Tsogo Sun dishes out R200m interest-free loan to executives

Tsogo Sun nonexecutive director and former trade unionist Marcel Golding referred questions to nonexecutive chairman Johnny Copelyn. Mr Copelyn could not be reached for comment.

An unsecured loan of R200 million has been awarded to five executive directors of Tsogo Sun on an "interest-free basis", with no fixed repayment date.

As SABMiller divests from the gaming and hotel group, the Tsogo board’s approval of the R200m facility, which will be used by the directors to buy ordinary shares, raises questions about the company’s regard for its other executives, senior managers and staff.

The company said the move was to align the interests of the five executives with those of the company and shareholders.

Tsogo CEO Marcel von Aulock has been assigned R86m out of the R200m facility, chief financial officer Rob Huddy R27m, human resources director Vusi Dlamini R20m, Tsogo Sun Gaming MD Jacques Booysen R47m, and legal director Graham Tyrrell R20m.

Tsogo Sun had 9,492 permanent employees at the end of March. If R100m of the R200m was shared across 9,492 employees, each worker would get at least about R10,500 worth of shares.

Asked why only five executives were chosen and what they had done to deserve this facility, Tsogo Sun said on Tuesday: "The interest-free nature of the loans will result in fringe benefits tax on the executives, which absorbs most of their salary. This together with facing downside risk on the shares means it is not suitable for all employees, despite the upside potential. The purpose of the facility is to enable executives to acquire Tsogo shares to align the interests of executive management with those of Tsogo Sun and its shareholders."

Asked why this should not be seen as a donation if it was interest-free and did not have a fixed repayment date, the company said: "The loan can only be used to acquire shares and is repayable if the executives leave the company’s employment or if they sell the shares.

"The loan cannot be used for any other purpose, so it is not a cash handout."

Normally, a borrower has to repay a loan by a certain date to avoid interest.

The facility could see the five directors getting access to dividends without paying a cent.

The move by Tsogo to grant this unsecured R200m to the five directors comes as SABMiller announced it was selling its 39.6% stake in Tsogo, which is valued at R11.7bn.

SABMiller’s exit will see 305-million Tsogo ordinary shares placed with selected South African and international institutional investors. The five executive directors will have an option to buy some of the shares that are being placed.

Tsogo will buy back some of its shares from SAB SA for R2.8bn, through existing cash and debt.

The buyback will see Hosken Consolidated Investments’ (HCI’s) interest in Tsogo rising to 47% from 41.3%.

When Tsogo issued information on SABMiller’s exit on the Stock Exchange News Service on July 7, it did not tell shareholders the R200m loan did not have a fixed repayment date and was interest-free. While there are no rules on the repayment date, the circular to shareholders said that where an executive is no longer employed by Tsogo Sun for any reason other than death (retirement, retrenchment or dismissal), they would have to repay the entire portion.

Tsogo added that an executive may choose to repay all or a portion of the facility advanced "at any time".

"There is no security required to be provided by the executives," it said.

However, Tsogo said any executive who receives a portion of the facility to buy shares will not be entitled to any further allocations of share options under its share appreciation scheme until the facility has been repaid. Share allocations given to these executives prior to the facility will not be affected.

The company added that it will waive any claim to the balance of the outstanding amount.

The R200m facility and other proposed resolutions such as creating preference shares and the share buy-back are subject to shareholder approval at a meeting on August 5.

SAB and HCI have given irrevocable undertakings. Together, HCI and SAB SA hold 80% of Tsogo.

Tsogo nonexecutive director and former trade unionist Marcel Golding referred questions to nonexecutive chairman Johnny Copelyn. Mr Copelyn could not be reached for comment.