- Basis Point bid for tender should have been disqualified, says audit
- Kgori Capital appointment was never formalised
- Basis Points Capital benefited over P17 million from NPF
- Auditor General says Basis Points overcharged at P15 million
- Kgori Capital benefited over P39 million from NPF
An audit report by the Auditor General, published on March 20th, 2018 for the Public Accounts Committee reveals that Kgori Capital was not officially appointed as investment manager to the National Petroleum Fund (NPF). The report reveals that Basis Points Capital, created opportunities for Kgori Capital, even though Basis Point had submitted an incomplete bid for the NPF, and should have been disqualified from the onset.
Prior to the appointment of Basis Point Capital, the Department of Energy floated an Invitation to Tender for the “provision of technical advisory services for the review of the energy sector projects and programmes; and existing financing structures and mechanisms with a view to recommend optimal integrated financing solutions and strategies for effective and efficient delivery of energy projects and programmes”. Basis Points Capital submitted a successful bid on October 8th, 2015.
Auditor General, Pulane Letebele discloses in her audit report that Basis Points Capital in its “Financial Proposal” did not quote for the investment management of the NPF even though it was a requirement within the scope of the “Invitation To Tender and the Contract”. The report notes that the company, in its financial proposal had indicated that the fees provided were for a performance period of 2 years, and only for advisory fees that excluded the capital raising fee which was to be separately discussed with the Ministry.
Letebele says the suggested contract period was contrary to clause 15.1 of the memorandum of agreement which stated that the agreement would run for a period of 36 months.
“Audit is of the view that Basis Points Capital had submitted an incomplete bid hence they should have been disqualified,” the Auditor General said in her report.
Despite the disqualification, Basis Points Capital were appointed as consultants in terms of an agreement dated December 16th, 2015 at a price of P15 680 045.00. The contract further provided for financial and investment services as the main obligations of the consultants, but the Audit revealed that the itemized pricing in the tendered amount did not include pricing for investment services.
“It is for this reason that Kgori Capital offered themselves as Investment Managers at a price of 0.80 percent of total assets per year,” Letebele wrote. The offer by Kgori Capital, was accepted by officers at the Department of Energy, according to the audit, through an interim mandate pending the signing of a formal agreement. Letebele said the signing of the formal agreement was never done.
According to Letebele, Basis Points Capital should have included the services of investment management of the NPF, however they were left out and coincidentally, Kgori Capital offer provide the very same services. Bakang Seretse and a deceased South African businessman Vusi Mlhanzi co-owned Basis Points Capital. At that time, Bakang Seretse was Managing Director to Kgori Capital where he owned the company together with Alphonse Ndzinge and Sharifa Noor.
Kenneth Kerekang was Director at the Department of Energy. Seretse, Kerekang and Botho Leburu are facing criminal charges in respect of the NPF.
According to the Auditor General, the price of P15 680 045.00 does not relate to the affairs of the Fund, but to other issues within the energy sector as a whole and should not have been charged.
The same contract previously held by Stanlib Asset Management was valued at P1 800 000. Letebele’s audit indicates that the appointment of Kgori Capital was not in accordance with Public Procurement and Asset Disposal Board (PPADB) procedures, which requires the floating of an Invitation To Tender (ITT), bid submitted, evaluated and awarded. As a departure from the normal procedure, Kgori Capital is said to have written on December 24th, 2015 to the NPF confirming their appointment as Investment Managers with authority to make investment decisions and effect transactions on behalf of the Fund effective December 29th, 2015. At the Department of Energy, Kerekang authorized Kgori Capital’s appointment.
When Basis Points Capital submitted its financial proposal on October 8th, 2015, Letebele found Basis Points Capital had stated that the contract price excluded capital raising fees, and that they would be separately discussed with the Ministry. Coincidentally on June 7th, 2016, an officer at the Department of Energy wrote to Basis Points Capital making an urgent request “to provide a quotation for carryout financial transactional advisory services for raising finance.”
The audit reveals that it was surprising that Basis Points Capital mentioned capital raising fees even though they were never part of the contract scope. The Auditor General was of the view that this suggested that at a time of submission of the financial proposal, they have prior and privileged knowledge of the challenges of the Department of Energy projects that needed financing. Basis Points Capital charged an extra P2 127 440 for the provision of financial transactional advisory services. Basis Points Capital has since benefitted P17 807 485.
Kgori Capital took on a P524.3 million portfolio from the NPF by January 2016. They charged management fees of 0.80 percent per annum, which translated to P4 194 400 annually. For 2016 and 2017, Kgori Capital would have derived earnings of P8 338 800.00.
Letebele noted as a concern that the records relating to levy receipts indicated weaknesses in the system as there were no records supporting the amounts remitted by oil companies, which ascertain if the companies credited the right amounts of money.
Kgori Capital developed an online system for levy collection at a cost of P31 360 000. “There was no evidence of authority for the engagement of Kgori Capital for this facility nor indication of the procedures that have been followed for its procurement at this amount,” the auditor general said. Kgori Capital benefitted a combined total P39 747 800.00 from the NPF.
THE RISE AND FALL OF KGORI CAPITAL
When the NPF scandal broke, Kgori Capital’s growth as a company was on a high note.
At its commencement, the company hit the ground running, attracting lucrative transactions within a short period of time. After only three years, Kgori Capital was entrusted with billions in Botswana Public Officers Pension Funds (BPOPF) funds to manage, which uplifted the Kgori Capital Botswana profile and also fattened the company purse.
After three years in operation, Kgori Capital’s Assets Under Management (AUM) stood at P3.5 billion, which meant that management fees, assuming that they charged 0.80 percent was P28 000 000.00. At the time it had a client base of over 14 institutional and personal clients, and were managing specialist portfolios and multi-asset portfolios.
The company was managing considerable portfolio’s alongside companies such as African Alliance, Investec, Fleming, Stanlib Asset managers, Botswana Insurance Fund Management (BIFM) and other big players in the country.
The 51 percent controlling stake in the then Afena Capital Botswana was held by the South Africans, through Afena Capital (Pty) Limited. The SA company had been established in 2012, a 55/45 percent joint venture between itself and a Batswana citizen management team, which comprised of young and vibrant team in Managing Director Bakang Seretse, Alphonse Ndzinge, Chief Investment Officer (CIO) and Sharifa Noor, Chief Operations Officer (COO). The three subsequently bought out the South African investors and rebranded from Afena to Kgori Capital. When the company rebranded in 2017, expanded its businesses into other areas of the lucrative financial services industry.
Former MD Seretse said, at the time that his company has seen its client base grow to over 22 institutional and personal clients over the past four years, with corresponding assets under management approaching the P7 billion mark.
Then the unthinkable happened. The NPF scandal broke, and Kgori Capital was implicated. BPOPF, Kgori Capital’s single largest client which had intrusted it with P3.9 billion, terminated its mandate. The result was that more than half of Kgori Capital’s portfolio disappeared overnight, translating to almost P30 million in annual management fees.
Four key clients cut ties with Kgori Capital in the 2 months after the scandal broke. Currently the asset manager has 15 instructional clients, according to the company.