Wesbank

BPOPF terminates CMB, assess Kgori Capital 

SHARE   |   Monday, 18 December 2017   |   By Ditiro Motlhabane 
BPOPF terminates CMB, assess Kgori Capital 

When the board of trustees of Botswana Public Officers Pension Fund (BPOPF) convenes on Tuesday there will be two agenda items about asset managers on the table to deliberate on: 1. Termination of Capital Management Botswana (CMB) partnership and their refusal to return funds 2: Money laundering charges against a Director of Kgori Capital, and his involvement in illegal procurement of military equipment. "We do not want to go for Christmas leaving people's assets clouded in secrecy. We are meeting next week to look into some of our investments in relation to recent developments involving some asset managers," said BPOPF Board Chairman Carter Morupisi on Friday, a day after he arrived from London. The agenda of the emergency meeting, a culmination of marathon subcommittee meetings held during the week, is expected to be tense due to growing divisions within board members on the way forward. Although some trustees are unhappy with the termination of CMB last month, and are looking to implicate the Chief Executive Officer (CEO) of the fund, Boitumelo Molefe, others are fighting on her corner endorsing recommendations from investment experts. Such endorsement will pave the way for management – led by Molefe – to kick-start a process that will end the relationship with the asset managers that have violated the rules governing their contracts. Molefe has remained firm and resisted attempts to implicate her in scandals involving asset managers and intimidate her, when on some occasions she was summoned to the Office of the President (OP) for questioning. Morupisi explains that the board will receive feedback from the findings of the subcommittees and decide if there is need to take action against any of their partners regarding investments, going forward. Following an expose last month by The Patriot on Sunday, detailing numerous breaches by CMB, BPOPF has been advised to terminate the contract with the asset manager. To this end, legal hawks from Werksmans Attorneys of South Africa and Minchin &Kelly have already been appointed to represent BPOPF in any possible litigation. BPOPF board met in November to confirm the termination of CMB for the numerous violations of the partnership agreement in Botswana Opportunities Partnership (BOP) – a private equity fund set up by the two parties. Although they have been notified about the termination, CMB has failed to return BPOPF assets as instructed. The breaches and subsequent termination recommendation were made by Werksmans Attorneys, a Cape Town- based specialist law firm on private equity.

Kgori Capital scandal 

The Tuesday meeting will also discuss the P3.2 billion asset management contract with Kgori Capital in view of the arrest and detention of its Managing Director Bakang Seretse in relation to money laundering charges laid against him by the Directorate on Corruption and Economic Crime (DCEC). In a letter dated December 11, 2017 seen by The Patriot on Sunday, Seretse makes startling allegations about being informed by a prominent Gaborone businessman – the son of a shareholder in the defunct Flemming Asset Management, which has since been acquired by Capital Management Africa (CMA) – that Morupisi enjoys direct benefits from a subsidiary of CMA, Capital Management Botswana (CMB). Seretse had also alleged in another letter that Morupisi, in his capacity as Permanent Secretary to the President (PSP), has always been aware of Kgori/Seretse's involvement in the controversial Directorate of Intelligence and Security Services (DIS) transaction at the centre of the money laundering charges. Morupisi becomes the latest high ranking Government official named by Seretse in the alleged conflict of interest saga with asset managers at BPOPF, as the on-going money laundering controversy unfolds. Morupisi dismisses such allegations as hogwash, baseless and an attempt to tarnish his name when the culprit finds himself in trouble over his dealings. Confirming being aware of the letters written by Seretse, he said the fact that the two although similar in content contain different paragraphs. He said he does not even know or has ever met the businessman alleged to have blown the whistle on his dealings with CMB. "Ironically the letters are supposed to have been copied to me but I have never received any. This is mischievous. That can never be right. He is lying. He should deal with his problems instead of clutching at straws and trying to drag everybody into his busines transactions," Morupisi fumed, adding that he has engaged CMB asking them why they are watching from the sidelines when Seretse is making incriminating allegations against him and them. Morupisi does not have a problem with anyone interested in investigating his bank accounts to very if he has ever received any suspicious funds from CMB or anybody as alleged. He said he is ready to avail his accounts for scrutiny from the likes of DCEC or FIA should anybody report suspicious transactions, because he has nothing to hide. Seretse has since resigned as the Managing Director of Kgori, and the board led by Tebogo Naledi accepted his resignation on Monday. His partners, Alphonse Ndzinge and Sharifa Noor, whom Seretse claims were not aware of the secretive DIS transaction as it touches on national security, have since assumed joint executive responsibility at Kgori in an adjustment to allow Seretse to clear charges of money laundering against him. Although he claims in the letters that Kgori was at no stage a party to the secretive arrangement in the DIS deal, correspondence between Seretse, Kgosi and the former Director of Energy Affairs Kenneth Kerekang point to the contrary. Kgori Investments has been providing fund management services to the National Petroleum Fund (NPF), and transferred the P250 million at the centre of the court case to Khulaco –  the DIS proxy company owned by Seretse and his co-accused Botho Leburu – which transferred funds to accounts in Israel. 

