Category Archives: Corporate governance

Ant Group IPO

Tuesday should have seen the listing of shares of Ant Global in the largest IPO in history but it was cancelled at the last minute. This came after Jack Ma, the founder of the company, the Executive Chairman and the Chief Executive Officer were all summoned to a meeting with regulators a few hours before the launch. 

Later the Shanghai Exchange announced that it had cancelled the listing of Ant Group’s A-shares on the STAR Market and published the suspension decision which stated it was due to material matters.

Reasons varied from capital controls to politics around Jack Ma who is currently China’s second-richest man and now a global philanthropist who donated medical testing and protective equipment to different countries around the world as they battled Covid-19. 

The company was to raise $34 billion from the IPO, valuing it at $313 billion, but by the time of the cancellation, they had a staggering $3 trillion in bids from investors. The company had allocated 1.67 billion shares each for Shanghai and for Hong Kong to raise 115 billion Yuan ($17.23 billion) from each location, but Shanghai investors bid $2.8 trillion, 872 times the number of shares allocated, while those in Hong Kong bid $168 billion or 389 times their allocation.

This came after a book building done by Citi, JP Morgan, Morgan Stanley and CICC who were the joint global coordinators and book-runners. Also participating was Credit Suisse, Barclays, Deutsche Bank, ING, Goldman Sachs, ICBC, BNP Paribas and Mizuho, among other banks, while the Bank of China (Hong Kong) was the receiving bank.

Ant was started within the Alibaba Group in 2004 as a company offering online escrow services. It was spun off from Alibaba in 2011, which itself reported a 30% rise in quarterly revenue today to reach $23 billion. Earlier this year Ant had 711 million active users, just behind 800 million on Tencent’s WeChat Pay. It now serves 1 billion users and 80 million small businesses in China, and recently provided billions of dollars in loans to Chinese companies impacted by Covid-19 and also waived fees, subsidized logistics, and offered free streaming and work from home tools.

The invitation to invest noted that financial systems that have been in place for the last 200 years were designed to serve 20% of the population and that better products have to be designed for the other 80% through digital payments, digital finance, and digital daily life services. The company has 26,000 patents and patent applications.  

One of the risks cited in the listing documents is possible action by US President Donald Trump to restrict the use of payment services of Ant.

Refunds to investors started on Wednesday, November 4, and it is now expected that the IPO could be delayed by at least six months.

Edit

https://twitter.com/bankelele/status/1324614736823095296

Continues

Sportpesa return flames out

Last Friday, there was a bold tweet by the CEO of Sportpesa announcing the return of the company to full business, with partnerships for sports development to follow.

This comes after a crackdown last year crackdown on gambling companies through a moral push, taxation claims and difficulties renewing licenses, which all led many of the top betting companies to scale back their sponsorships and operations.

But the announcement, just as the English and European soccer leagues that are popular with betting punters get into gear, was followed by a surprising turn of events.

The following morning, the Chairman of the Betting Control and Licensing Board had a press conference and issued a statement about information that Sportpesa Global had granted to Milestone Games permission to operate as ‘Sportpesa’. It went on to say that had licensed Milestone to operate in the country, but asserted that Sportpesa is owned by Pevans East Africa and that no other company can use its name brand, domains and mobile phone shortcodes – asked directed Milestone to use its own website.

Then over the weekend, one of the other Sportpesa shareholders, Paul Wanderi Ndung’u also released a statement on behalf of Kenyan shareholders of Sportpesa and said he had been unaware of the developments with Milestone. He also made some serious claims about the company:

  • Said the problems of the company started in 2017 when its executive directors allied with its foreign shareholders and started running the company without reference to the board. 
  • Said that another director, Asenath Maina, had requested a forensic audit in 2019 on the firm, but that the foreign shareholders, who had been since been deported from Kenya, continue to frustrate the audit.
  • In three years Pevans East Africa (Sportpesa) has transferred $250 million to the Isle of Man, Dubai, the Canary Islands and the UK. Then, after the company closed, it transferred another $17.5 million to Sportpesa Tanzania and $0.5 million to Sportpesa South Africa.
  • KPMG and Deloitte &Touche have resigned as auditors and tax advisers respectively of Sportpesa Global in the UK, while PricewaterhouseCoopers resigned as the auditor of the Kenyan business.
  • Officers from the UK’s Serious Fraud Office (SFO) have visited Sportpesa’s Nairobi office – and this was linked to negative media and parliamentary coverage in the UK.

