Thursday, June 4, 2020

CMB liquidator bolts out of multimillion case

BY BONNIE MODIAKGOTLA

The multi-million pula protraction between private equity manager Capital Management Botswana (CMB) and the country’s biggest pension fund, Botswana Public Officers Pension Fund (BPOPF) has ran into another hurdle, as the liquidator  involved in the fiasco has since abruptly resigned, a development that will once more stall the case in which hundreds of millions are in dispute.

Jonny Barry Little, proprietor of Corporate Services Company secretaries, who was appointed liquidator of CMB, has notified his superiors, the High Court of Botswana , that he is resigning from his liquidation duties down to “personal and health issues”, he said in a terse statement released this week.

Little’s operations were thrust on the spotlight in recent times when Botswana law enforcement agencies descended on the accounting firm – scooping volumes of files, in which was regarded as a wide net cast of white collar crime involving those implicated in investigations carried out by the Directorate on Economic Crimes and Corruption (DCCEC) and other state agencies. Some of the suspects allegedly sought services from the mentioned company – though the firm itself has not implicated in wrongdoing so far.

As the CMB case unravelled, it threatened to contaminate senior government officials, as local media outlets have previously reported on a cosy relationship between CMB management and high-ranking government officials. At the last hearing of the case, the liquidator’s report dominated proceedings, while a former cabinet minister made damning allegations that CMB might have donated to the current president.

Little’s abrupt resignation is expected to delay the case further – extending the speculation in what remains a hot topic – not only the local financial markets – but also seeping to households during a year in which the country is heading for the general elections ÔÇô with the scourge of corruption at the forefront of political campaigns.

The liquidator’s resignation sets another chapter in a saga that has pitied BPOPF and CMB over a deal gone. Late last year, the biggest pension fund emerged victorious over CMB following conclusion of the arbitration between the concerned parties. With the arbitration ruling in favour of BPOPF, it was supposed to end a nasty chapter that dragged for over a year.

The fallout between BPOPF and CMB had dominated the news not only for the sheer amount of the monies involved, but also for the subversive behaviour that unravelled when the two former business partners went for a bare knuckled fight that ended up at the High Court of Appeal.

BPOPF and CMB crossed paths in 2014 following the pension fund’s P800 million private equity programme targeted towards unlisted local investment opportunities. CMB won the bid to partner with BPOPF, which resulted in Botswana Opportunities Partnership (BOP), an investment company in which CMB was the general partner while BPOPF was the limited partner and sole investor. From the P800 million private equity purse, only P500 million was released as the first tranche of the programme. Through BOP, CMB as the fund manager drew down P450 million to be used on investments, leaving only P50 million in the books of BPOPF.

The business relationship started showing signs of cracking in 2017 when BPOPF became suspicious of the asset manager after uncovering breaches which contravened the partnership agreement. Chiefly amongst the concerns were that CMB invested in a listed company contrary to its mandate to invest in privately held companies. Startled by these breaches, BPOPF demanded independent valuation of the assets held by BOP which had gobbled the P450 million.

Instead, the defiant CMB demanded a drawdown of P77 million to be used in other investments. However, BPOPF balked at that request, and what followed next was a furious cat and mouse game, which involved hundreds of millions at stake. CMB not only poured water on the independent valuation of the BOP assets, but also threatened to kick out BPOPF as the limited partner in BOP, citing the partnership agreement that allowed the general partner to terminate the limited partner for failure to meet its obligations.

BPOPF called the bluff and took the fight to CMB, terminating the fund manager’s position in BOP as the general partner in December 2017. Bizarrely, CMB had claimed to have dissolved the BOP in October 2017, removing BPOPF as a partner, and assets transferred to a new partnership with undisclosed partners. In a brazen act that baffled many in the financial services industry, CMB said it disposed BPOPF stake for P50 million, despite the pension fund having pumped P450 million in the BOP.

In previous statements since the saga began, BPOPF has maintained that it dismissed CMB as general partner and fund manager of BOP following allegations of misappropriation of funds, overcharging of fees, negligence and fraud in the fund. The pension fund also scored a win during arbitration that came after CMB was placed under statutory management by the High Court of Appeal on the request of Non-Bank Financial Institutions Regulatory Authority (NBFIRA) – which as the regulator had received complaints about CMB. Corned and bruised, CMB went to the arbitration as a weakling with the odds stacked against it.

“CMB and BPOPF earlier this month settled the arbitration on the basis that BPOPF had never breached the partnership agreement relating to BOP, that CMB had been properly removed by BPOPF in December in 2017, and at all times , and remains, the only limited partner in the BOP. The arbitration between CMB and BPOPF has therefore been concluded,” read part of a statement released last year.

In a damning indictment against CMB, the settlement agreement recognised that CMB’s attempt to dispose of BPOPF’s interest in the fund was a sham and is invalid. “The fact of the matter is that BPOPF never breached the agreement. The purported removal of BPOPF was a sham,” the statement said.

While BPOPF seemed to have scored victory over CMB, the private equity manager maintains the case is just a witch-hunt, as CMB can fully account on how the millions were injected in various investments.

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