I AM quite sure the Constitutional Court does not want to be in the business of telling government agencies how to do their jobs. But that is what it is having to do with the hapless South African Social Security Agency (Sassa), which has proved itself singularly incapable of drawing up an adequate tender document for the rather important job of distributing government’s social grants.
The incumbent Cash Paymaster Services (CPS), a subsidiary of Nasdaq-listed Net1 UEPS, has been a frequent visitor to the court to get it to intervene in Sassa’s efforts to publish a request for proposals on the new tender. Because the distribution of about 20-million grants every month is crucial to the livelihoods of many vulnerable people, the court has been careful not to threaten the orderly delivery of grants. So CPS has been able to continue providing grants, collecting fees for doing so and flogging lucrative insurance, airtime and other services to grant recipients.
In April last year the court ordered Sassa to conduct the tender again, and it has been insolently dragging its feet through the process since. A first tender document put out in December was challenged by CPS for being vague. Sassa then amended the tender, only to again be twice successfully challenged by CPS in court. Last week the Constitutional Court ruled that a fourth, this time hopefully compliant, tender document must be issued by April 2. Assuming this one withstands CPS’s efforts to challenge it, bids must be made and a new tender awarded by October 15.
CPS’s legal gymnastics have ensured that it has kept the tender going for years longer than it would have otherwise. In the fourth quarter of last year it generated revenue of $58m (about R660m) for providing social grants, and another $68m for its smart cards and related financial services, most of which depend on the grants, out of $166m in total. The contract is pretty key to the business.
Net1 is fighting on other fronts, including with the Financial Services Board, which has suspended its insurance licence; the National Credit Regulator, which suspended its unsecured lending business; and America’s Securities and Exchange Commission and justice department, which are investigating it for corruption. Despite all that it continues to deliver profits for its shareholders. Its deft litigation skills seem far more crucial to keeping the money rolling in.
AFRICAN Bank’s subordinated creditors, who between them hold R4.4bn of loans that were made to the bank before it collapsed, are proving a real thorn in the side to the failed bank’s curator. They have gathered themselves into a "Tier II Committee", which is fighting efforts to amend the Banks Act. The amendment is needed to implement the Reserve Bank’s planned "good bank" structure that will hopefully see a phoenix emerge from these ashes.
The committee put out a press release last week saying it was acting out of its "fiduciary duty" to protect the interests of "pension fund investors". They argue the Bank’s plan will leave them with nothing while giving "other creditors" 90% of their money back. The press release neglected to say that the other creditors are the senior bond holders and that is the way credit tiers work. Whoever is first in line gets paid first, so if there’s nothing left by the time tier 2 gets to the front of the queue, tough luck. But there are some tricky legal issues at play.
Tier 2 creditors no doubt have their eye on African Bank’s insurance subsidiary Stangen, which is likely spewing cash as it continues to collect on the overpriced credit life insurance that was sold with every unsecured loan. That business is not in curatorship but is a key asset. The Reserve Bank will want it to be transferred to the good bank, where the senior creditors are going to go after their 10% haircut. Trouble is the Tier 2 creditors may be able to challenge that, insisting Stangen should be left behind, and the Banks Act seems to give them grounds to do so. Hence the amendment to the Act that is being proposed.
The Reserve Bank and National Treasury have a bit of a pickle on their hands.