To be continued . .

How competition agencies should reorganize themselves to mitigate the impact of Covid-19

The Covid-19 pandemic has occasioned an unprecedented humanitarian and economic crisis across the World whose impact will be felt for quite some time. 

All stakeholders, including Governments, regulators and other State agencies, have to implement their mandates to ensure that markets remain open, functioning, and competitive. They also need to develop and implement policies that ensure the impact of this crisis is short-lived, while also mitigating its effects.

Recently, heads of Competition agencies across Africa congregated virtually under the auspices of the African Competition Forum (ACF) to deliberate on how we can prepare ourselves for an uncertain future. The meeting also recognized the critical role competition agencies play in ensuring that markets continue functioning competitively.

Competition agencies have in recent weeks attended to infractions like price gouging, abuse of dominance, cartelization, and abuse of buyer power. The purpose of such conduct is private gain at the expense of consumer welfare and, in the current emergency, is antagonistic to containment efforts.

In order to continue playing their role in the post-pandemic era, it was noted that Competition agencies should reconfigure their operations from at least four perspectives; organizational, regulatory capacity, enforcement priorities, and policy advisory role. 

Competition agencies should be prepared to work with limited resources due to decreased Government revenues, even as demand for their mandates expand. As a matter of priority, agencies should review their strategic objectives and refocus their interventions in favour of fewer but highly impactful activities. 

They should also enhance collaboration and cooperation with regional Competition agencies and, nationally, with respective sector regulators. 

Competition agencies should also entrench a culture of Enterprise Risk Management (ERM) and Business Continuity Management (BCM). At the Competition Authority of Kenya, implementation of ERM and BCM, coupled with the digitization of our core mandate processes in mid-2019, is enabling the organization to weather this storm with minimal disruption to service delivery. 

However, automation begets risks such as cyber-attacks and breach of client confidentiality and therefore specific measures should be taken to insulate an automated organization.

From a regulatory perspective, it is critical that agencies review their laws to ensure that they are results-oriented, while at the same time flexible to deal with emergencies. The Competition Act No.12 of 2010 has enabled the Authority to attend to supply chain and consumer protection challenges. 

Agencies should also align their interventions with the country’s industrial policy. For instance, Competition agencies need to think about how they can ‘lower their guns’, albeit momentarily, to support a certain threshold in the growth of our Nation’s industrial capacity.

Competition agencies are likely to experience an upsurge in joint venture applications and distress mergers, more so from the airline industry. It is also expected there will increased merger activity in the online and e-commerce space.

On the flipside, killer mergers could also increase where dominant incumbents seek to acquire upcoming competitors, more so in the digital economy which has become indispensable in the pandemic. Towards this, the Authority has realigned its workforce to enable critical review of all merger applications, but within the law.

Further, the Authority is finalizing investigations in the retail sector regarding allegations of a few supermarkets failing to pay their suppliers on time, which is against abuse of buyer power provisions under the Competition Act. Unfettered supply of essential commodities to consumers is paramount during a pandemic.

Lastly, the Covid-19 pandemic has seen some countries revert to price controls. As competition agencies, we need to advise our governments that price controls are counterproductive since they ultimately harm consumers, more so by facilitating the proliferation of black markets. Quality and the safety of goods is also not guaranteed.

Fortunately, the Kenyan government has attended to the market distortions during this pandemic through the forces of supply and demand. Specifically, the Government has ensured that essential supplies in the market are available.

Regulators should not strive to go back to the pre-Covid-19 dispensation, in terms of how we organize and manage our agencies, but instead, let us embrace the new normal way of doing things that is far from normal.

Mr. Wang’ombe Kariuki is the Director-General, at the Competition Authority of Kenya. He is on Twitter at @wang_kariuki.

Ghosn Press Conference

Former Nissan and Renault CEO, Carlos Ghosn staged an escape from home-arrest in Japan and flew to Lebanon on December 31, where he re-emerged this week and gave a press conference to justify his decision to flee. 

