Inquiry probes PIC’s R21m loan to bus company
The PIC's impact investments head contends that MST breached its loan agreement, having produced one bus instead of seven and defaulted on its repayments – but the company disagrees.
The PIC’s Royith Rajdhar stands his ground in the face of cross-examination. Picture: Moneyweb
After a verbal tussle with Roy Rajdhar, head of impact investing at the Public Investment Corporation (PIC), Mobile Specialised Technologies (MST) has yet to give an indication of how it spent a R21 million loan facility, which the PIC maintains was granted for manufacturing new buses.
MST manufactures and operates buses and adapted mobile units that provide healthcare and educational services in southern Africa.
Rajdhar testified before the PIC commission in March that following various onsite asset verification trips, the PIC’s team was able to verify one bus that had been manufactured from the proceeds of the loan. Seven buses at R3 million each were expected from the R21 million.
In addition, Rajdhar said MST had defaulted on its loan repayments, which were supposed to have begun by July 2018. He said the default had not been remedied.
Old or new buses? A technicality
Under cross-examination by MST’s legal counsel advocate Kenny Oldwage on Wednesday, Rajdhar doubled down on his initial testimony: that the agreement between MST and the PIC was intended for the production of new buses, but the company had not provided evidence that this is what it was used for.
“The portfolio management team’s view was that the money was not used entirely for buses but used to settle debts that were in areas such as the liability of the South African Revenue Service,” said Rajdhar. He said his statements were not meant to cast aspersions on MST or create a sinister view on the company’s operations but merely to indicate that it had breached its contractual obligations to the PIC.
Both sides went back and forth on the interpretation of a key clause in the loan agreement, which states that:
“Borrowers shall apply all amounts borrowed under the facility for purposes of designing, constructing, assembling, operating, and leasing of bus units.”
Oldwage latched on to the last part of the clause saying the words “operating and leasing” indicate that the money was not meant “exclusively” for new buses and that there was no reference to new buses in the loan or security documents.
Further, he stated that the contract did not stipulate that the buses had to be manufactured during a specific time period.
Oldwage submitted an email from MST indicating that the PIC was aware in March 2016 that buses were being manufactured. At the time, the PIC had not yet approved funding, but was negotiating the terms of the funding agreement.
“What we see is that there are ongoing communication[s] taking place and ultimately you are hardly in a position to say when the proceeds are paid out – they ought not to be utilised towards the expenses incurred in the production of buses already in 2015,” said Oldwage
Asked if, on the face of the evidence presented to him, he wished to change his position, Rajdhar said “no”.
Rajdhar said it was clear that the clause referred to new buses especially when you look at the words used such as “design, construct and assemble”.
“If it’s old, you would use words such as deconstructing, refurbishment, and you ‘design’ a new bus not an old bus,” said Rajdhar.
He said that while operating and leasing do not constitute manufacturing, the emphasis was on the latter.
With regard to the time frames, Rajdhar said that even if MST had been in the process of manufacturing buses while the loan was under negotiation, the funds were relevant after the transaction was approved by both parties and funds were disbursed. This took place in June and July 2018.
MST financial difficulties
MST’s finance agreements with the PIC came under scrutiny when allegations emerged that former PIC CEO Dan Matjila had used his influence to ensure that MST – which had an arrangement or partnership with Maison Holdings, a company belonging to Matjila’s alleged girlfriend Pretty Louw – received the R21 million loan and other PIC funding.
But these allegations were cleared by internal and external investigations, which found that Matjila had not acted improperly and that there had not been a romantic relationship between the two parties.
The balance of the MST loan currently sits at just over R24 million. The company made its first payment towards the loan on July 1, 2019, based on the instructions of a new payment schedule.
Rajdhar said he was not aware of the new schedule, adding that it does not mean the loan had been restructured or that MST was no longer in breach of the contract.
MST previously applied to restructure its loan after it missed its first and second payments in July 2018 and January 2019, but the PIC rejected this because the company could not provide audited financial statements from June 2016 to 2018.
Shortly after Rajdhar’s first appearance at the commission in March, MST provided the PIC with its June 2018 financial statements, which Rajdhar said looked “hurriedly prepared” and that the auditors were reckless in issuing the financial statements because they contained factual inaccuracies.
MST is set to continue its cross-examination of Rajdhar at a later stage. The commission has demanded a clear breakdown of how the money was spent, as well as the outstanding audited financials.
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