NSSA in Joina City financials storm

Published: 18 March 2014

The National Social Security Authority (NSSA) is embroiled in a financial statement storm after allegedly misleading external auditors, the public and government over the purchase of 36,21% equity worth $11 million in an investment company, Dubury Investments, which owns Joina City.

A source privy to details of the deal said NSSA invested in Joina City to access rental income, but ostensibly blundered and bought stake in Dubury Investments in a shady transaction.

Dubury Investments is a private investment vehicle through which NSSA jointly owns Joina City.

Information at hand show the authourity bought 3 621 unlisted shares out of 10 000 ordinary shares of Dubury at an astronomical price of $3 037,83 per share, costing the organisation $11m.

Fresh details show whilst NSSA claimed that it invested $11 million for 36,21% equity in Dubury, the investment was split into two parts, part of which was a loan to anonymous shareholders.

"Please note that $11m paid by NSSA is divided into two parts that is $ 5,1m representing equity purchase of 20,75% shareholding of Joina City and, $5,9m representing shareholders loan which is payable when the property start performing," NSSA general manager James Matiza said when queried about the transparency of the deal.

The disclosure that the $11m was split into two parts is at variance with the company's audit results for December 31 2012, raising fears that NSSA management may have misled external auditors on the actual composition of the actual deal.

The loan to shareholders is accruing at an interest of 2% per annum and capital repayment would only be done if there are sufficient cash reserves after the repayment of the loans to settle any current creditor.

Said Matiza: "The position which was given to the Auditors that NSSA holds 36,21% in Dubury during 2012 audit period was correct and it is still correct, therefore there was no intention to mislead auditors.

"The investment of $11m into Dubury was regarded as one investment from Dubury Investments' point of view and the main objective was to acquire 20% shareholding of Joina City, which was done. Shareholder's loan was the amount owed to previous shareholders by Joina City which was equitably divided among shareholders as part of acquiring Joina City shareholding."

Matiza said Dubury was a properly constituted company which has a board, on which NSSA is represented. Its directors are P Mapani of NSSA, with Shingi Mutasa as the chairman, and a Mr Dhliwayo independent.

He could not identify the names of the shareholders who benefitted from the loan nor the period of time when the loan is recoverable.

"The shareholder's loan is recoverable over a period of time and this will be determined by Joina City Board as and when they feel it is necessary to do so depending on the performance of the investment," he added.

Sources said during the investment appraisal process, rental cash flows were used to determine the payback period yet the apparent revenue inflows or receipts would be from dividends.

NSSA's stake only gives it right to dividend income and not rental cashflows from Joina City as originally envisaged.

Returns to NSSA are based on the performance of the rental yield per year and so far, NSSA has only received $91 273,63 rental dividend.

Sources further said the NSSA's Management Investments Committee (MIC) recommended against the investment advising that joint ventures have always created challenges for NSSA such as Ekusileni Medical centre, and South Medical Chitungwiza, among many others.

Matiza disputed this, arguing that the deal was done above board and maintained that the share price for the private shares were normal, though admitting that no valuation was done prior to the deal.

"Share price of a property is determined by the value of the property itself and the number of shares in issue and the percentage of each shareholder. Therefore, according to this transaction it is very possible to have any price depending on the above analysis," he said.

"There was no share valuation which was done in this transaction because valuation was based on the property valuation which was carried by an independent reputable company CBRE which was chosen through the normal NSSA property investments procedures," he added.

NSSA boss also denied flouting the social security's investing guidelines and procedures for private companies which stipulates that NSSA should invest not more than 5% in private companies.

"NSSA has laid down guidelines and procedures in investing in unlisted companies and these procedures were followed and approved by the Board. Our guidelines do not stipulate 5% as the maximum allowed to invest in unlisted companies," he said.

Matiza said that returns to NSSA were based on the performance of the rental yield per year and by the time NSSA went into this project the building was not fully 100% completed and was not fully occupied and up to now it is not yet fully occupied but expectations are that in the near future, the investment would start to perform and pay good dividend.

Rental dividend and the loan repayment will start once the investment starts performing. There is also capital gains going forward as the building appreciates in value.

"The latest valuation is valued $60m and NSSA portion is 20,75% of this valuation," he said.

The NSSA boss also said that $5,1 million was used as equity purchase valued at 20,75% of Joina City fair value of $54m at that time.

For the actual use of the funds by the seller, Matiza said NSSA had no business to ask how the seller would use the funds.
- zimmail