to compensate our client for its exit from the project.”

The letter claims that although Rassul had originally promised Mirza $10-million to walk away from the deal, a final amount of $3.3-million was negotiated when Rassul, Mirza, Matjila and others met at a Pretoria hotel.

A settlement agreement, the letter said, was drafted by the PIC’s attorneys.

Why the PIC would have facilitated a settlement that on the face of it was a private matter between Rassul and Mirza remains unclear. It did not dispute the facts or comment on them.

Mirza and Rassul signed the settlement on 20 October 2015. The former invoiced the latter, again giving details of the Zaid International offshore account.

Again there is the question whether Nene Jnr was to benefit. Two confidential sources have placed him at attempts to recover the money when Rassul failed to pay most of the $3.3-million.

One, a PIC-linked source directly involved in the matter, said Nene Jnr was present when Mirza consulted with lawyers.

When Rassul’s due date to pay came and went in November 2015, the PIC – coincidence or not – very soon moved to put another $10-million in his pocket.

Within two weeks, two further “appraisal reports” had been prepared motivating the purchase of a further 25% of S&S Refinarias from Rassul’s special purpose vehicle.

“The rationale,” the documents said, “is for PIC to warehouse the additional equity for strategic partners who will be appointed as the management company.”

This supposedly offered the PIC “the ability to support [the] Black Industrialists Programme”.

In January 2016, a PIC investment panel approved the purchase for $10-million, although minutes reflected concern about Rassul’s commitment to the project when selling down his shares “within such a short period of time”.

The PIC this week denied that the further $10-million investment was linked to Rassul’s settlement agreement with Mirza, repeating that the rationale was to warehouse the extra shares for strategic partners to be appointed as the plant’s operators.

Owners of a lemon?

When the $10-million flowed to Rassul a few months later, government employees, via the PIC, became the proud owners of 70% of S&S Refinarias for a total investment, including the referral fee, of about $65-million (R950-million now).

Did our civil servants get value for money?

During the PIC’s approval processes for the investment, there were internal concerns regarding Rassul’s corporate governance standards and about managerial capacity.

The investment panels set conditions including that two directors must be appointed to the S&S Refinarias board; that the PIC should appoint an independent chair; and that the PIC should appoint chief executive and chief financial officers. Only the first condition appears to have been met.

Commissioning and bringing the plant online, first envisaged for late 2014 or early 2015, has been way behind schedule. The refinery was formally commissioned in December 2015 but in late 2016 feedstock for continuous production had yet to be secured.

The PIC’s own assessment of the project’s performance in its published schedule of unlisted investments at 31 March 2017 was bleak. It noted an 6.38% rate or return against an expectation of 24% and gave it an ESG (economic, social and governance) score of only 20%, categorising it as a “laggard”, the lowest category.

The PIC commented this week: “The investment in S&S Refinarias was done on the basis of satisfactory due diligence conducted by PIC and independent appointed professionals… At the time, there was sound commercial basis to invest in the project.

“However, subsequently Mozambique experienced severe economic downturn with the currency devaluing by more than 50%, power outages and flooding in the area in which the project is based.

“This exacerbated problems normally associated with early stage investments. PIC and its Mozambican banking partners have appointed a new operator. PIC is satisfied that economic conditions are improving and that, with the introduction of a new operating partner, the increased production capacity will yield good results.”

What the PIC did not say was that the new operator, Vamara Mozambique, is part of a multinational group unlikely to fit the “black industrialists” bill used to justify the final 25% purchase – or that according to its contract, Vamara will take 50% of profits for now, again reducing government employees’ return.