Carter Morupisi, Wilderness Holdings, Kabelo Ebineng

At the Tuesday meeting, Morupisi is likely to find a hostile audience, angered by allegations that he may have been aware of Kgori's conduct behind the scenes. Armed with recent allegations of Morupisi's knowledge of the money laundering scandal involving one of their asset managers, there is a feeling that the chairman failed in his fiduciary function to alert the pension fund about the looming risk. A bare knuckled fight is expected in the board meeting where Morupisi, not for the first time, will battle to protect his position. In 2014, he refused to vacate the hot seat after forensic experts from South Africa (Nexus) – appointed by Non-Bank Financial Institutions Regulatory Authority (NBFIRA) – recommended his removal after concluding that his employment as a civil servant in Government creates conflict of interest and contravenes the Rules of the BPOPF Board. Related to the holding of two positions (PSP and Chairman of BPOPF), there is raging acrimony surrounding an appointment by Morupisi of the Permanent Secretary in the Ministry of Transport and Communications, Kabelo Ebineng, on April 01 2017. The appointment was announced alongside promotions and transfers of some senior government officials. Shortly after Ebineng's appointment, the scandal over an attempted transfer of Air Botswana to Wilderness Holdings broke when he appeared before the Public Accounts Committee (PAC) in June 2017. A leaked cabinet memo exposed a Presidential Directive CAB 12(A)/2017 of 3 May 2017 instructing Air Botswana to disregard other bidders and partner with Wilderness Holdings, the parent company of Wilderness Safaris. According to Wilderness financial documents President Ian Khama has beneficial interest in Linyati Investments, a subsidiary of Wilderness Safaris. Last month Werksmans Attorneys advised BPOPF that Capital Management Botswana (CMB) has breached a partnership agreement in Botswana Opportunity Partnership (BOP) by acquiring shares in Wilderness Holdings at the Botswana Stock Exchange (BSE). Further, Werksmans found that the amount invested in Wilderness Holdings constituted 30% of the total commitment at the time of investment. This is in breach of BOP's investment policy which limits any investment in a single portfolio company to 25% of the total commitment. 

The Patriot on Sunday can confirm that earlier this year Ebineng's attempt to join BPOPF as an independent trustee was quashed when he was rejected during the vetting process. Apparently when conducting the fit and proper test, NBFIRA discovered that Ebineng has in the past been involved in the management of corporates that ended up in liquidation. Appointed to the board of Okavango Diamond Company in 2014, where he served as Chairman of the Audit Committee, Ebineng has been a Business Consultant with over 30 years' worth of private sector and entrepreneurial experience, 20 of which was at a Chief Executive Officer (CEO) level. In January 2011, then a CEO of Bokamoso – a private hospital in the outskirts of Gaborone then owned by Botswana Public Officers Medical Aid Scheme (BPOMAS) and Pula Medical Aid Fund (PULA)  – Ebineng left when the company was placed under sequestration by the High Court. Before he became the CEO of Bokamoso, Ebineng had been the Managing Director of Associated Fund Administrators (AFA) – administrators of BPOMAS and PULA. Ebineng has previously acted as CEO of Capital Management Africa (CMA), an asset management company formed out of Bifm Capital in 2012 when BIHL parted ways with investors Timothy Marsland and Rhys Carr. He was at the helm just before CMA Botswana (later changed to CMB) won the first P500 million contract at BPOPF in 2014, the first tranche of the P800 million private equity funds targeting investments in Botswana specifically. They had been shortlisted alongside African Alliance and Venture Partners Botswana (VPB). After being rejected at BPOPF earlier this year, Ebineng is alleged to have turned the tables on the regulator, threatening to sue challenging the outcome of the vetting process, which had already declared him fit and proper when he was appointed to the board of directors of other entities. Ebineng was appointed Permanent Secretary in the Ministry of Transport and Communications, a position he currently holds, by PSP Morupisi – the Chairman of BPOPF Board of Trustees. Ebineng is a shareholder in Smart Partnership Enterprises (Pty) Ltd, an investment company owned by a group of local investors, currently carrying out developments on Lot 5439 at the lucrative Central Business District (CBD), Gaborone. In addition he serves on several company boards, including Fedics Botswana (Pty) Ltd. He is a Chartered Management Accountant (FCMA), and holds a Master’s Degree in Business Administration from the University of Cape Town, Graduate School of Business. Currently he serves as the Chairperson of the Botswana Country Coordinating Mechanism/Global Fund for HIV/TB and Malaria. (See Global Fund story on Page 3)

