Extract from the written document by the Public Investment Corporation produced in reply to questions from the Standing Committee of Finance, 10 May 2016

UNLISTED INVESTMENTS

SCOF Request:

Investment: Independent Media – Rationale for transaction as well as costs, returns and current values.

REPLY:

Rational/Investment Thesis:

Independent Media is the largest English language newspaper publisher in South Africa, owning 18 major newspaper titles across three geographic regions namely Gauteng, Western Cape and Kwa-zulu Natal. The company owes some of the most respected and trusted media titles in the country. The company has expanded its reach by launching a Zulu paper called Isolezwe thereby giving a voice to communities by giving them voices in their mother tongues.

The media industry remains largely untransformed in terms of black ownership. In participating in the acquisition of Independent Media the PIC/GEPF facilitated black ownership of the print media sector. The PIC funded the Sekunjalo Consortium which comprises of Sekunjalo which is an empowered listed company and other broad-based empowerment groups.

We believe that this investment meets the key transformation objectives of the DTI surrounding Ownership, Management and being Broad-Based. Historically the company was Irish owned with 0% BEE ownership and minimal black participation at an executive level. At inception the Company had a BEE rating of Level 5. Currently the Company has a BEE rating of Level 2.

The previous International shareholders used to declare and pay out significant amounts of dividends and not much of the companies proceeds were re-invested in the South African economy. By supporting the Sekunjalo Consortium to bring back the asset into South African hands, we’ve insured that the company proceeds will be utilized for the benefit of the South African economy.

This aligns with the strategy of the PIC in that there must be alignment between where the revenue is generated and where its reinvested. Example: In 2011 the PIC and Growthpoint Properties Ltd purchased all of the equity held by international shareholders in the V & A Waterfront and caused for the asset to be back in South African hands.

In 2015 the PIC played an instrumental role in convincing AbInbev, when they purchased SAB, to also have a listing on the JSE for the new combined company. It is also well known that the PIC is currently participating in similar strategies on other entities held in majority by international shareholders like Absa, Anglo, Old Mutual, etc.

Valuation:

The increase in the valuation of GEPF’s interest in Independent Media as at 31 March 2015 is as a result of a 4% increase in the equity valuation compared to 31 March 2014.

The value of shareholder loans increased by 10% due to accrued interest in line with the terms of the loan. The loan was structured in a way which would allow maximum cash flow for the business to allow the Company to execute its growth strategy.

The Sekunjalo loan increased by 15% due to accrued interest in line with the terms of the loan.

Return:

As at 31 March 2015 (1.7 years into the investment), the consolidated Independent Media IRR was in excess of the PIC’s hurdle rate of return. This is despite continued pressure on assets in the media space. The original thesis of the investment anticipated an increase in government spent as a result of the company being the first transformed in its industry. This increased spent by government have not materialized yet, but we believe the new procurement process of government will allow for a more favorable allocation to other media groupings.