Saturday, September 19, 2020

De Beers takes Botswana for a ride

When it comes to diamonds, Louis Nchindo, Nicky Oppenheimer and other De Beers executives in the Debswana board of directors knew more about them and got more out of them than their counterparts from the government of Botswana.

Their pay cheques were fatter and their lifestyles grander. Most Batswana who have been watching the partnership between De Beers and the Government of Botswana harboured a queasy feeling that something was wrong with the partnership that was hailed as a match made in heaven.

They however could not quite put a finger on it. Confidential documents passed to The Sunday Standard this week confirm Batswana’s worst fears about the partnership. The report reveals how De Beers manipulated the Botswana diamond industry to pander to the De Beers fat cats and rob the Botswana government of millions of Pula.

A report of the Slaughter & May investigations, commissioned by the government of Botswana details how Nchindo and seven other De Beers nominees on the Debswana board, among them Nicky Oppenheimer and Gary Ralfe, lined their pockets at the expense of the Botswana government by pushing up production at Debswana mines even when the price of diamonds was going down.

The report quotes former Permanent Secretary in the Ministry of Minerals, Dr Akolang Tombale, explaining that the “De Beers bonus scheme (share options) was a major concern because it was based on production levels.” The De Beers nominees in Debswana were pushing Debswana to drive up production while the carat/dollar ratio was falling, “a move against the interest of the government of Botswana”, stated Dr Tombale.

At the time of compiling the report, “a sum of US $ 72 million was due to be split between the eight De Beers executives, including Nchindo. Dr Tombale was extremely concerned because he believed this meant they were not acting in the interest of both shareholders.”

The De Beers executives share options scheme is believed to have influenced De Beers nominees in the Debswana board to stack the delisting process of De Beers in their favor and at the expense of the Botswana government.

The Oppenheimer family was withdrawing its vast De Beers diamond empire from public gaze in a move designed to grow its fortune on an even greater scale.
In a complex transaction conducted from both sides of the equator, De Beers was being taken private and then absorbed into its sister organization, London-listed mining giant Anglo American.

It was designed to remove the protective cross-holdings between the two groups, which were a throwback to the early gold rush days, but which held back both share prices as institutions pressed for more transparency.

Ending such incestuous relationships – was bound to cause recriminations.
Some investors questioned the role of the independent De Beers directors who backed the deal. Four are former executives.
The then De Beers managing director, Gary Ralfe, called the accusations ‘grossly unfair’ and claimed the board put up a ‘feisty’ case for the best price.

When industry watchers got hissy about the deal, Botswana government representatives in the Debswana board were blank because they had been kept in the dark about the deal.

The Slaughter & May report states that, “it has been suggested to us that the Botswana Government’s authority for this transaction was given at a meeting between” former president Festus Mogae, Louis Nchindo and Nicky Oppenheimer in late 2000. “We understand that as neither HE’s permanent Secretary nor representatives from the Ministry of Minerals Energy and Water Affairs were present at the meeting that no notes were made.”

Oppenheimer is quoted in the report saying, “he was very clear that Mr Nchindo represented the government of Botswana.” Asked if that was the view of President Mogae, he replied: “You must ask the president.”

The situation was not helped by the fact that Botswana government representatives in the Debswana board were disadvantaged nearly all are professionals from differing disciplines outside the diamond industry.

The De Beers Group nominees on the other hand are from within the industry. “The imbalance has been the cause of considerable friction at Debswana, to the extent that governments appointed non executive directors have been excluded from major decision making processes. Matters that should have been the preserve of the Board were usurped by the Managing Director, Mr Nchindo, in some cases, with the tacit approval of the De Beers Group appointed nominees,” states the Slaughter & May report.

Oppenheimer was quoted saying the structure of Debswana and the way it was operated created a vacuum and that Nchindo moved in to fill the vacuum.
It emerged in the report that Nchindo, Oppenheimer and other De Beers representatives in the Debswana board had conflicts of interest because they had a personal financial interest in the deal. Under the terms of the share offer, Nchindo could exercise his share options in De Beers. “Hence the more attractive the deal was for De Beers, the more he would gain,” states the report.

The report states that although the board must have been aware of the potential for conflict of interest “we note that no disclosure was made to the board in respect of the De Be beers share options held by Debswana Managing Director (Louis Nchindo). These options (valued at circa US $ 6 million) were to be paid out as part of the transaction.

The report states: “We are aware of some concerns that if there had been more transparency and consideration of the proposal that Debswana may have obtained a better deal.”
Initially Debswana had a 5% interest in a listed De Beers and ended up with a 15% stake in a delisted De Beers which according to the report is “a minority interest in a much smaller private company, with two dominant shareholders ( the Oppenheimer family interest and Anglo American plc) and which had very significant borrowings.
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De Beers was convinced that Nchindo was Botswana’s king maker, while the Botswana government was convinced that Nchindo was the man who made things happen at De Beers.