CMB terminated 

Although BPOPF terminated CMB last month and gave them up to last Friday to return their funds/ assets the latter remains recalcitrant and disinterested. Not so fast, says CMB! Correspondence between the parties shows that although as far back as August, BPOPF had notified them about the breaches and requested an independent valuation of the BOP assets in line with the partnership agreement, CMB ignored it and instead issued a drawdown notice of P77 million to acquire shareholding in Lobatse Clay Works and Yarona Media Holdings. BPOPF, with instructions from the Finance and Investment Committee of the board, refused to honour the drawdown request to manage risks and because the notice did not comply with the BOP contract. Angered by BPOPF's refusal to play ball, on October 19 CMB wrote two letters to the pension fund declining an earlier promise for an independent valuation claiming that the request should have been sent to the Advisory Board. In the second letter CMB threatened to terminate the partnership agreement citing breach on the part of BPOPF for refusing to give them the P77 million. Boasting that they have another partner lined up to replace BPOPF, CMB promised to return the net cash they had in their possession to the pension fund. But that was never to be. Under the risk of being kicked out from their investments, BPOPF warned that they will not hesitate to sue CMB should the latter interfere with their partnership interests or try to replace them. The pension fund dismissed the P77 million demand as flawed. Although they had promised to respond by November 03, CMB has grown cold feet. BPOPF opted for the termination of the partnership and removal of CMB considering that many of the breaches are not capable of being remedied, and therefore it is not necessary to give the company an opportunity to attempt to. An alternative remedy was to dissolve the partnership, which would result in the distribution of the BOP assets according to the partnership agreement. This was considered risky because the agreement gives CMB the right to sell the assets and they may not act in the best interest of BPOPF or ethically. Moreover, such dissolution would result in assets being sold prematurely thus adversely affecting their value. Yet another option was to claim for damages for breach of contract where CMB will be required to compensate BPOPF for financial loss suffered as a result of the breaches. But damages would be difficult to calculate and prove. Further, in the case where the general partner is a limited liability company their liability is limited to how much can be recovered from the company and not the individual directors.

OTHER VIOLATIONS

Conflict of interest 

Amongst a plethora of breaches, Werksmans found conflict of interest that a certain Professor Rasoava Rijamampianina – being the Chairman of the BOP's Investment Committee – owns equity in AGILE investment where CMB (through CMA) has invested BPOPF funds. Rijamampianina's interest was not properly dealt with in that it was not disclosed in writing to the Advisory Board. The conflict is compounded by the fact that Rijamampianina appears to have participated in the discussions regarding AGILE and indications that the company did not have a business plan even after BOP had invested in it. Prof. Rasoava Rijamampianina is the Co-founder and Dean of the African Graduate Institute of Leadership and Enterprise - AGILE (Pty Ltd). His research and teaching interests include multicultural/diversity management, talent management, leadership and change. He has orchestrated and taught on various local and international programmes at leading institutions in South Africa, Japan, USA, France, UK, Madagascar and Mauritius. Previously, he held various leadership and directorship positions, including the Academic Directorship, the Directorship of the Senior Executive Programme for Southern Africa – a joint initiative of the Wits Business School and Harvard Business School (USA), and the Management Advancement Programmes at the Wits Business School (South Africa). Rija, as he is affectionately known, was also a Senior Research Associate in the Faculty of Economics and Business Administration at Hokkaido University (Japan) and an auditor-consultant at Delta Audit Deloitte & Touche (Madagascar) for many years. 

