S.African court invalidates Net 1 UEPS contract

JOHANNESBURG (Reuters) - South Africa's highest court on Friday invalidated a contract between a unit of U.S. firm Net 1 UEPS Technologies and South Africa's welfare agency, raising further concerns about a deal already under investigation by U.S. authorities.

Last November, Net 1 said it was being investigated by the U.S. Department of Justice and the FBI into whether it made "corrupt payments" to South African government officials to win the contract.

Net 1's South African unit, Cash Paymaster Services Ltd, was awarded a 10 billion rand, five-year contract in early 2012 to manage welfare payments for the South African Social Security Agency.

A losing bidder for the same contract, AllPay Consolidated Investment Holdings, then contested that award in court, alleging irregularities in the bidding process.

Net 1 has since filed a 478 million rand lawsuit against AllPay in a Johannesburg court for injuring its reputation.

In the latest twist in the legal tussle between the two, South Africa's Constitutional Court ruled on Friday the decision to award the contract to Net 1's unit was "constitutionally invalid".

The court found the social security agency had "failed to give due regard to the importance of black economic empowerment", a reference to Pretoria's policy of favouring companies with higher levels of black ownership in government contracts.

While the court ruled the contract invalid, it also said removing the company would be too disruptive to the millions of people who rely on welfare to survive.

It will hold another hearing to determine a "just and equitable remedy" on February 11, it said.

Net 1 said in a statement it could not predict the outcome of the February hearing and may issue further comment later.

Shares of the company were down by nearly a third in New York trade. Its Johannesburg-listed shares tumbled nearly 41 percent.

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