How Guma and CEDA bled millions

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  • Shareholders fail to contribute their initial share capital
  • CEDA injects money above its Credit Policy limit
  • Company owes employees and service providers
  • ‘‘Soon you’ll ask about the colour of my underwear’’- Guma Moyo

SONNY SERITE

In 2013, Member of Parliament for Tati East Guma Moyo and his business partners, Mmoloki Tibe, Tiedze Chapi and Nimesh Shamani approached the Citizen Entrepreneurial Development Agency (CEDA), on behalf of their company United Refineries Botswana (URB), with an application for equity funding for the construction of an edible oil factory in Francistown. The original funding request was for P14 million.

Within a very short period, URB increased the project size to P40.7 million in which CEDA purchased a forty percent (40%) equity stake for a price consideration of P 7.3million whilst the promoters (Guma and partners) held the balance of sixty percent (60%) equity.

The Botswana Gazette is in possession of an explosive CEDA Funding Governance of URB Report and bank statements detailing the relationship between CEDA and URB where, in many instances, CEDA policies may have been disregarded and not adhered to.

The Minister of Trade Bogolo Kenewendo says she is yet to receive the report which sources at CEDA say has been submitted to her office for intervention.

Despite having been fully commissioned in August 2016, it appears the plant has failed to operate against a backdrop of lacklustre corporate governance structures. The corporate governance failure arises despite oversight controls which were supposed to be provided by the company’s Board of Directors, which included CEDA’s Executive Management as a compulsory obligation for the loan.

According to documents obtained by The Botswana Gazette, URB shareholding was allocated according to the loan facility to be; CEDA at forty percent(40%), Guma Moyo sixteen percent (16%), Tiedze Chapi sixteen percent (16%), Mmoloki Tibe sixteen percent (16%)and Nimesh Shamani twelve percent (12%).  As part of the capital raising initiative the loan agreement required that CEDA inject P7, 333, 333 while Guma, Tibe and Chapi were to contribute P2, 933, 333 each, with Shamani obliged to contribute P 2, 200, 001.

However, despite the mandatory requirement imposed on the four businessmen to comply with the terms of the agreement in order to raise the funds, the report indicates that only CEDA met its financial obligations with a payment of P7, 333, 333 for its 40% shareholding, while the other promoters failed to raise any contribution [in cash or kind] with the exception of Tiedze Chapi who made a land contribution valued at P11, 000, 000 through TEC (Pty) Ltd.

Documents in this publication’s possession, reveal that from inception Tibe, Guma-Moyo and Nimesh, failed to make payment as contractually required in order to fulfil their subscription for shares [as per the Subscription Agreement] and that TEC (Pty) Ltd remained 100% owned by Tiedze Chapi.

While Guma Moyo, Tiedze Chapi, Mmoloki Tibe and Nimesh Shamani were in contravention of clause 3.1.4. of the Subscription Agreement, “the Promoters are to provide proof to the satisfaction of CEDA of their equity contribution to the Company, totalling BWP 11, 000, 000,” CEDA took no action, in spite of being aware of their partners failure to meet their financial obligations, against its errand co-investors.

Original funding for the project was sought at P14 million and the project quantum was approved in 2013 at P40.7 million. Despite the considerable amount of funds availed by CEDA for the project, it was subsequently deemed insufficient by the Company and numerous additional funds were raised and facilitated by the institutional investor, CEDA, within itself and other financial institutions such as First National Bank Botswana (FNBB) and Botswana Development Corporation (BDC).

As a result to the failure to raise capital, CEDA went on and facilitated in excess of P28.1 million for United Refineries Botswana of which the known amounts as at November 2017 stood at; FNBB Term Loan (15%)P8 000 000, FNBB Term Loan (8%) at P10, 108, 000 and FNBB Overdraft of P10, 000, 000.

In addition to the existing loans, CEDA had already invested an additional BWP13 million through disbursements of CEDA Ordinary Shares (40% Equity) at P7, 333, 333, CEDA Debentures at P11, 343, 33 (P 20 380 032 with interest), CEDA Term Loan at P11, 000, 000 (P11, 858, 354 with interest), CEDA Term Loan P1, 684, 81 (P 1, 814, 991 with interest).