Lavish spending 

The partnership agreement requires that BOP expenses must be incurred by CMB before they are reimbursed. CMB drewdown P12.5 million representing 2.5% of the total commitment but there is no evidence of such expenses having been incurred. It therefore remains unclear whether they were properly incurred and therefore due for reimbursement. Further, expenses and organisational fees were capped at P2.5 million over the life of the BOP and any amounts in excess should be borne by CMB. Therefore, the amount already drawn down by CMB very early on the lifespan of BOP far exceeds the capped fees by P10 million. Whereas CMB was entitled to 1.5% as a fee, the amount already withdrawn represents 2% of the total commitment. 

Rhys Carr

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Werksmans Attorneys also found that one of the founders of CMB, Rhys Carr's departure was not approved and drawdown notices continued to be issued and investments made without the approval of the Advisory Board during a time when the Investment Period should have been suspended. The period is known as a Key man Event. "The failures to deal with the Key Person Event properly are material breaches of the partnership agreement," the observed.  Carr has come out with guns blasing accusing his erstwhile partners for employing unorthodox business tactics and unethical transactions. Carr says he resigned from the company in December 2015, and walked away with nothing, not a single Thebe.    

CMA is Flemming 

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Earlier this year the Competition Authority approved the acquisition of 100% issued shares in Fleming Asset Management Botswana from Robert Fleming Botswana Holdings and Starfish (Pty) Ltd by Capital Management Africa (CMA). CMA, the acquiring enterprise, is an investment holding company specialising in private equity management. CMA is wholly owned by Timothy Gordon Marsland, a South African national, as the sole director. In turn, CMA wholly owns Capital Management Botswana. In turn, CMB controls Capital Management Botswana Fund One (CMBF). CMBF wholly owns BONA Life. Fleming, equally controlled by RFH and Starfish, is an asset management firm, specialising in asset management investment solutions as well as property development acquisition and management. The Directors of Fleming are Charles Tibone, Steward McIntosh and Lawrence Lekalake. RFH is an investment company wholly controlled by 21st Century Holdings. Other than RFH, 21st Century also controls Lesedi Motors, Smart Partnership and Capricon Holdings. The Directors of RFH are Charles Tibone; Lawrence Lekalake; Samuel Mpuchane and Maclean Letshwiti. Starfish, on the other hand, is an investment company controlled by Peter Van-Riet Lowe, Alexander Lees Kelly, Steward McIntosh and Caroline McIntosh. 

NBFIRA rules 

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Asset managers, who have been exploiting the laxity in the regulatory mechanism, are headed for trouble when the new Fit and Proper Person Rules for Controllers come into effect on January 01, 2018. The purpose for the Rules, seen by The Patriot on Sunday, is to prescribe fit and proper person requirements for controllers, including designated Anti Money Laundering/Countering Financing of Terrorism (AML/CFT) Compliance Officers. Non-bank financial institutions are obliged to notify NBFIRA forthwith of any events or circumstances that have occurred subsequent to their initial assessment of fit and proper person that might change the assessment or at least have a material bearing on it. The Regulatory Authority may, at any time after it has approved and declared a person as a controller in terms of these Rules, investigate whether such a controller is still fit and proper in terms of these Rules. Where the Regulatory Authority considers on the basis of information it has, that a controller may no longer be fit and proper, it may: privately reprimand the concerned controller; and/or give the concerned controller a period of two years within which to undergo prescribed training to remedy the deficiency and where the controller still fails to fulfil the requirements under these Rules, the Regulatory Authority shall either revoke or suspend for a period not exceeding 6 months, the approval and declaration granted as a controller; or where it deems necessary for the stability, orderliness, and safety of the non-bank financial institutions and sector , and/or for the deterrence of financial crime, either revoke or suspend for a period not exceeding 6 months, the approval and declaration granted as a controller.