When redeeming shares is like scrambling an egg

| Friday March 16, 2012 00:00

 

Pius Molefe likes to frown. He frowns often. The only time he is not frowning is when he is smiling. Molefe seldom smiles and so Molefe is always frowning. At the last court session at the High Court he was frowning more than perennial frowner High Court judge Lot Moroka. However, when he came out of court later that morning, he was smiling widely.  The Botswana Building Society chief executive officer (CEO) gave his legal team firm handshakes and made for the door. The smile was as brief as the handshake.

When he walked out of the dim halls of the courtroom he squinted his eyes from the scorching sun and put on his dark shades. Moroka had found that Bifm Capital Investment Fund One had failed to convince the court that theirs was the bank to redeem the investor's shares, as the bank had warned, the latter would suffer irreparable damages. 'To succeed in obtaining an interdict, (Bifm Capital Investment Fund One) must prove that irreparable harm and the absence of no other satisfactory remedy, should the interdict not be granted. (Bifm Capital Investment Fund One) has not proven (the) absence of other satisfactory remedies,' concluded Moroka in his verdict. In the lead-up to the case late last year, the bank notified Bifm Capital Investment Fund One that it would proceed with buying the shares, giving it the mandatory six-months' prior to the March 31, 2012 deadline for the sale. However, to prevent the sale going ahead before the main case determines the legality or otherwise of the shareholding agreement between the two, Bifm Capital Investment Fund One instituted the urgent application.

The main case kicks off on March 27. However, even by that time the whole thing may be over. The actual cause of the tussle is a letter Molefe wrote to Bifm Capital on September 9, 2011: 'The Society hereby notifies you of its intention to redeem your entire indefinite period shareholding in the Society, after six (6) months from date hereof'. The six-months Molefe gave the investors elapsed last week according to the current agreement, which is pending review by the High Court. Molefe and his team can now proceed and dispense with BIFM Capital Fund shares.

Using this date BBS could have redeemed the shares as early as last Friday.  The court all but opened the door for that. As far as the court is concerned, there is no loss beyond redemption. However, BIFM Capital lawyer Advocate Howie compared redeeming the shares to scrambling an egg, meaning that going back to the original position would not be possible, even if BIFM Capital wins the main case.

A court may not understand this, and even BIFM Capital Fund with its legal minds could not explain why it would be impossible for BIFM Capital to find itself in its current position. To do that, you have to unpack the very genetic make-up of the BIFM Capital Fund.BIFM Capital Fund is corporate bodies made up of BIFM at 51 percent shareholding and 49 percent held by Rhys Carr and Timothy Marsland under a company they co-own - Capital Management Africa.

BIFM Capital Fund sourced funds from its mother company BIFM, which is a sister company to Botswana Life. 'Bifm Capital was originally set up to provide, non-vanilla asset management products, corporate finance, private equity and capital management services to Bifm. The service offering of Bifm Capital has however over time morphed into one of primarily a provider of fixed income skills and solutions to BLIL, further thereto Bifm Capital has managed the BLIL Annuity Fund for the past five years. 

'The BLIL Annuity Fund is a portfolio of approximately P2.8 billion and the matching thereof (matching of the long term liabilities of the fund with suitable long dated assets to match the liabilities) through correct management and hedging skills has provided significant profit to BLIL within acceptable and closely managed risk parameters.'To better manage the credit risk inherent in the management of the BLIL Annuity Fund, Bifm Capital set up BCIF1, a 100 percent subsidiary of Bifm Capital,' explains BIFM Bifm's communication manager Tebogo Keepetsoe. In simple words, Botswana Life looking to shoulder the monthly needs of disbursement to its claimants needed an investment that could give out monthly payments.

It handed out P150 million to BIFM, which in turn used it to invest in BBS in indefinite shares with a fixed interest rate. The monthly payments from BBS are shared between the partners. Redemption would greatly affect BIFM Capital, BIFM and Botswana Life.  However, since court has declared that the agreement between BBS and BIFM Capital remains as is for now, until it finds otherwise, BBS has indicated it would redeem the shares sometime later this month.

Corporate Affairs Manager Sipho Showa this week confirmed to Mmegi that the bank would proceed with the redemption sometime at the end of the month. Reports indicate that since Botswana Life heard about this, they have indicated that they want to review their position regarding the P150m granted to BIFM, sources say. However, BIFM denied these allegations. Botswana Life did not comment. Tim Marsland declined to comment on the matter.

The main case proceeds on March 27. However, it might be a moot point whether BIFM Capital Fund wins or BBS gets its way. Ultimately, the case was about protecting and keeping the deal where BIFM Capital Fund owns indefinite period shares in BBS. Any day beyond April Fool's Day that would no longer be true. If BBS loses the case all it has to do is to refund BIFM Capital Fund of damages