PetroSA's bid for Engen stations falters as PetroSA boss resigns

A huge R11-18 billion (US$1.151-1.884 billion) deal by South African state oil company PetroSA to buy Engen petrol stations may be in doubt due to corporate problems that culminated in the resignation of PetroSA Chairman Benny Mokaba on April 29. This followed the delivery of a report on alleged corporate governance issues.
The deal was designed to return Engen petrol stations to local control after their sale to oil major Petronas. The Malaysian company had bought 30% of Engen in 1996 and the remaining 70% two years later for a total of US$946 million.
None of the parties would officially confirm that Engen was the target, though the deal had been in the works for a year. The deal now appears to be stalled, although the CEO of advisory group Harith General Partners, Tshepo Mahloele, said he was still hopeful the deal would be sealed within a year.
Information about the size and content of the deal had gradually leaked out after the decision of acting PetroSA CEO Yekani Tenza to step down in May 2012. Since then, PetroSA majority shareholder, the Central Energy Fund, has been investigating corporate governance issues. It looked specifically at a subcommittee of the PetroSA board which appointed Harith as advisers to determine whether it was correctly constituted, a move that excluded the then finance director.
The Mail & Guardian reported some of the key financial aspects of the deal, including the termination of global bank HSBC as PetroSA’s adviser on the fuel-stations project, called Project Irene. PetroSA had to pay a hefty R19 million (US$1.99 million) break fee and the newspaper questioned why Harith was due to earn a bonus of R187 million (US$19.6 million) on closing the deal.
This was five times more than the R35 million (US$3.66 million) HSBC apparently would have received had it stayed on.
Mahloele explained the apparently generous bonus – 1.7% of the transaction, with the transaction amount capped at R11 billion (US$1.15 billion) – by saying that the mandates of HSBC and Harith were very different. Harith’s mandate included raising debt and equity, and all the other legal and corporate finance work required. The firm also gets a retainer of R1.2 million (US$125,630) a month.
Mahoele said the firm’s actions were entirely ethical.
But Harith has influential board members, including former deputy finance minister Jabu Moleketi. The Public Investment Corporation (PIC) retains a stake, but units of Old Mutual and Absa have dropped out, citing conflicts. The company is owned mostly by management, with the PIC retaining a stake.
(April 30, 2013)