Wesbank

BOPEU's Babereki drowning in debt

SHARE   |   Thursday, 04 October 2018   |   By Ditiro Motlhabane
Mogwera Mogwera

A quick perusal of the just released 2017 audited financial results of Babereki Investments (Pty) Ltd –a subsidiary of embattled Botswana Public Employees Union (BOPEU) – makes an interesting read, with the company even forced to reduce the fair value of its investments in subsidiaries.

The financial statements prepared by auditors Ernst&Young on a going concern basis and approved by Directors Tlhabologo Galekhutle and Odirile Itumeleng on September 04, 2018 are for the period up to 30 June 2017. Total expenditure for the period under review more than doubled to a whooping P112.4 million in comparison just P42.2 million in 2016. On creditors, the company's biggest creditor was Kgori Capital/BPOPF for a P100 million plus loan charged at 12% which they had to re-negotiate as they were unable to repay when it fell due, charging an extra 2.75% every time Babereki was unable to pay when it was due, a penalty secured directly over the loan book.

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Finance costs are also significantly up due to loans Babereki had to re-negotiate including the most recent one from Botswana Life. Interest income on loans is up 140% which is to be expected as Government employees personal debt has been rising and they cannot get any lending from banks or already have bank loans. As civil servants who are members of BOPEU sink deeper into debt and run out of credit options, their last hope is short terms loans from Babereki Micro Finance. But lately, they have been disappointed by having to wait for months for their loan applications to be approved as cash is hard to come by.

The financial results show that for 2017 bad debts provision was a staggering P58.04 million (0.00 in 2016) in addition to loan impairments/bad debts of P3.69 million (P998 345 in 2016), which brings into question whether the loans to members are worth their weight. Like in other trade unions, BOPEU members have a huge appetite for loans and therefore Babereki is trying to tread carefully on borrowing them what they can afford to pay back, plus financial institutions are careful not to lend the union. Therefore, Babereki has been struggling to find finance as it is.

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Even in difficult times Babereki is saddled with a huge wage bill that stood at P8.46 million for 39 employees, in the period under review compared to P6.54 million for 25 employees in 2016. The biggest highlight of the 2017 accounts is that investments and acquisition transactions by Babereki have been disastrous, which has led to the company having to write-off loans disbursed to some companies they invested in. Impairment of investments in subsidiaries include Babereki ka Lorato P2.295 million and Future Sustain International P2.25 million where Babereki Investments hold 51% shareholding, and a P309 297 impairment at Babereki Insurance Brokers owned 100% by Babereki. As at 30 June 2017 these investments were not performing and were impaired. Auditors have also impaired an investment by Babereki Investments (30% shareholding) valued at P3.654 million in Africa Wild Lodges and Safaris because it was not performing. 

Babereki has also lost a further P6 million disbursed in prepayment to two developers, Quality Builders (P2 million) and GG Developers (P4 million), for the construction of Gaborone North Housing Project that never took off.

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According to the audited financial results, Babereki paid a middleman commission of P11.7 million for facilitating a loan from Botswana Life Insurance Limited and another P1.41 million bringing the total cost to P13.11 million. This transaction is currently the centre of a bruising legal battle between Babereki and Mamataz Enterprises (Pty) Ltd, a company owned by Ernest Molome who is a close ally of deposed executive chairman Andrew Motsamai. Babereki is suing both Molome and Motsamai in attempt to recover the millions paid in commission for the transaction and numerous other transactions. In the preceding year (2016) Babereki had only paid P3.65 million in professional fees.

The 2017 accounts show that Babereki has had to write-off loans to subsidiaries and associates worth P42. 099 million disbursed to Africa Wild Lodges (P18.95 million), Future Sustain International (P11.18 million), and Babereki Ka Lorato (P6. 90 million). Auditors have also impaired P5.07 million advanced to Flying Mission Services (FMS) as a pre-payment to buy shareholding estimated at 40% in February 2017. FMS approached Babereki with a unique investment opportunity to acquire both an Air Operator Certificate (AOC) and an Approved Maintenance Organisation Certificate (AMOC). These licences are for charter and maintenance services respectively. The man who facilitated the transaction for the acquisition of FMS shares, Donald Gaetsaloe, Chief Executive Officer of Lavender Fields (Pty) Ltd remains adamant that it was a great deal. According to him, the acquisition was a strategic investment that was meant to support another tourism business – Africa Wild – where Babereki Investments had invested P3 million to acquire 30% shareholding (and venture debt (preference shares) of P17 million at a coupon that was agreed by both parties). 

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In addition to the 30% held by Babereki, CEDA owns 20% of Africa Wild while the rest of the shares are held by Allistair Macfarlane and his family. Africa Wild operates Kadizora camps in the Okavango Delta, Elephant Valley in Chobe Forest Reserve and Saguni camp in Moremi.

"After the acquisition, Babereki Directors did nothing about the investment in FMS. In fact they continued paying salaries to FMS staff for almost 12 months but failed to proceed to make bold investment decisions that would have seen the company restructured and a new business model adopted. To date everything has stalled," he said.

