Battlelines drawn ahead of Letshego AGM
Mbongeni Mguni | Monday June 20, 2022 06:00
The country’s single largest investment fund, the Botswana Public Officers Pension Fund (BPOPF), holds 30.9% equity in Letshego and wants three new nominees on the microlender’s board. Meanwhile, the country’s largest and most diversified financial services group, BIHL Ltd, holds 28.1% shareholding and as a long time investor and industry affiliate, reportedly enjoys influence over Letshego’s strategic direction and is keen to maintain the status quo.
Six seats are up for grabs at the Annual General Meeting on June 23, set to be conducted virtually. Four current directors, including the chairman, Enos Banda, are due to retire in line with the group’s constitution while one has resigned. Another director was appointed on a ‘casual basis” in December to fill a vacancy, meaning that spot on the board is also the subject of jostling.
Banda and two other retiring directors have put themselves up for re-nomination to the board, reportedly with BIHL’s backing, a move opposed by asset manager, Allan Gray, which has moved a separate resolution to remove the trio. Allan Gray holds 1.2% equity in Letshego on behalf of unnamed shareholders and represents a third dimension to the shareholder face-off due on Thursday.
Behind the public AGM agenda notices, Mmegi is informed that relations between the major shareholders in Letshego have soured in recent months, with the pension fund increasingly taking the view that at a strategic level, its interests have been ignored.
An allegation has also been circulating that Sanlam, the South African financial services titan that holds a majority stake in BIHL, appears to hold some influence over affairs at Letshego. The allegation has been taken as an affront to the citizen enterprise ideals that have seen the BPOPF sink public pensioners’ funds into the microlender over the years.
“All current directors were appointed by BIHL/Sanlam directly and/or with the influence of Sanlam,” an insider close to the latest development claimed to Mmegi this week.
“The pension fund is the major shareholder and does not have a representative on the board whilst BIHL has two and has appointed all other directors.
“The pension fund needs individuals to represent their interests as major shareholder.”
Those in support of removing the chair and the two retiring directors say a change is needed in the board as stability and consistence have eluded Letshego in its efforts to deliver value for shareholders over the past few years.
Letshego’s share price dropped 57% in 2019 on the back of an EXCO exodus caused by differences over strategy, and while the counter has since recovered from that period, the recent firing of the CEO who led the revival has again unsettled shareholders.
“The board of Letshego has been behind erosion of company value for many years through their decision making and investments that are not in the best interests of the company,” another insider told Mmegi.
“Just within the past six weeks, the decision to dismiss CEO and abruptly appoint another one has resulted in the share price decreasing from P1.80 to P1.65 - a colossal loss of over P320m in value to shareholders.
“The board seems to be more interested in preserving control over Letshego than in the creating gains for shareholders.”
Former CEO, Andrew Okai, was summarily dismissed on May 4 with the board citing “an irreparable breakdown in trust and confidence.” Between the New Year and May 3, Letshego’s share price had gained 27% in value, becoming the top gainer on the Botswana Stock Exchange. However, the share price began slipping about a week after the CEO’s axing and by Thursday this week, had dropped more than eight percent.
“This AGM is the final straw because numerous chances had been given to the Board.
“If majority of current board members are kept then it means the same issues that have caused trouble in Letshego will continue,” sources close to the developments told Mmegi.
For its part, BIHL denies that it acts as a proxy for Sanlam at Letshego or that it operates under the South Africa titan’s direction in its role at the microlender.
“Sanlam holds 58% of shares in BIHL; however, BIHL is managed strategically by a wholly independent board and executive management team and therefore decisions at a BIHL level are made by the BIHL Board in the best interests of BIHL and those of its subsidiaries and/or associates,” the group said in response to Mmegi enquiries this week.
BIHL representatives added: “The BIHL Group is a long-term strategic investor in Letshego Holdings Limited, with a 28.1% shareholding. Our increase in shareholding in 2019 from 26.17% to the current stake, is an affirmation of our continued commitment and belief in the Letshego strategy, its board and management.”
Ahead of the AGM, it has been reported that asset managers representing some of the shareholders due to vote have been lobbied on which nominees to elect. The BPOPF, it is understood, expects that the asset managers through which it is invested in Letshego will vote for the three nominees it has chosen for the board.
The BIHL, meanwhile, has steadfastly denied reports that it met recently with a group of asset managers to persuade them to support the financial group’s choice of nominees at the AGM.
“It is proper and indeed best practice for a shareholder to review and reflect on resolutions put forward in preparation for an AGM.
“This allows a shareholder representative to be provided with an informed mandate should a vote be required at an AGM.
“That being said, BIHL has not held any discussions with asset managers as suggested.
“Be that as it may, any position we shall take will be underpinned by the principle of making decisions that are in the best interest of Letshego as per the Company’s Act and indeed best practice as per King IV and other Governance Codes.”
Allan Gray, meanwhile, has lined up four high profile nominees for board selection. On Thursday evening, the asset manager explained its concerns with Letshego.
“The concerns we have at Letshego are in areas which are the responsibility of the board, in particular, those directors we believe should be removed,” the asset manager said in emailed response to Mmegi’s questions.
“These concerns have been communicated to the board at various times in the recent past over more than two years, with no observable material changes having been enacted.”
The concerns include:
* Executive remuneration – The various CEOs at Letshego have cumulatively been remunerated P53m from 2015 to the present day. This was during a period of significant deterioration in operational performance and shareholder value suffered substantially.
It is Allan Gray’s opinion that a deficient executive remuneration structure and inappropriate performance-based remuneration targets contributed to this, as a sufficiently robust structure would have either kept executive remuneration materially lower in response to poor performance or encouraged superior operational performance and hence better shareholder outcomes.
It should be noted that Allan Gray is not opposed to executives being handsomely rewarded for sustained operational/strategic excellence and concomitant shareholder outcomes.
* African expansion – The expansion into East and West Africa has been unsuccessful. The operational performance of the Group has suffered since the expansion began, with the more stable and profitable operations in Southern Africa effectively bankrolling those in other geographies. The board has defended the expansion and indicated a willingness to continue it despite the apparent struggles.
It is Allan Gray’s view that a thorough review must be undertaken of these markets from first principles to determine whether this remains the appropriate strategy. Allan Gray further believes that the company’s investment approach to new markets/products is not sufficiently robust and must be enhanced. The decline in the company’s return on equity from 14.6% in 2015 to 9.8% in 2022 bears testament to this.
Representatives of the asset manager told Mmegi that the “observable governance deficiencies and apparent unwillingness to correct them” had made it important to intervene and “safeguard the direct and indirect exposure our clients have in Letshego”.
“We would like to see changes made that will improve the capacity of the board to make strategic decisions which benefit the company, its shareholders and other stakeholders in the short, medium, and long term,” the asset manager said.
Further complicating the upcoming shareholder melee, Malawian banking tycoon and First Capital Bank Botswana chair, Hitesh Anadkat, has also nominated two names to the board for next Thursday’s AGM. Anadkat holds 2.9% equity in Letshego and could provide the swing vote should the final tally be split between the two major equity holders.