BCL advisors under investigation

Dikarabo Ramadubu - BG reporter
Tuesday, 07 February 2017
BCL advisors under investigation

In the latest twist in the BCL saga, BG investigations have uncovered that MDCB hired auditing firm Pricewaterhouse Botswana (PwC) to probe the appointment of BCL Advisors as well as Pula Steel, a company in which BCL holds a controlling stake.

BCL management appointed a South African company, Africa Finance Investment (PTY) Limited (AFI) based in Johannesburg, South Africa. This publication can reveleal that the company is owned by a Motswana, Goleele Mosinyi and his South African co-founder Siyanga Malumo. The contract agreement was signed by the BCL Managing Director Daniel Mahupela duly authorised by the board and Mosinyi on 12th March 2013.

The agreement mandated AFI to advise on various transactions, including Polaris II initiatives, following the withdrawal of South African based Rand Merchant Bank as BCL’s advisors. RMB had completed the life-of-mine validation, as designed by the technical consultants, TWP Consulting. Former BCL finance staff, management and board members told BG News that AFI was chosen because their principals have mining experience, international experience, particularly in large cross-border transactions and a track record in concluding significant transactions in the Botswana market.

The contract stipulated that AFI was to get a retainer fee of P250, 000 per month and success fees for mergers and acquisitions transactions and debt and equity raising. Among the many deals that AFI clinched for BCL was acquiring a majority shareholder of Pula Steel at 50.5 percent with other shareholders being the original owners, the Verma family of Indian origin. The deal also involved the government investment agency CEDA. BG News investigations have established that over the term of the advisory mandate, until the BCL liquidation, no fewer than ten team members from AFI have been involved in various capacities as advisors to BCL. These included Chartered Financial Analysts and Chartered Accountants, who for certain extended periods worked on BCL transactions on a dedicated basis.

It is said that the investigation on the Pula Steel deal allegedly started at the same time as the AFI appointment investigation. BG News has it on authority that the investigation is ongoing. However, none of the concerned parties were willing to shed light on the investigation as they were all hiding under the confidentiality clauses except Pula Steel Director, Depaak Verma who confirmed being aware of the PwC investigation. However, he stated that “the scope of investigation is limited to BCL investment on the Pula Steel”. Verma continued, “they contacted us about a month ago and we gave them all that they needed”. Verma clarified that his company is not under any investigation as it is a private company in which they invested their personal resources as a family.

Mosinyi was cagey with information stating that they know nothing about the investigation. When pressed further, he declined, citing confidentiality issues. Responding to a questionnaire from this publication Senior Partner of PwC Botswana, Butler Phirie said, PwC Botswana complies with domestic rules and regulations for independent auditors determined by the Botswana Accountancy Oversight Authority and Botswana Institute of Chartered Accountants.

“These requirements include adherence to stipulations of International Auditing Standards, application of International Financial Reporting Standards and requirements of the Code of Ethics for Professional Accountants (Parts A and B) set by the International Federation of Accountants,” he said addidng that these requirements, inter alia, require “us to adhere to strict confidentiality with respect to information which we gather through our client relationships. Accordingly, it is impossible to discuss any specific matters relating to any of our clients unless expressly required to do so by law or if appropriately authorised to do so by the relevant clients”.

While Paul Smith MD of Minerals Development Company Botswana (MDCB).  said, “We do not comment externally on internal work processes. All I can say is that PwC as an accounting firm has been appointed to assist BCL now under the management of the Provisional liquidator) with certain accounting work. PwC‘s appointment is simply part of work required and is ongoing”.

How AFI came aboard
BG News has established that the process which led to AFI’s appointment began with an introduction by a government agency to BCL in 2013 after having met AFI executives at various seminars run by AFI on subjects such as project finance, corporate finance, debt capital markets and valuations.

The PwC Investigation
BG understands that the investigation started immediately after Smith assumed his position as MD of MDCB. It is alleged that first the BCL management was ordered to terminate the services of BCL’s advisors, but management refused stating that the decision was above them since the appointment of AFI was made by the BCL Board. On being informed of this, MDCB immediately engaged PwC to launch an investigation into the appointment of AFI Corporate Advisors (AFI), and at the same time instructing PwC to investigate all aspects of the Pula Steel transaction, which again had been sanctioned by both the BCL Investment Committee and Board of Directors.

BG News understands that part of PwC’s investigation centres on the work that AFI did on Polaris II and the fees that AFI charged for their work. BG is in possession of the contract that was signed between BCL and AFI, following the BCL Board’s decision to hire AFI. The contract stipulates a retainer fee of P250, 000 per month and success fees for mergers and acquisitions transactions and debt and equity raising. The management and finance team which worked closely with AFI confirmed that a dedicated team serviced them and devoted considerable resources to the company.

