Bluer skies ahead for troubled turnaround
THE story of the Pan-African micro lender Blue Financial is equal parts tragedy and remarkable success. I have been CEO of Blue for three years, since Mayibuye stepped in as a white knight to rescue the group — and it has been a steep learning curve.
Right now, Blue is still suspended from trading on the JSE. However, the signs are positive that the suspension can be lifted in the near future and that it can be re-launched to become an African success story.
It takes a big effort to turn around a troubled multinational such as Blue and we have learnt many lessons — none more acute than that you need to have the right turnaround team.
To appreciate this, here is a short history of Blue’s rollercoaster past — a tale in four parts.
The first part of the tale, obviously, is how Blue grew too fast after listing in 2008 on the JSE Alt-X and started operations in 12 countries in Africa.
The loan book soared from R45-million to R1.4-billion in a few years, and the share price followed suit.
Yet, like Icarus, Blue flamed out in an epic collapse soon after.
When Mayibuye stepped in in 2010, it was pretty clear that Blue was severely distressed, with a reported loss of more than R1-billion. Worse, most of its controls had broken down — a big problem for a lender.
The second part of the tale is what happened when Mayibuye put together the rescue package.
It included a recapitalisation element, with Blue’s funders agreeing that:
Although interest needed to be serviced on the loans taken by Blue, the funders would not demand any repayment of the capital for three years;
At the end of those three years, if Blue still could not pay the capital from the ring-fenced assets, it would be recapitalised by the conversion of those debts into equity in the business; and ýIf Blue experienced liquidity crunch and could not pay the interest on the capital, the three-year deadline would be accelerated to an earlier date.
At the same time and as a condition of the subscription for shares by Mayibuye, we structured a securitisation agreement to enable the sale of certain of Blue’s claims to an existing special purpose vehicle. This was seen as a necessary structure because the control environment at Blue had collapsed by 2010 and would take time to rebuild.
This third part of the tale, however, was where the real surprises surfaced.
The first shock was the fact that there were significant undisclosed liabilities in Blue of about R191-million, discovered in the 2011 annual financial audit.
These were tax liabilities caused by transfer pricing of several of Blue’s lending arms throughout Africa caused by the then Blue centralised model.
It put a tremendous strain on the business, not least because Blue had to approach these tax authorities around the continent and ask them if we could “regularise” Blue’s tax.
This liability also affected Blue’s funders, because it was a hidden liability that existed before they subscribed to the recapitalisation programme.
The second big surprise was in April 2013, when we discovered a number of irregularities with the securitisation process.
As soon as this happened, the employee resigned, we informed everyone of this, and laid a complaint with the South African police immediately.
Mayibuye, Blue and Lennox launched an independent forensic investigation, the result of which is now imminent.
But this meant we couldn’t release Blue’s annual financial statements.
This meant we had to ask the JSE to voluntarily suspend trading in our shares from June 25 2013. The securitisation vehicle has now been finally liquidated.
We expect to have the forensic report before the end of August. Shortly after that, we will publish Blue’s financials, after which we can apply to have our suspension lifted.
Blue has suffered extensive damage from all these events and we are in the process of initiating legal actions for the recovery of significant sums.
The fourth part of Blue’s tale is what will happen in the future, once we complete the turnaround plan. We plan to achieve that during this financial year.
Since Mayibuye put together the rescue package, I have been impressed with the talent and commitment of some of the people in the 12 countries where we work — from Ghana and Nigeria in West Africa, to Uganda and Kenya in the east, and Botswana and Namibia in the south.
What is clear is that once it is fixed, Blue has huge potential to make a real impact on the continent.
I have travelled around Africa, meeting people whose lives have changed because of loans granted by Blue. It is these meetings that made me realise that certain battles are worth fighting.
Meiring is CEO of Blue Financial