Déjà vu for Letshego as old troubles resurface

Mbongeni Mguni | Monday July 11, 2022 11:51

For the first three and half months of this year, Letshego Holdings was the Botswana Stock Exchange (BSE)’s biggest gainer, its share price putting on an incredible 40 thebe, or about 29%. Besides rosy earnings in recent financial periods, the homegrown pan-African microlender appeared to have put its 2019 troubles behind it, with the new consolidated management team, put together by the board from 2020 onwards, apparently settling the nerves that had caused investor jitters in previous years.

The executive management, led by Andrew Okai, was riding the crest of the wave, having sailed resiliently over COVID-19’s impact in the financial sector. In fact, at the time, the CEO and his lieutenants’ focus was on transforming Letshego into a major digital financial services retailer in Africa, building up a registry of five million customers over the next three years to become one of the continent’s biggest players in fintech.

With a foothold in ten other countries besides Botswana, Letshego looked well on its way to the target.

However, early in May, Okai was axed, with the Letshego chairman, lawyer and former investment banker Enos Banda, citing “an irreparable breakdown of trust and confidence” between the board and the CEO.

The dismissal appears to have set off nerves among shareholders, as Letshego’s previously sparkling share price performance dimmed, losing about three percent by the end of May.

Between that time and now, a period that includes the contentious June 23 Annual General Meeting (AGM), Letshego’s share price has shed 25 thebe or about 14.2%.

The latest turbulence is not new for the microlenders’ investors. On June 24, 2019, Letshego shareholders met in their AGM at a time when five top executives had quit in the previous 12 months. These executives included the group managing director, group financial officer and a CEO who only spent six months on the job.

In that year, Letshego’s share price fell 56%, wiping away P2 billion in value for shareholders, amidst speculation that the revolving door among executives was the result of disagreements over the African expansion strategy and its fruits.

In 2019, the exact nature of the troubles at Letshego was a closed door affair, but this time around, more shareholders have been open about their discomforts, on and off the record.

Underlying tensions between shareholders bubbled to the surface in June ahead of the AGM, with the Botswana Public Officers Pension Fund, which holds nearly 35% equity in the microlender, pushing for its nominees on the new board. Insiders close to the pension fund expressed concern about the loss of value in the group since the CEO’s departure and lack of strategic control over the microlender.

The insiders told Mmegi that the pension fund’s members were increasingly concerned about the strategic direction fellow shareholder, BIHL was steering Letshego to. BIHL holds 28.1% equity in Letshego and is in turn owned 58% by South African financial services titan, Sanlam.

“All current directors were appointed by BIHL/Sanlam directly and/or with the influence of Sanlam,” the insiders said ahead of the AGM.

“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 a major shareholder.”

Pension fund members also blamed the pre-AGM board of being behind the erosion of company value “for many years through their decision making and investments that are not in the best interests of the company”.

“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,” the insiders said.

Asset manager, Allan Gray, which holds 1.2% equity in Letshego on behalf of shareholders, moved an AGM agenda item to remove Banda and two other directors. Allan Gray managing director, Phatsimo Ncube, told Mmegi the asset manager’s concerns were that the board continued to defend Letshego’s expansion into East and West Africa despite the strategy’s failure. In addition, the levels of executive remuneration remained high and incongruent with the “significant deterioration in operational performance and shareholder value”.

“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,” Ncube 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.”

For its part, BIHL, ahead of the AGM, said the increase in its Letshego stake from 26.17% in 2019 to the current 28.1% was “an affirmation of our continued commitment and belief in the Letshego strategy, its board and management”.

At the recent AGM, the BPOPF’s three nominees to the board prevailed, while the three proposed by Allan Gray failed to secure sufficient votes. Malawian banking tycoon and First Capital Bank Botswana chair, Hitesh Anadkat, who holds 2.9% equity in Letshego, saw one of his nominees, Jayaraman Ramesh voted into the board, while the other was rejected.

Of the seven directors who sat on the board the week the AGM was held, only three survived the shareholders’ clash. Banda and two others handed in their resignations on the eve of the AGM, diffusing a heated stand-off.

In the wake of the AGM, Letshego’s share troubles have continued. The microlender shed about 8.3% between May 4 (when the CEO was fired) and June 24 when the AGM results were announced. However, between June 27 (the Monday when the BSE reopened after the AGM results) and Press time on Thursday, Letshego had shed 9.1%. The downtrend since the AGM includes the loss of five thebe on July 4, one of Letshego’s sharpest single day drops in recent times.

While Letshego’s share price is still 7.1% to the positive since January 1, the recent losses have analysts questioning whether the market is comfortable with the AGM changes that swept the pension fund to better control.

BIHL, the country’s largest diversified financial services group, has been Letshego’s technical partner since its early days, leading the microlender to current assets of more than P16 billion, a presence across Africa and plans for continental dominance.

“People have this belief that Letshego is a national asset, but government did not set it up and the pension fund didn’t either,” an analyst following the latest development says.

“The BIHL is most responsible for setting it up after partnering with the original investor who came from the Isle of Man with the idea.

“BIHL actually owned 49% equity at the time, before both shareholders reduced their equity in order to raise more funding by taking the company public in 2002.

“Research has shown that all over the world, organisations that grow fastest are those where you have shareholders who are also technical partners.

“That’s what BIHL is at Letshego.”

The analyst questioned the pension fund’s move from being a passive investor to an active investor in Letshego.

“Letshego’s issues are not going to change because the pension fund does not know how to run a microlending business.

“That’s the job of the pension fund’s asset managers who watch these investments and make decisions designed to ensure higher returns to the client,” the analyst said.

Letshego’s investors will be hoping the post-AGM turbulence as reflected in the share price, is simply the market settling after the drama that began with the CEO’s dismissal. The fact that for now, Letshego continues among the BSE’s gainers for the year could also lend some confidence.

Analysts are keenly watching the release of the microlender’s results for the half year ended June 30, for indications on the financial status, outlook and any statements on strategy from the new board. The results are due in the market on or before September 30.