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Such inactivity, Gaetsaloe said, has led to huge opportunity loss for Africa Wild lodges in the Okavango Delta which have now been forced to use charter aircrafts operated by their competitors. Wilderness Safaris and Chobe Holdings both have subsidiaries operating charters into the Delta. In fact projections of bookings made in the lodges owned by Africa Wild for the next four years shows a full house throughout. "These positive projections cannot be dismissed as bad investment. Had Babereki made bold decisions and followed through the restructuring and new business model I advised them on, they would be making millions from operating charter flights into the Delta through FMS separated from the aircraft maintenance division," said Gaetsaloe.

It has since emerged that Gaetsaloe had proposed that after acquisition of FMS, Babereki should unbundle the company and restructure it into two separate entities, the air charter services arm and the aircraft maintenance wing. FMS already had a fleet of six aircrafts, only two of which were in serviceable condition. Gaetsaloe had advised that old aircrafts under the charter services be boarded and sold off to defray costs, and two new aircrafts be acquired. In fact, Babereki had already hired two pilots for FMS, who together with other employees continued to receive salaries for 12 months for doing nothing. As at December 2017 the total monthly wage bill for the 15 salaried employees of FMS was P263 090 per month.

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For the aircraft maintenance business, Gaetsaloe had proposed that Babereki close down or lease out the hangar at Sir Seretse Khama International Airport (Gaborone) and relocate the business to Maun airport where FMS already owns a plot for a hangar. Babereki, through FMS, would then develop the facility in Maun to offer aircraft maintenance to hundreds of aircrafts operating in the Delta. Over 200 aircrafts are registered at Maun airport and the majority are serviced in Lanseria, Johannesburg. Gaetsaloe cannot hide his frustration that the indecision of Babereki board, which led to the collapse of FMS deal, is blamed on him. Further, Babereki is refusing to sell the shares he helped them acquire in Africa Wild and FMS.

One of Babereki Directors, Masego Mogwera, who was one of the signatories of the Africa Wild contract in 2017 (then known as Stoffberg (Pty) Ltd), said last week that as far as they are concerned the company is in a healthy financial state. Other Directors who signed the Stoffberg acquisition are Andrew Motsamai, Vice President Martin Gabobake and Tlhabologo Galekhutle. Mogwera, who is the current President of BOPEU, dismissed suggestions that they should sell shares, saying their investment is none of Gaetsaloe's business. 

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Commenting on Babereki financials Gaetsaloe said the challenges are self-inflicted due to lack of experience in investment transactions, incompetent management and board of directors. He said it boggles the mind why Babereki board is procrastinating or reluctant to implement advice from their auditors where it was suggested that they unbundle and restructure the company to make it more appealing to investors and financial institutions. Under the proposed restructuring different investments held directly under Babereki Investments would be reconstituted into separate companies under a holding company to be known as Babereki Holdings. The subsidiaries will be Babereki Micro Finance (100%), Babereki Property Services (100%), Babereki Ka Lorato Funeral Services (51%), Babereki Insurance Brokers, Tourism/ Africa Wild (30%) and FMS (40%).

It has since emerged that just before Motsamai was fired, Babereki executive management had reviewed the financial position of the company and identified that there is an urgent and immediate priority to capitalise the loan book of the company by an amount of USD 50 million (around P535 million) in order to ensure that the company continues to operate as a going concern. They proposed that the capitalisation be in the form of medium-term commercial paper issued to a financier at an interest rate of between 8.5% and 10%, negotiable, which investor would also acquire at least 25% of the issued ordinary shares of the company for an amount between BWP60m and BWP90m to be paid to BOPEU.

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In one year, Babereki had outstanding loans to subsidiaries and associates at P76.8 million while borrowings stood at P143.17 million. The company had borrowed externally to capitalise its loan book and had pledged both the loan book and its immoveable property as security. Future funding could no longer be secured unless Babereki provided Grade A security in the form of immoveable property and, to this end, management had determined was impossible. This would mean that in order to secure USD50 million debt funding, the Company would have to raise Grade A security of at least USD75 million or P800 million. This is not achievable with, the net result of the Company now having to remain stagnant, and face a possible hostile takeover by its funders and/or lose members who would be attracted to funding at competitor establishments or institutions, including rival trade unions.

A month before he was fired, Motsamai had in August 2017 submitted to Babereki board a management proposal for the capitalisation of Babereki loan book by the injection of USD50 million debt and the simultaneous sale of a minimum 25% of the issued ordinary shares. Although the board members accepted service on 10 August 2017 from Cally Kenosi and Babereki Chief Executive Officer Edith Motshegare they never signed the document. The board members (Directors) served who recceived the capitalisation proposal were Masego Mogwera (the Vice President), Martin Gabobake, Otto Itumeleng and Tlhabologo Galekhutle.

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The Patriot on Sunday has unearthed correspondence showing that South African financial services behemoth, PIC, was ready and willing to acquire the 25% from Babereki Micro Finance (taking over management control and veto rights at Board level) by injecting P535 million to save the ailing union. The 25% shareholding would provide security for the loan. The state owned PIC is one of the largest investment managers in Africa, managing assets of over R1.928 trillion. But the deal fell through when internal politics got in the way, leading to the expulsion of Motsamai by Babereki board in September 2017. 



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