The PIC’s $250m investment in Ecobank was ‘highly speculative’

A former executive of West Africa’s Ecobank who was suspended for blowing the whistle on alleged accounting irregularities within the organisation has questioned the soundness of an investment made by the Pubic Investment Corporation (PIC) in the bank.

The pan-African bank, which is based in Togo, operates in 36 African countries and four other countries outside of Africa. It has the largest footprint among all banks on the continent.

Nedbank holds the biggest share in Ecobank, with a 21.1% stake, while the PIC holds 13.5%. Former PIC chief executive Dan Matjila was the PIC’s non-executive director on the board.

Altu Sadie, former chief financial officer in the cards and electronic banking division at Ecobank, told the judicial inquiry into issues of misconduct at the PIC on Tuesday that the state asset manager’s equity investment of $250 million had depreciated by approximately $85 million since April 2012.

The PIC, which has recently been under scrutiny by the inquiry and general public, looks after R2 trillion in South African civil servants’ pensions and other state assets.

Investment close to R2bn mandate cap

Evidence leader advocate Jannie Lubbe said he confirmed with the Government Employees Pension Fund (GEPF) that, at the time of making the investment, the PIC had a mandate to invest in the continent, capped at R2 billion. The PIC’s investment at the time was just shy of this, coming in at R1.9 billion.

When Sadie was dismissed in 2017 he said he had, through the whistleblower process, raised issues regarding income manipulation where the bank had allegedly inflated its income by applying the incorrect interest rates.

In his disciplinary, Sadie was found guilty of making “unsubstantiated allegations”.

“We made a case for unfair dismissal in Togo and we won the case against Ecobank on May 7, 2019. We are still waiting for the final judgment to be delivered,” said Sadie. Ecobank has, however, appealed the case.

Culture of axing informants 

Sadie suggested that there had been a longstanding culture of “dismissing staff for exposing wrongdoing” at Ecobank, citing court proceedings where former chief executive Thierry Tanoh was awarded $15 million and $11.6 million in damages for defamation and wrongful dismissal.

Tanoh was dismissed in 2014 following months of infighting at Ecobank, with the bank saying he was at the heart of governance issues at the institution. However, Sadie said that Tanoh tried to improve governance within the bank as shown by an audit report by Ernst & Young.

According to a court paper extract in Sadie’s ruling, the report had “revealed serious problems of corporate governance within the group”. This court found that Matjila did not contest the findings of the report but instead said that “if the PIC, which he represents within [Ecobank], had been aware of this fact it would not have invested in the capital of the group]”.

PIC’s continued involvement questioned

Sadie questioned how, having made that admission to the courts in 2014, the PIC granted Ecobank a further $98 million annual revolving loan with a three-year term in 2016 and arranged a $250 million convertible bond in 2017.

However, he did mention that to his understanding the loans, although vulnerable to deterioration under the business environment, were being serviced.

He further stated that Ecobank was given a “b” rating by one of the major credit rating agencies, Fitch, which “denotes weak prospects for ongoing viability”. The agency had noted that the bank’s material risk was high with a limited margin of safety remaining.

Sadie asked the commission to establish whether the PIC’s mandate allowed it to invest in a highly speculative investment while there were suitable alternatives it could place its money in.