The total CEDA exposure at the time of the Reports presentation stood at P31, 361, 483 (P41 386 710 with interest) despite clause 8.3.1 of CEDA Credit Policy Guidelines, which restricts the CEDA Board of Directors approving amounts exceeding P 30 million per client.

Records show that CEDA extended to, as at November 2017, URB additional funds exceeding the P30 million threshold permissible per funded company and thus contravening its own corporate governance policies and regulations.

URB sought to obtain, once again, funding from CEDA which in turn sought the approval of the Ministry of Investment, Trade and Industry (MITI) despite having already contravened its Credit Policy Guidelines when it approved a facility of P 1.6million in October 2016 that pushed the facility above the P30million threshold.

Responding to the request for additional capital the Ministry noted that the maximum loan limit for CEDA has to be approved through a Cabinet Directive and therefore the prerogative to waive it lay only with Cabinet. Accordingly, the Ministry indicated that CEDA had already assumed to itself a decision that ought to have been approved by Cabinet directive in October 2016 when the P30 million threshold was exceeded.

Instead of seeking to secure the outstanding capital contribution from its 4 partners,  CEDA made concessions for URB to dilute its 40% shareholding to a paltry 18%. Subsequent contributions were made by the founding shareholders to meet the funding requirements of the business via shareholder loans and capital calls that CEDA did not participate on.

The saga was however far from over, as despite the procedure for the dilutions having been ignored the promoters of URB issued a number of capital calls for further investment on various  occasions, which have had the effect of diluting CEDA’s shareholding further, contrary to the provisions of the Shareholders Agreement as per  Clause 18.1 which dictates that “the Shareholders agree that they shall not be entitled to sell, alienate, transfer, in any manner or otherwise dispose of, pledge, or in any way manner otherwise encumber any of the shares held by them in the share capital of the Company, or all or portion of their claims for a period of 5 (five) years from the Effective Date or until CEDA ceases to be a shareholder whichever comes first’’.

The report indicates that there were no Resolutions by URB Board for dilution of CEDA Shareholding. It was noted that URB has failed to produce any resolutions that may serve as notice to CEDA that it had resolved to dilute CEDA due to its non-participation.

There were also no Resolutions by the CEDA Board of Directors allowing the dilution of CEDA shares despite the fact that in violation corporate governance rules, the CEDA Board has never been made aware of any capital calls made by the Company that would necessitate its dilution of shares. The CEDA Board of Directors have not passed any resolutions allowing for the Agency’s dilution of Shares as required by its own policies and laws.

It is further alleged that URB has obtained long term loans from entities such as Unibulk without the consent of the CEDA Board, in contravention of Clause 17.1.9 of the Shareholders Agreement.

URB is currently embroiled in disputes with its employees, who claim to have gone for close to a year without salaries and service providers who are pursuing payment from the company for the services rendered.

The Managing Director Mmoloki Tibe did not respond to our questions regarding the allegation raised by the report.

Reached for comment, Tati East MP and company chairman Guma responded angrily and warned this reporter to stay away from his private businesses stating that his private affairs where not for public consumption. The MP was informed by the writer that the questions pertained to public funds, and that as an MP his business affairs were in the public interest. Guma continued to berate the journalist.

Despite being reminded that the issue involved public funds through CEDA, Guma who also sits in Parliamentary Accounting Committee warned angrily, ‘’stay away from my business because I have worked hard for my business and they are personal. Soon you will be enquiring about my bedroom issues and ask about the colour of my underwear’’. He told this reporter to go ahead and write whatever has been provided as he was not going to “engage the media on my personal businesses’’.

Despite CEDA being a shareholder in URB, Head of Marketing and Corporate Communications at CEDA Anno Tshipa said she was constrained to make comment on the issues relating to the company. ‘‘While it is CEDA’s intent to be transparent with the media and other stakeholders, please note that questions you posed to the Agency would best be answered by Management of United Refineries Botswana’’, she wrote in her email response to our enquiries.