Net 1 dips further after US tip-off
Companies / 06 Dec '12, 08:46am
THE intrigue surrounding Net 1 UEPS Technologies deepened yesterday as details came to light of the trail that eventually led to the US government, which acted by launching a probe in response to information it received from AllPay, a division of Absa.
Net 1 is under scrutiny for possible violation of provisions of the US Foreign Corrupt Practices Act, which was adopted by president Jimmy Carter in 1977, for the manner in which it secured a R10 billion contract from the SA Social Security Agency (Sassa) to distribute social welfare funds across the country.
Mothers with their children wait to be assisted at the Thembisa office of the SA Social Security Agency. Net 1 won a R10bn contract to distribute social grants nationally. Photo: Antoine de Ras. Credit: Independent Newspapers
The latest episode comes at a bad time for Sassa, which recently completed a process of reregistering grant recipients. According to advertisements in several newspapers, more than 8 million beneficiaries were reregistered and have now received their new grant payment cards.
Tuesday’s slide in the share price, as investors reacted to news of the US Department of Justice and Securities Exchange Commission investigation, continued on the JSE and Nasdaq yesterday. Net1’s JSE shares closed 47.8 percent down at R35, adding to an 8 percent fall on Tuesday.
Anthony Norton, AllPay’s legal representative, said his client had exercised its legal duty under section 34 of the Prevention and Combating of Corrupt Activities Act of 2004, which states that any person in a position of authority and who holds reasonable suspicion of fraud or corruption involving more than R100 000, must report the matter to a police official.
Norton said AllPay had informed South Africa’s elite unit, the Hawks, and “in light of that legal obligation we took legal advice and were advised by an American law firm” to approach US authorities.
“We will simply co-operate with the Department of Justice… the process is in their hands,” he said.
As for the Hawks, Norton said: “We have absolutely no idea where they are in the process.”
Paul Hoffman, the director of the Institute of Accountability in Southern Africa, said it was possible for proceedings in South Africa and the US to run in parallel and that Net 1’s presence in the US was sufficient for that government to take action against the firm.
He added the government should take note of the findings of the North Gauteng High Court and cancel the contract, as it was entitled to do because it was tainted by fraud. “That is the remedy for fraud and has been accepted before in the South African law”.
The Supreme Court of Appeal, meanwhile, informed the parties yesterday that the court would hear both AllPay and Net 1’s appeals against the high court ruling on February 15 next year.
AllPay’s allegations of corruption against Net 1 were tested earlier this year in the North Gauteng High Court, which ruled that the contract award was invalid and illegal, but it did not set the award aside for practical reasons.
Net 1, in a further statement, assured investors that it had no reason to believe the investigations would affect its ability to distribute grants.
The company, incorporated in Florida, in the US, emphasised that the “investigations are not findings of wrongdoing on the part of any person and that Net 1 is fully co-operating with the investigations.”
There is much riding on this contract, considering that about two thirds of the company’s revenue is derived from South Africa. The balance is from operations mainly in South Korea and Europe. .
David Koning, a senior analyst with Baird Equity Research, said investors were “clearly worried as evidenced by around 25 percent of the shares trading on Tuesday and the approximate 60 percent decline in stock on the Nasdaq”.
He said Baird maintained an outperform on the stock because of Net 1’s two businesses on a stand-alone basis: KSNet in South Korea and EasyPay in South Africa.
A fund manager in South Africa, who declined to be quoted, said he had pulled out of the stock several years ago.
“I always wondered how they made their money,” he said. – Additional reporting by Nompumelelo Magwaza