Prominent African private equity firm, Kingdom Zephyr, with a significant stake in the Botswana Stock Exchange (BSE) listed Letshego Holdings, is in talks with investors on the future of its $490 million fund after the departure of its spark plug man forced the closure of its South African office, sources have revealed.
Kingdom Zephyr’s Pan African Investment Partners Fund in December 2004 acquired 35,5 million shares of Letshego at P1,65 for a total investment of US$ 13,4 million about 23,8 percent of Letshego capital.
As part of its investment, Kingdom Zaphyr took two seats on the board of Letshego and helped device Letshego’s international expansion strategy. At the time, Kingdom Zaphyr invested in Letshego in 2004, Letshego operated only in Botswana. Drawing on their Pan African experience, Kingdom Zaphyr helped Letshego identify new markets and establish new partnerships to replace existing business model.
The Kingdom Zaphyr shake-up, which is expected to affect the BSE listed Botswana company, comes as competitors increasingly push into African private equity, drawn by the dynamic economic growth and lucrative deals that Kingdom Zephyr itself helped to publicise.
Owned by Saudi billionaire, Prince Alwaleed bin Talal, and US firm Zephyr Management, Kingdom Zephyr is negotiating with investors about how to proceed with its portfolio, according to sources close to the issue.
Reuters this week quoted Accra-based Managing Partner, Kofi Bucknor, saying, “the fund is undergoing restructuring,” although he declined to comment further.
The departure of Chief Investment Officer Panos Voutyritsas in September is reported to have raised concern among some investors.
The changes at Kingdom Zephyr – which still has offices in Ghana and Nigeria – come as international investors clamor for deals in Africa.
Irish rock star Bob Geldof has raised $200 million for his “8 mile” Africa fund, while US firm Carlyle Group last year set up shop in Lagos and Johannesburg.
Kingdom Zephyr’s office closure also illustrates some of the difficulties investors face in frontier markets, where local knowledge is critical and experienced investment professionals are not easily replaceable.
Kingdom Zephyr made several investments in high-profile African companies such as Celtel – now part of Bharti Airtel – and Ecobank Transnational.
The fund was also known for hefty returns in its early days: its internal rate of return – the common measure of investment performance in private equity – totalled 94 percent over three years, according to a 2007 press release.
Reuters, which broke the story, was not able to establish if Voutyritsas’ departure may have triggered a so-called key man event, a clause to protect investors if an important member of management leaves. Typically, a fund is prevented from making new investments under the clause.
Voutyritsas told Reuters: “I had fundamental disagreements over business philosophy and management practices with some of the key people at Zephyr Management, and it came to the point where parting ways became inevitable.”
“It did not relate to investment matters. Overall, we enjoyed a wonderful investment track record since Kingdom Zephyr’s formation. It was differences on other management matters, which invariably influenced the strategic direction. Our visions diverged.”
Neither Zephyr Management nor Alwaleed’s investment company Kingdom Holdings responded to calls and e-mails seeking comment.
“They are trying to work out what they’re going to do with their existing portfolio. They do have assets in their current fund and the (limited partners) are debating amongst themselves what is the right way of handling that,” said one of the people familiar with the matter.
The fund’s investors, or limited partners, include Temasek Holdings, the Singapore sovereign wealth fund. Temasek has been pushing to take over the fund, said the other individual with knowledge of the issue.
A spokesman for Temasek declined to comment.
Other limited partners include International Finance Corporation, a unit of the World Bank, which committed $40 million to the fund in 2008.
A spokesman said the IFC was fully committed to private equity to bring development change in Africa, but declined to comment further.
By the time he left, Voutyritsas – a former banker with Salomon Smith Barney in New York – was one of the few remaining members of the original Kingdom Zephyr team.
“I was the last one in a series of departures over the last three years, and serial departures can cause issues to any company,” Voutyritsas said.
Kingdom Zephyr’s Johannesburg office was closed and staff were let go around December, according to a third person familiar with the matter.