A storm is brewing between Botswana Public Employees Union (BOPEU) subsidiary Babereki Investments and their investment consultant Donald Gaetsaloe, following revelations that their past relationship caused disqualification of the latter from a P500 million deal at Botswana Public Officers Pension Fund (BPOPF).
Last month, The Patriot on Sunday, published an expose which revealed that Gaetsaloe's company Confianza Capital – a start-up asset management firm shortlisted for the local listed equities mandate under the incubation programme- was disqualified after a legal due diligence uncovered claims that he had given 'bad' investment advice to Babereki. BOPEU leaders (through Babereki) claim that they have lost about P30 million due to poor investment advice rendered by Gaetsaloe and that he is part of a forensic audit they are conducting. Based on the claim, the BPOPF board meeting in July 2018 disqualified Confianza from the lucrative deal. BPOPF Principal Officer Boitumelo Johnson has refused to discuss the reasons why Confianza was disqualified saying it is a confidential matter.
According to sources Gaetsaloe has since taken BPOPF to task demanding that they provide proof that indeed he gave BOPEU/ Babereki bad investment advice, which the Board of Trustees based their decision on. He declined to discuss developments around Confianza save to say that he has appealed the disqualification and awaits feedback from BPOPF. He, however, expressed disappointment that he had to learn about the disqualification and the reasons thereof through the media. On Friday, Johnson said there are no new developments in the matter because BPOPF has not considered the issue yet.
Gaetsaloe claims that he has made numerous attempts to meet BOPEU President Masego Mogwera for a debriefing about their investments, following the removal of Motsamai in September 2017. "To date she has ignored my suggestion, despite that they (union leaders) continue to make damaging claims in the media against myself and the investments I secured for them. How can they claim that I gave them bad advice when they signed resolutions approving the contracts for those transactions," he said.
BOPEU Secretary General Topias Marenga said he could not respond to issues on Babereki since in 2010 the leadership resolved to separate the union from the investment business. He said only the President, the first Vice president and the Treasurer are Directors of Babereki.
For her part Mogwera rubbished claims that she or Babereki board is refusing to meet Gaetsaloe, saying the last time the had a meeting was in June 2018 at BOPEU offices. In fact, Mogwera says she has met Gaetsaloe about three times in the recent past. "I am not aware that he claims we are avoiding him. He has never indicated any such complaints," said Mogwera explaining that Gaetsaloe suggested to Babereki board members at the June meeting to sell their shareholding in some of their investments but they rejected his proposal.
She said they are surprised that a third party would suggest shares that they have never complained about. "As far as we are concerned Babereki is in good health. We are not complaining about anything," she said, confidently. Her statement is supported by the just released Financial audit results that show Babereki in good financial position.
On the ongoing forensic audit at Babereki, Mogwera said Gaetsaloe has long been advised that anyone who has ever had business dealings or transactions with Babereki will be interviewed by those conducting the forensic audit. "The mode they choose to gather evidence is determined by the investigators. So I dont know if he gave an oral interview or submitted a written statement," said Mogwera.
As the leadership of the embattled trade union take turns in a merry-go-round of lawsuits trying to remove each other from power, it has emerged that their investment arm -Babereki Investments- is haemorrhaging lucrative investment opportunities entered into with some local businesses under the leadership of deposed Executive Chairman Andrew Motsamai. Once hailed as awash with cash, BOPEU has in recent past been reduced to a shadow of themselves, to a point where they struggle to dispense micro loans to members. A series of blunders and poor investment decisions threaten to cripple 'the union of choice'. To demonstrate eagerness to clear his name, Gaetsaloe has voluntarily deposed a detailed report to ENS auditors where he explains the performance of the investments alleged to have failed. "To date I have never heard from them. What is even more surprising and frustrating is that BOPEU are refusing to sell the very shares they claim are bad investment to investors who are willing to acquire them for better returns," he says.
