Futuregrowth’s investment in ACSA: Trapped in an SOE

Futuregrowth’s investment in the Airports Company of South Africa (ACSA) was one of our initial investments into South African infrastructure, as air transport is a pillar for the development of the South African economy, not only for tourism but also for a variety of other industries.

Data has indicated that, pre-COVID, the tourism industry alone employed up to 1.5 million people and supported 48 000 SMMEs.

In July 1998 Futuregrowth provided empowerment funding to a consortium of minority BEE investors to invest in ACSA, concurrent with the partial divestment (4.2%) of government’s stake to empowerment investors. These investors became the “minority investors” in ACSA. At about the same time, the government sold 20% of ACSA to Aeroporti di Roma, with a view toward privatization and the listing of ACSA on the JSE.

Over the subsequent years, government has acted without regard for the promises made to its minority investors in the July 1998 prospectus – notably, that the company was intended to become a listed entity. In 2005 the Aeroporti di Roma stake was repurchased by government (into the PIC) and the empowerment parties became true minorities trapped in their ACSA holdings with no effective means of exiting from the investment. On top of this, ACSA has – in effect – been run as a State-Owned-Enterprise (SOE) with its developmental focus superceding the legal requirements of the ACSA Act (#44 of 1993) which required the company to earn a commercial return in each year. For example, in the lead up to the 2010 world cup, government required ACSA to build the new Durban airport which has never been a commercial success.

In short order, the investments in ACSA ended up being worth less than the debt outstanding, ultimately causing default and forcing the funders (including Futuregrowth’s funds) to become the final holders of the minority equity investment stakes in most of the BEE minority stakes.

Futuregrowth, in conjunction with our co-investors in the minorities in ACSA, have engaged over the years with the ACSA Board, mostly at the annual general meetings, but also via direct meetings, to resolve this seeming disregard for its minority investors and the lack of commercial operation of the entity. With little traction and increasing concerns over the lack of governance, the minorities filed a legal action for “Oppression of Minorities”. A settlement was ultimately reached between ACSA and the minority shareholders. The settlement was made an order of the court, and, as part of the settlement, an independent valuer was appointed. The valuation arrived at was R77.92 per share.

ACSA later reneged on the settlement agreement and court order, and, together with the State, applied for an application for a recission of the court order in July 2018. This was heard by the Court in October 2019, with a recission award made in July 2020. This was a blow for the minorities.

Given our legal counsel’s view that the recission award was legally flawed, the minorities sought leave-to-appeal to the Supreme Court of Appeal (SCA), which was granted in September 2020, and we are currently awaiting the judgement of the SCA. Should this be successful, the original settlement will stand, but it is likely that the independent valuer’s valuation will need to be defended. Without a doubt, a long game of legal wrangling lies ahead. While this legal runway is daunting, we remain nevertheless steadfast on our basis of a legal claim underpinned by consistent Minority Oppression.