Firstrand experiences the political difficulties of investment in Africa
FIRSTRAND is proving that acquisitions in Africa can give one a serious headache. The bank was thoroughly wrong-footed by political currents in Zambia where it thought it had acquired Finance Bank, only to have the deal jettisoned by Michael Sata’s new government in 2011. FirstRand is now being accused of all sorts of sins there by the new political elite, who are baying for the blood of anyone who did business with the former Banda government, FirstRand included. The bank still has a small five-branch retail operation in the country.
Ghana is also contributing to the demand for headache pills in Sandton. FirstRand has almost bought out Merchant Bank, a once-successful corporate bank that got itself into a serious mess of bad debt involving large, politically-connected entities. But things seem to be taking a while to conclude. New President John Mahama made some noises in his election campaign late last year about not being a fan of the deal. There are now mutterings in the Ghanaian media about the central bank there stalling approval.
FirstRand’s purchase is conditional on the worst of the bad debts being excluded from the deal. The government-owned social security fund controls the bank. Opposition politicians are complaining the crown jewels are being handed over and the muck left behind. It is not a big bank even by Ghanaian standards, and FirstRand is sure to manage it better than it has been. But the politics remains dirty.
In contrast, after years of trying and failing to buy a bank in Nigeria, earlier this year FirstRand opened a 22-person office in Lagos. It took a similar approach in Kenya two years ago. Starting from nothing is a good way to stay clear of political trouble. Existing assets, particularly those that have got into trouble with bad loans, tend to be loaded with vested interests.
A shift in political current can suddenly turn a potential deal into a migraine.
THE Supreme Court of Appeal (SCA) two weeks ago delivered a resounding victory for Net1 UEPS, the company awarded the tender to distribute all 15-million social grants made every month around the country.
The judgment gave a scathing rebuke of Absa subsidiary AllPay’s claims that the tender process had been problematic.
Both companies had been appealing a high court finding that the process was indeed problematic, but that nothing could now be done to redress the situation. In contrast to the high court, the SCA was emphatic that the process of awarding the tender had followed proper procedures. AllPay received a tongue-lashing for suggesting, but never providing hard evidence, that the process had been riddled with corruption.
The judgment was highly price sensitive for the Net1 share price, which had been heavily discounted because of the controversy. Some hours after I first heard of the judgment, the rest of the market noticed and the share price rocketed 20%. Had me wondering just who controls the dissemination of price-sensitive judgments. Insider trading laws are pretty clear that any such information has to be published widely as soon as possible, rather than circulated to a narrow audience.
Net1 is not out of the woods yet. The corruption allegations, including alleged bribes to swing the tender in its favour, were reported in newspapers. Net1 a few months ago filed a defamation suit against AllPay, implausibly claiming it was behind these reports. More importantly, the FBI is investigating Net1 in terms of the US Foreign Corrupt Practices Act. The Americans have jurisdiction because Net1 has a primary listing on the Nasdaq.
In the SCA case, AllPay produced transcripts of a recording of a meeting between an employee of the South African Social Security Agency (Sassa), which adjudicated the tender, and one Roedolf Kay, where the Sassa employee described the process as “blatantly dirty” and told how key people took cash. The SCA ruled these revelations inadmissible, mainly on procedural grounds. But the FBI may have different ideas. The Securities and Exchange Commission is looking into Net1’s disclosures around the mess.
AllPay is considering appealing to the Constitutional Court. The tongue-lashing from the SCA will no doubt convince AllPay’s lawyers that they need to come out with clear evidence of corruption. Perhaps they will get a helping hand from the FBI.