Afristrat: More legal action against former execs, this time in Botswana

Afristrat, previously named Ecsponent Limited, reported on Friday that FirstCred has initiated civil and criminal action against former management and their associates who were found to have participated in the loss of P120 million (around R91.2 million) of investors’ funds, which included the P50 million invested by Afristrat.

Read: JSE suspends trading in Afristrat shares

This follows a forensic investigation initiated by the board of FirstCred to establish how the funds raised through its P500 million bond programme between 2017 and 2018 were utilised.

‘Gross misuse’ of funds

The investigation, which was completed this month, “revealed gross misuse of the P120 million raised from investors by the former management of Getbucks Limited Botswana between 2017 and 2019” Afristrat said.

The investigation focused on establishing whether the funds raised through the Botswana Bond Programme were utilised in accordance with the terms of the Bond Programme Memorandum or whether they were irregularly disbursed to MyBucks SA and/or its related entities, and ultimately never repaid to FirstCred.

Frankfurt-listed MyBucks SA, a microlender in several southern African countries, collapsed and is now in liquidation, resulting in almost all of the R1.5 billion investment by Afristrat in MyBucks SA being lost.

Afristrat owns a 42.39% stake in MyBucks after originally providing start-up capital loans to MyBucks but being forced to convert its loans into equity.

Read: Afristrat has ‘lost’ R1.5bn investment in MyBucks

Following the findings of the FirstCred investigation and the announced bankruptcy at the MyBucks level, two investors in the Botswana Bond Programme – ALCB Fund and AS Mintos Market Place – took their petitions to liquidate FirstCred to the Botswana High Court in an attempt to recover their investment, which formed part of the loss of the P120 million.

Judicial management order

The Botswana High Court on 19 August declined petitions from ALCB Fund and AS Mintos Market Place to wind up FirstCred and instead granted an order of judicial management to give the company an opportunity to resolve its debt position, which surfaced from the mismanagement and misappropriation of funds by former management.

Afristrat said on Friday its board believes the order placing FirstCred under judicial management will further negatively impact its liquidity.

However, it added that it will “provide an opportunity to potentially recover some of its investment value and in so doing, rebuild value for all stakeholders”.

Findings

FirstCred CEO Dudu Garekwe confirmed last week that it has reported the findings of the forensic reports to the regulatory authorities for investigation and retained counsel with a view on legal action against the individuals implicated.

“The forensic examinations show that P160 million was raised between 2017 and 2019 when the company was operating as Getbucks Botswana and P120 million of these funds was grossly and inappropriately misused and this resulted in its current position,” said Garekwe.

“Such was the level of malfeasance that investor funds only spent two days in the then Getbucks Botswana bank accounts before they were taken out of Botswana and spent,” she claimed.

“The funds were primarily raised from AS Mintos Market Place and from a listed bond on the Botswana Stock Exchange whose investors included ALCB Fund managed by Lions Head and Ecsponent Limited [now Afristrat Investment Holdings Limited].

“The misdeeds by previous management that resulted in the loss of P120 million made it almost impossible for FirstCred to repay investors who became victims of previous management’s mismanagement and poor governance practices between 2017 and 2019,” she added.

New management’s focus

“As new management from 2020 we have focused on engagements with creditors who were exposed to this loss and sensitised them of the negative impact on the ability to timely repay funds due to such high levels of misappropriation,” said Garekwe.

In welcoming the Botswana High Court judgment, she said FirstCred believes the judicial management provides the most optimal avenue for the company to repay all its creditors because the fundamentals of the business remain sound and can be leveraged through appropriate refinancing initiatives.

She said a winding up of the company would have closed the doors for the company to fully investigate and bring to justice those responsible whereas judicial management also offers prospects to deal with investors through either conversion of their investments or other suitable arrangements that ensure that as much value as possible is recouped.

Afristrat CEO George Manyere told Moneyweb last month that an R800 million claim against MyBucks has been launched in Luxembourg with the receiver who is handling the bankruptcy process for MyBucks.

He also said civil claims litigation processes in Botswana and South Africa to recover R250 million from the responsible former executives in the company and/or MyBucks has already started.

Trading in the shares of Afristrat was suspended by the JSE on 5 August because of its failure to submit its annual financial reports for the year to end-March 2022 within the four-month period stipulated by the JSE’s Listings Requirements.

Delayed Afristrat FY results

Afristrat reported on the same day that the company’s audited annual financial statements for the year to end-March 2022 are only expected to be distributed on or before 30 November.

Manyere told Moneyweb the reason for the delay is because the company has been “working on a plan to save the business of Afristrat because of the impact of the significant losses we suffered with MyBucks”.

Investors in Afristrat reacted in anger to claims made by Manyere about the company’s financial difficulties in an article published by Moneyweb, with all of them claiming Manyere’s comments are inaccurate and alleging that Afristrat is operating a scam.

The FirstCred group’s holding company was incorporated in Botswana in 2012 as GetBucks Limited, trading as GetBucks Botswana.

A buy-out by private equity business MHMK Group Limited led to a change in senior and executive management, with GetBucks Limited in Botswana rebranded to FirstCred Limited in 2020.

Manyere was the ultimate beneficial owner of the MHMK Group and is also the current CEO of the company.

It operates through several brands across its operations, including GetBucks in Zimbabwe, Eswatini, Kenya and Namibia; SmartAdvance and Nifty in South Africa; and MyBucks in Malawi.

Afristrat entered into an agreement in May 2020 to acquire 100% of MHMK Financial Services Limited from MHMK Group Botswana Limited.

This transaction was finalised in March this year.