Babereki invested P20 million into Africa Wild split into P3 million equity (for 30% of the business and a P16 million structured loan) comprising Kadizora in the Delta, Elephant Valley in Chobe Forest Reserve and Saguni in Moremi. Saguni is the latest addition to the Camps and should have started operating in May 2018 if all went according to plan. The entire P20m was re-invested in Africa Wild and Babereki borrowed from BancABC to make this investment. "Clearly, this cash outflow, of P20m did not cause the liquidity problem in Babereki’s micro finance division. The problem is bad management and politicians meddling in business affairs," said a source. Insiders at BOPEU accuse the CEO of Babereki Investments of failing to manage the process of disbursement of the loans (a key performance indicator of any CEO) and this in turn resulted in the cash crunch. They cite the example of disbursement of loans from Botswana Life Insurance Limited (BLIL) and Kgori Capital, which were wiped out in a short time.
To demonstrate the inadequacy of the CEO, investment experts also cite the example of Letshego Holdings saying the pan African microlender has grown tremendously because of loan funding. "Where did Babereki Board expect to get funding from," they ask rhetorically, emphasising that since the company is not licenced to take deposits both Equity and Debt Funding must have been considered to take it out of the rut.
It has also emerged that third party investors who are industry experts with intricate knowledge of tourism sector (one of the founders of Wilderness Safaris)– had offered to acquire 50% of one of the camps in the Delta for P16 million at the time that Babereki acquired 30% of the business for P3 million. Current valuations seen by The Patriot on Sunday of the assets clearly show that Babereki can still recover the P 3million they invested and make substantial returns on their initial investment. Documents have shown that even to date Africa Wild continues to receive offers from prospective investors looking to acquire the 30% shares held by Babereki.
Ironically, instead of sealing the deal to put some cash into Babereki coffers, the Board and Bopeu leadership procrastinated, even publicly claiming that the acquisitions by Motsamai was a bad investment through which they lost millions. On the other hand, asset management experts advise that if Babereki do not want this investment they must take necessary board resolutions to sell their shares. "They are destroying value and also injuring the reputations of many innocent businessmen/ investors along the way," said a source, clearly in reference to majority shareholders in the camps in the Delta.
Flying Mission Services
Email exchanges between BOPEU leaders (who are Directors of Babereki) and investment consultants seen by The Patriot on Sunday suggest that Babereki invested in FMS because the company was strategically important to Africa Wild. FMS was earmarked to be used by Africa Wild for charter services to transport clients into the lodges in the Delta, which cannot be accessed by road. The acquisition was designed to secure the CAAB and the maintenance licences, which would have been withdrawn as FMS was threatened with liquidation. For this strategy to be realised, Babereki was expected to refinance FMS to acquire two serviceable aircrafts and dispose the old fleet. The charter services would also be available to other lodges in the Delta. However, after the acquisition of FMS nothing happened while Babereki continued to pay salaries to two pilots and other staff for a period of 12 months until the union leadership terminated the relationship.
The Patriot on Sunday has turned up information showing correspondence regarding the multi-million pula transactions between BOPEU leadership, Babereki Investments Executives and their business advisors/ investment consultants. Babereki Investments faces a liquidity crisis because it has run out of money to disburse to members. The company has limited borrowing capacity to recapitalise the loan book. The loan book must be capitalized through debt and the disbursements to members must be managed so that the loan book revolves and repayments can be used to lend out to existing members requiring loans.
The Patriot on Sunday is in possession documents showing that Babereki were advised by Gaetsaloe to restructure their business to preserve the micro finance licence and also to make the valuation and profitability of each business unit more discernable. Ernst &Young did the restructuring of the business (tax advice) and gave opinion as requested to do while Molatlhegi & Associates did the legal restructuring for Babereki. On the basis of the information memorandum prepared by advisors (Lavender Fields-a companied owned by Gaetsaloe), a Pretoria based financial services provider, wholly owned by South African Government, had stated an intention to invest up to P500 million into Babereki Investments in the form of debt funding and would in turn acquire a 25% stake in Babereki Micro Finance. The 25% shareholding would provide some security for the loan as it would come with control of management and veto rights at Board level. The state owned financial provider is one of the largest investment managers in Africa today, managing assets of over R1.928 trillion and investing funds on behalf of public sector entities based on investment mandates set by each of their clients and approved by the Financial Services Board (FSB).
