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HCI wins Lotto

Cape Town -based empowerment giant Hosken Consolidated Investments (HCI) – which already holds valuable casino and gaming assets – looks set to win considerable influence at national lottery level.

HCI controls casinos like SunCoast in Durban, Montecasino and Gold ReefCity in Johannesburg as well as holding influence at the Grand West casino in Cape Town. The group also owns sprawling limited payout machine operations and electronic bingo outlets.

HCI’s involvement in the national lottery harks back to 2015 when it funded new lottery operator Ithuba to the tune of more than R340 million. Ithuba, readers may remember faced a legal challenge by the then lottery operator Gidani, and was consequently struggling to secure funding from banks.

The story is somewhat convoluted – but essentially HCI objected to Ithuba paying back all of its debt (including interest) in late September 2016. HCI argued the funding contract did not allow for the early repayment of loans with court papers reflecting financial director Kevin Govender’s views that the empowerment group did not look to make short term investments – and that, in general, investments were made for five years or longer. “In the present case it was expected that the investment would run for a number of years, most probably for the entire duration of the new (national lottery) licence.”

HCI’s latest annual report showed that the loan to Ithuba was unsecured and was to be repaid in instalments of R50 million each on 29 April 2021, 29 April 2022 and 29 April 2023.

It bore interest at a rate of 38.99% (calculated as a 25% nominal annual interest rate compounded monthly, accrued daily and grossed up at the income tax rate of 28% applicable to companies).

The dispute has raged for years, but eventually it was decided to take the matter to arbitration.

The arbitration process ruled at the end of July…very much in the favour of HCI.

The arbitrators ruled that HCI loan had not been re-paid and stipulated settlement should now be undertaken via the originally envisaged re-payment terms (with interest). What’s more HCI were given management oversight and will also receive a management fee of 1% the national lottery’s monthly gross revenues.

It seems the arbitration process did not sit well with some parties with HCI reporting a nasty protest outside its offices in Cape Town last month.

In a statement HCI said it appreciated the frustration felt by those vested in the arbitration case. “The fact remains, however, that it is the unanimous view of all three arbitrators (all retired High Court Judges) that HCI was entirely within its rights to exercise its step in rights when it did and to advance various other financial claims against Ithuba and others.”

HCI added that the arbitrators expressly rejected all arguments put forward by Ithuba in defence – which they found were completely without any merit.

“The protest action, follows this decision, and is yet another effort made to resist and frustrate the lawful claims of HCI. The time has come for Ithuba, and the others, to do the right thing: respect the decision of the arbitrators and stop their wrongful and unlawful conduct.”

HCI further pointed out that it had put up the majority of the money needed to set up the business of Ithuba – “at the time not a single bank or funder was prepared to do so and take the risk in the face of an application by Gidani to set aside the licence awarded by the Minister in favour of Ithuba.”

HCI argued that Ithuba would unquestionably have lost that licence if HCI had not rescued it.

HCI urged Ithuba and its consultants to do the right thing. “Comply with the award. The award is final and binding on all the parties and puts an end to all disputes. The time has come to get on with running of the national lottery to benefit good causes.”

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