HCI WINS COURT ORDER TO EXAMINE ITHUBA’S FINANCIAL RECORDS

Hotel and gaming group says it will show lottery operator used borrowed money recklessly

After a five-year legal battle, Hosken Consolidated Investments (HCI) has been awarded the right to examine lottery operator Ithuba’s financial statements.

The investment group had taken legal action against Ithuba, saying that it was owed management fees by the lottery operator.

HCI had made an urgent court application seeking access to Ithuba’s financial statements which was dismissed in November. The matter was taken for arbitration where it was decided that HCI should have oversight rights as these were agreed to when it gave Ithuba R325m.

But Ithuba refused to comply with the decision and sought a review.

Judge Moroa Tsoka ruled on Monday that an arbitration decision between the listed investment group HCI and Ithuba would need to stand after Ithuba had tried to have it overturned.

Tsoka said in his judgment that the application of Ithuba for the review of the arbitration award was a “stratagem to delay and frustrate the rights of HCI” and this was an abuse of court process and brought in bad faith.

“The stratagem must be seen for what it is. It is contrived. It must fail,” he said.

HCI executive Yunis Shaik said on Tuesday that the group “won in court on all grounds with costs. While Ithuba has the right to appeal, I think it is clear that they have broken the conditions of our loan agreement and acted recklessly by overreaching.”

HCI, which has investments in hotels and casinos such as through Montecasino owner Tsogo Sun Hotels, has been in a legal spat with Ithuba since Ithuba won the licence to manage the lottery from June 2015 to May 2023.

Ithuba MD Charmaine Mabuza has said the R325m has been repaid.

Ithuba was founded by Mabuza. She and her husband, Eric Mabuza, founded Zamani to manage the lottery on behalf of Ithuba. Eric Mabuza is the chair of Zamani.

According to HCI, Ithuba was overpaying Zamani by nearly R1bn.

The agreement was that Ithuba would pay 2.5% of the lottery’s R7bn annual turnover in management fees. But the arbitrators confirmed that Ithuba effectively paid a 4.67% management fee.

“Zamani was overcharging for the services it renders to Ithuba in breach of the financial model which was entered as its bid for the national lottery licence. We believe we can show this easily from their financial statements,” Shaik said.

Shaik said the initial funds to Ithuba were used to establish the lottery and were provided not on the basis of loans but as an equity funder. HCI sought an equity interest and an equity return.

In one of its attempts to access Ithuba’s financial records, HCI took the matter to the competition authorities by applying for an approval for a merger with Ithuba. The hearing, which was set for June, was cancelled given the challenges of running a hearing during the coronavirus pandemic.

Mabuza last week said the R325m has been repaid and that HCI was trying to wrestle the lottery business away from her through this merger.

Ithuba said on Tuesday it had noted the judgment delivered by Judge Tsoka in the review application between Ithuba Holdings and HCI.

“Our legal team is currently studying the judgment and considering all legal options. Ithuba wishes to assure the public that it is business as usual and operations will not be affected,” it said.

Source: Business Day – Alistair Anderson