In a confidential De Beers report, a company insider reveals how Nchindo masterminded the retirement of former President Ketumile Masire, his succession by former president Festus Mogae and the retirement of current president Lt Gen Ian Khama from the Botswana Defence Force to take up the Vice Presidency of Botswana.

The confidential document was put together on December 28, 2007, when the Directorate of Public Prosecutions (DPP) laid charges against Nchindo.

De Beers was worried that Nchindo and his lawyers would spill the beans. They put together a public relations strategy to throw Nchindo to the wolves to protect the De Beers integrity.
De Beers was worried that Nchindo “was a member of the BDP Executive Committee and is generally credited with being the kingmaker.”

The author of the confidential report remembers how in 1996, Nchindo asked him to proof read a document detailing a strategy to stabilize the BDP by healing the party factions. The strategy recommended to the party to facilitate the departure of former President Sir Ketumile Masire by giving him an attractive retirement package. The strategy further acknowledged that in his stead former President Festus Mogae would be installed as is provided in the Constitution and that for succession planning the then head of the army and current president Lt Gen Ian Khama be recruited to cabinet as Vice President.

De Beers which had been helping President Ketumile Masire provided the money to buy him out of the presidency. At the time, Masire’s debts to Standard Chartered Bank, National Development Bank, BAMB and other sundry liabilities had ballooned to millions. It is understood that he would not leave the State House knowing that his creditors would be waiting for him.

De Beers then put together a bail out plan that would ensure that the president retired in peace. By July 1998, four months after he had retired in office, De Beers and Masire were putting finishing touches to the paper work that would have close to P 4 million transferred from a De Beers company in Panama to GM Five.
By 31 July 1998 at a GM Five meeting attended by Sir Ketumile and his wife Gladys Masire, it was resolved that the De Beers off shore company, Clairemont Corporation, would acquire 3 700 000, 7,5 redeemable cumulative preference shares of P1.00.

According to the minutes of the meeting, “It was resolved that the proceeds from this issue would be used to discharge the company’s indebtedness to Standard Chartered Bank, National Development Bank, BAMB and other sundry liabilities and may not be used for any other purpose except as provided above.”
By August 12, 1998, GM Five company secretaries, Price Waterhouse Coopers notified Bank of Botswana of the P 3, 7 million which would accrue to GM Five as a result of sale of its shares to Clairemont Corporation of P.O Box 272, 9490 Vaduz, Liechtenstein.

By August 24, the Bank of Botswana Principal Bank Examiner, H. L Gibbs, wrote to Price Waterhouse Coopers granting permission for the allotment of GM Five 3 700 000 redeemable cumulative preference shares to the De Beers offshore company.
In a deal that smacks of money laundering, all legal requirements for the sale of shares between GM Five and Clairemont Corporation were met, the underlying transaction, however, was not a sale of shares but a transfer of bail out money from De Beers to GM Five.

Following charges laid against Nchindo, De Beers was worried that he would spill the beans about the bail out and succession plan. In the confidential document, De Beers states that Nchindo “was acting in his own right as a citizen freely and openly affiliating with a political party of his choice. However, in view of his attorney’s tactics to muddy the waters, he may attempt to link the De Beers funding with the BDP leadership transition and suggest that his actions were purposely meant to serve the company interests to give advantage to current Botswana leadership over contenders.

De Beers was worried that, “not only will this influence the local media reports but it could make allegations of conflict of interest and the board failure to manage this more credible (read second lead) The result is a potential reputation damage to the shareholders of Debswana, the party and the integrity of the relationship between the company and the government of Botswana. That said there is little risk to the relationship between De Beers and the Government of Botswana being damaged.

“If the attorneys carry out the tactics it is also likely that they may lean largely on De Beers because that is where he has the least to loose. One of the unintended consequences of his attorneys implementing the proposed line of defence could be to expose the Government of Botswana and in so doing risk alienating the future leader (Ian Khama) and the party colleagues whose confidence he still enjoys. It is for this reason that members of the party caucus have been lobbying the leadership to refrain from carrying out full investigations and so avoid they too being implicated.”

De Beers felt that this was an opportunity to “show common front through a joint response by the partners (De Beers, Botswana Government) to be lead by the Permanent Secretary in the Ministry of Minerals Water and Energy Resources and the Managing Director of De Beers in their capacity as Chairman and deputy Chairman of Debswana presents itself.

“It may also be useful for the powers that be on either side of the partnership to have a one-on-one and share a perspective on the matters only the two have been privy to.”

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