According to the advice rendered to the union leadership a Due Diligence would be done once the Board approved the sale of shares and passed resolutions to this effect. For reasons that have remained unknown to investors this never happened, and the deal fell through. Sources say the leadership of Mogwera reneged on giving the financial services provider the proposed 25% shareholding in exchange for the P500 million investment insisting that they do not want to hand over the business to outsiders. She claimed not to have the mandate to do so from the general membership.
Allegations are flying thick and fast in the asset management industry with suggestions that the disqualification of Confianza is collateral damage of the on-going battles between current BOPEU leadership and Motsamai. It is alleged that BOPEU leaders sitting in BPOPF board lobbied fellow trustees hard to ensure that Gaetsaloe's company does not get the incubation contract because they associate him with the Motsamai era. Ironically, Marenga and Mogwera (then BOPEU vice President) were part Motsamai's leadership. In fact, Mogwera was one of the Directors at Babereki and signed the approval for the transactions authorising the acquisition of Africa Wild and Flying Mission Services.
The BPOPF Board disqualified Confianza despite that legal experts only advised the Fund to pay attention to the risk and to either appoint the asset manager on a conditional basis or delay the awarding pending the completion of the forensic audit at Babereki Investments. But even such advice has shocked Gaetsaloe because notwithstanding the allegations peddled by BOPEU leaders, the Babereki deals have nothing to do with Confianza. Further, he was never confronted by BPOPF to respond to such damaging allegations, which raise questions about his professional integrity, before a final decision was made on his expression of interest (EOI) for the incubation programme. Registered on 15 September 2016, Confianza has never conducted any business transaction. It is owned by Gaetsaloe (55%) who is its Chief Executive Officer and Carol Jean Howard (45%) as the Chief Investment Officer.
The BPOPF board awarded Aleyo Capital and Africa Lighthouse Capital private equity mandates, each worth P500 million. The mandate has a 10 year exit period. Johnson has in the past refused to say if the legal due diligence conducted on Gaetsaloe, which focussed on historical background was done on the other directors of the two start-up asset managers awarded private equity mandates. The Patriot on Sunday had put it to her that failure by BPOPF to carry out similar investigations on the history of the other companies' directors could create an impression of a witch hunt to nail Gaetsaloe. She could only say that it was a rigorous vetting process.
Incorporated in August 2017, the company has two appointed Directors who are also shareholders being Bafana Kgotla Molomo (50.1%) as Managing Director and Gape Mogegeh (49.9%) as Executive Director. At the time of the award Aleyo had no Board of directors. A compliance officer, the audit and investment committee were not yet appointed. The company was not registered for VAT or income tax. Just like the other bidders for the incubation programme legal advisors recommended a conditional appointment pending compliance with outstanding regulatory issues which could be finalised during contract negotiations. Molomo was previously employed by Botswana Development Corporation (BDC) as Chief Investment Officer.
Africa Lighthouse Capital
BLP capital (Pty) Ltd t/a Africa Lighthouse Capital (ALC) was incorporated in Botswana in March 2012 but has never traded and therefore does not have previous customers. The sole shareholder is Bame Louis Lala Pule who is also the sole Director. Pule is also earmarked to be appointed as Chief Executive Officer while Louis Mynhardt will take up employment as Chief Investment Officer immediately when the BPOPF mandate is signed. With such impressive record of the Directors, confirmed by approval from NBFIRA, ALC passed the legal due diligence with flying colours. In their recommendation legal advisors could not foresee the appointment of ALC to provide asset management services to BPOPF exposing the Fund to any legal issues.