There was much fanfare over Batho Bonke’s broad-based character when it was announced in 2004.
As always the lion’s share went to the well connected, but a significant portion was earmarked for community trusts, women’s groups and others said to represent more than a million beneficiaries. Sexwale, then in business and now human settlements minister, was the lead promoter.
Now, after eight years, the deal is being unwound. Batho Bonke sold most of its Absa shares last month, leaving an estimated R2.2-billion to be distributed to Batho Bonke shareholders on November 28.
Of this, about R200-million will flow to Mvelaphanda Holdings, the private investment company of Sexwale and two partners, by dint of its original 20% stake in Batho Bonke, subsequently diluted to about 9.5%.
But in the run-up to Batho Bonke’s unwinding, many other consortium members were confronted with a Mvela Holdings demand for 25% of their anticipated benefit -- which on the Mail & Guardian’s calculation would have given Sexwale and his partners another R300-million on top of the R200-million they were already getting.
In a Mvela Holdings statement to the M&G, which it subsequently withdrew, it put the same figure at R200-million.
Two sources close to the events have confirmed that Mathews Phosa, a co-architect of Batho Bonke and now ANC treasurer general, was among those who were particularly upset.
Phosa is believed to covet the ANC deputy presidency at Mangaung in opposition to Sexwale. He declined to comment.
Mvela Holdings subsequently halved its demand to 12.5% -- still, by the M&G’s calculation, a “tax” of about R150-million on the gain of other Batho Bonke members. The company’s withdrawn statement, without being exact, put it at about R90-million.
The matter was raised, somewhat obliquely, in Mvelaphanda Group’s annual report released at the end of September.
Subsequently renamed New Bond Capital, it is a listed entity no longer under the control of Mvela Holdings.
It said that “during the current financial reporting period it was determined” that some of the Batho Bonke members owed Mvela Holdings for money lent originally to buy into the consortium.
“These loans are repayable on value realisation of the Batho Bonke shares at the higher of: principal plus interest which would have been earned at a rate of prime plus 5%; or the repayment amount, which is equal to 25% of the value actually realised by the borrower.”
It added that there was an “indication” that the 25% would be reduced to 12.5%.
The reason Phosa and other Batho Bonke members were upset appears to be the unusual terms of the Mvela Holdings loan to consortium members.
Absa’s 2004 circular detailing the deal stated that R7.3-million of the R146-million the consortium needed to buy into Absa had come from Batho Bonke’s “initial members” and the balance from Sanlam.
Now it turns out that the R7.3-million had come not from all initial members, but from Mvela Holdings and that it had been structured as a loan with highly onerous terms.
In a nutshell, others in Batho Bonke had to repay Sexwale and his partners at whichever was the higher of:
- The loan plus interest at prime plus 5%. Assuming monthly compounded interest, this would have grown to R28-million repayable to Mvela Holdings today; or
- An upside of 25% of the value realised by Batho Bonke members. Calculated on the estimated R2.2-billion value realised by Batho Bonke, but of which only a little more than half was encumbered by the loan, it would have given Tokyo and partners about R300-million as repayment for their R7.3-miilion.
Assuming that Absa’s share value continued to grow, which it did, the second option was always likely to be the higher of the two.
And even with the subsequent reduction in Mvela Holdings’s demand to 12.5%, or about R150-million -- or about R90-million on the withdrawn version from the company -- the repayment remains out of all proportion to the original R7.3-million.
One Batho Bonke partner said the size of the demand had caused “a hell of a lot of unhappiness”.
Arguably, had they realised the full implication of how the loan was structured, members could have sourced their own funding.
To illustrate, had the R7.3-million been borrowed at prime, only about R18-million would be owed today.
Sexwale placed his interest in Mvela Holdings in a “blind” trust when he re-entered government in 2009. Although he still enjoys the benefit of its investments, he and the company say that he no longer participates in its decisions.
Sexwale is thought to be the beneficial owner of at least a third of Mvela Holdings, which could give him a whopping R100-million or more from Mvela’s own Batho Bonke dividend plus the “tax” on others.
Some may regard this dividend as impeccably timed to pave Sexwale’s way to Mangaung. Apart from what will accrue to him personally, a raft of others influential enough to make a difference will be approaching the ANC elective conference with newly enhanced bank balances.
Batho Bonke was initiated in 2004 by Sexwale, who appointed Leslie Maasdorp, a former department of public enterprises deputy director general, and then-Mvela Resources chief executive Nthobi Angel as co-promoters of the deal.
They appointed regional co-ordinators to assemble and lead nine groupings from across South Africa. These, and further broad-based elements, helped to make up what Absa said at the time was “more than 1 175 000” beneficiaries.
Subsequent media reports revealed how a host of influential people -- politicians, spies, a judge and journalists -- had been cut in too.
Senior ANC politicians such as Phosa were among the regional co-ordinators or dispersed among the sub-groupings, whereas a 2007 City Press article named former spy bosses, Billy Masetlha included: the spouses of former ministers Zola Skweyiya, Penuell Maduna and Thoko Didiza; the mother of Essop and Aziz Pahad, a former minister and deputy minister respectively; KwaZulu-Natal judge president Vuka Tshabalala; and journalists such as the SABC’s then-acting political editor Sophie Mokoena.
But therein lies the rub for Sexwale. Whatever goodwill the Batho Bonke payout might have bought for him among potential supporters en route to Mangaung is potentially undermined by resentment at his “tax”.
Response from the players
Sexwale's spokesperson: “The minister does not comment on operational or other activities of companies he no longer runs.”
“The entire deal was developed and implemented with complete transparency. It is, without question, one of the most successful broad-based black economic empowerment deals in South Africa and no amount of nit-picking by the Mail & Guardian will take anything away from that.”
“We prefer to discuss matters of this nature directly with shareholders, rather than through selectively structured newspaper articles."
“The matter relates to Mvela Holdings-Batho Bonke and we ask that you direct your queries to them. Absa was not involved in the funding provided by the initial members in 2004, so is not aware of the terms attaching thereto.”
* Got a tip-off for us about this story? Email email@example.com
The M&G Centre for Investigative Journalism, a non-profit initiative to develop investigative journalism in the public interest, produced this story. All views are ours. See www.amabhungane.co.za for all our stories, activities and sources of funding.