This publication has confirmation that AFI was instrumental in Project Tungsten, which was the proposed purchase of Norilsk Nickel’s African mining assets, which included Tati and Nkomati. In the transaction, AFI was key to assembling and leading the due diligence team which included technical, legal and accounting teams from MSA South Africa, the technical mining experts, Norton Rose Fulbright, the international law firm and Deloitte Consulting.

The due diligence on Nkomati allegedly involved three full time senior staff from AFI and took a period of five months. Thereafter, AFI was involved in the negotiations which led to the signature of the sale and purchase agreement between Norilsk and BCL. Some former BCL management team members confirmed that resulting from the proposed purchase of Nkomati, concentrate was directed from the Nkomati mine for smelting in Selebi-Phikwe. The direct financial benefits to BCL arising out of this arrangement have been confirmed as being over P300 million, until BCL was liquidated.

AFI leaders professional experience
The CVs of AFI team leader Mosinyi and the firm’s co-founder Malumo shows that the latter’s experience spans over 38 years in investment and commercial banking across Europe and Africa. He was formerly a senior person at the African Development Bank before running a network of 16 commercial banks across East and West Africa. He was one of the anchor team members in the building of Fieldstone Africa, the infrastructure Investment Banking Firm, across Africa. His biggest transaction in SADC has been as team leader of the Cahora Bassa hydro project restructuring, which was a US$3.5 billion transaction. Apart from investment banking he has been active in the ownership of power utilities (generation, transmission and distribution).

Mosinyi’s CV states that his mining experience includes various mergers and acquisitions transactions in South Africa, in particular, with Harmony Gold Mining Company, mining debt capital markets transactions with mining companies when he worked with JP Morgan in London and being Chairman of the Audit and Risk Committee at Wesizwe Platinum and member of the Investment Committee. He resigned from the Wesizwe Platinum board in [2010]. Wesizwe is the same company that Paul Smith last worked for before joining MDCB.

AFI clinch ABSA- Barclays deal
In addition to the Mergers and Acquisitions (M&A), this publication has established that AFI was involved in the negotiations with the funding banks, which secured the US$200 million debt from Barclays and Nedbank for the purchase of Tati and Nkomati. The BCL team involved in negotiations with the Nedbank and ABSA/Barclays debt teams have confirmed that the work done by AFI involved extensive modelling and documentation.

AFI amongst Creditors
BG News has learnt that in March 2016, BCL, advised by AFI, raised US$100 million from Barclays Bank of Botswana. When BCL was placed under provisional liquidation there was backlog payments of some months owed to AFI. Sources have confirmed that to advance this loan, Barclays needed to perform an extensive assessment of BCL’s operations and made it a condition of the loan that the Nkomati deal should continue as BCL’s operations could only be viable if combined with those of Nkomati. BG News is in possession of the loan agreement between BCL and Barclays, detailing this condition. BG News further established that AFI was instrumental and was heavily relied upon by the banks to understand the structure of the proposed transaction, including the financial model.

The BCL and AFI contract, which BG is in possession of, states that BCL should have paid AFI based on funds raised at financial close. Financial Close means that all conditions precedent to draw-down have been satisfied and all that is left is for the borrower to draw-down. It is common for advisory agreements to have such conditions. Despite BCL having fully drawn down on its loan, AFI was allegedly never paid the fees due and BCL went into liquidation. On the other hand, Barclays were paid their arrangement fees and were paid back by government the full US$100 million last December after government placed BCL under provisional liquidation.

Other jobs done by Mosinyi
BG News has established that amongst his major jobs in the country, Mosinyi led the capital structuring and mobilisation of funding for the Botswana Vaccine Institute. Former chairman of BVI, Dr Martin Mannathoko led the recruitment of Mosinyi as advisor to BVI. Mannathoko confirmed this and added that through Mosinyi’s assistance they were to produce purified vaccines and “the project was completed to our satisfaction”.

The next significant transaction for Mosinyi was the Orange Botswana restructuring, which led to the Batswana shareholders selling a significant tranche of their shares to Orange Telecom of France, the controlling shareholder. Gobe Matenge, who chaired the team that concluded the transaction, confirms that his group engaged Mosinyi. Matenge described Mosinyi as a “true professional hard worker” who is “decisive and very reliable”.

Recently, AFI was hired by Ministry of Mineral Resources, Green Technology and Energy Security to undertake a due diligence on the possible investment by the Botswana Government on Khoemacau Mining, the copper mining company. BG has also established that Mosinyi led the teams that advised the Botswana Housing Corporation regarding their commercial properties when New Africa Properties listed.

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