In the session, broadcast live from Lebanon, he spoke of the decline in Nissan’s performance that started after he left as CEO to focus on bringing Mitsubishi into the Alliance. He had been CEO for 17 years and left Nissan in 2016 with $20 billion cash, profitable, growing, respected, having taken it from nowhere in 1999 to a top (no 60) brand in the world. But performance dived after he left, in 2017 and 2018. 

He traced his troubles to a shareholder vote in France to give Nissan which owned 15% of Renault voting powers there, similar to what Renault had at Nissan in Japan with its 15%. But the vote did not attain the threshold required and the Japan government was upset and blamed him for that – and saw removing him as the only way that Nissan would get autonomy.  

He was surprised (like Pearl Harbor) when he was arrested at an airport terminal in Japan in November 2018 and told he was being charged with understating his compensation – an amount which was not fixed, approved or paid. He wanted to call Nissan to get a lawyer and (at the time) he did not know it was stage-managed. They were trumped-up charges which, while Nissan pled guilty to in Japan and paid a fine to its government, in Tennessee (USA) they had denied the same charges.

The job of the CEO is to create value, and that of the board is to protect shareholders – but, he said, today there is no alliance – I worry as a shareholder we lost 35% of value while the entire auto industry is up 12%. Today the Nissan-Renault alliance, which was the number one auto group in the world in 2017, does not work – They wanted to turn the Ghosn page and they have – growth has disappeared, profits are down, there is no strategic direction and innovation. 

What they have today is a masquerade of an alliance that is going nowhere – and they missed out on bringing Fiat Chrysler into the Alliance which he had been negotiating – and who instead chose to join the PSA (the Peugeot, Citroën) group.

The presumption of guilt prevailed and he was pressured to confess in a country where the conviction rate is 99%. He spent 130 days in isolation, underwent endless interrogations, spoke to his wife twice in nine months (in the presence of a lawyer) – and when I left Japan, I did not have a court date for the first charge – and my lawyers said it would be five years before I got a judgment – which he led him to conclude that he would die in Japan if he did not get out.  

 Another theme of his defence was that he was not greedy. He had served the company for a long time and in 2009, amid the US auto crisis, he was asked to become the CEO of General Motors and engineer a similar turnaround there. He now says, he made a mistake and should have accepted that offer. 

He was determined to fight back against a smear campaign that was part of a €200 million investigation. I was a hostage in a country I had served for 17 years, I revived a company – I was a case study and role model in Japan with 20 books written about me, then instantly I became a cold greedy dictator.

Ghana bank reforms continue

Continuing banks reforms in Ghana, from back in 2018, the Bank of Ghana issued a new statement (PDF) on the state of banking in the country for the end of that year.

It stated that they had inherited a system with distressed banks that were not adequately capitalized, and which had high non-performing loans, and cases of insolvency and illiquidity – largely a result of poor corporate governance, false financial reporting, and insider dealings.

They noted that they had revoked seven licenses and arranged for those banks to exit in an orderly way and that after a recapitalization push, there were 23 banks with universal banking licenses in Ghana that had met the minimum paid-up capital of GHF 400 million (~$83 million) at the end of the year.

Excerpts:

  • The Bank of Ghana had approved three merger applications – (i) of First Atlantic Merchant and Energy Commercial banks, (ii) of Omni and Sahel Sahara banks and that of (iii) First National and GHL banks, as pension funds had invested equity in five other banks through a special purpose holding company called the Ghana Amalgamated Trust (GAT).
  • Another bank, GN Bank, was unable to comply with the capital requirement and its request to downgrade, from a universal banking license, to a savings and one had been approved. 
  • The Bank of Baroda has divested from Ghana following a decision by its parent bank which is wholly-owned by the Government of India. Subsequently, the Bank of Ghana has approved its winding down plan and allowed all the customers, assets and loans of Baroda Ghana to be migrated to Stanbic Bank Ghana.
  • Two other banks Premium and Heritage had their licenses revoked, and a receiver manager from PricewaterhouseCoopers appointed to take charge of the banks. Premium was found to have been insolvent while Heritage had obtained its license in 2016 on the basis of capital with questionable sources. All deposits of the banks were transferred to Consolidated Bank and the Ghana government has issued a bond to support the transfer of assets.

EDIT August 16 2019: The Bank of Ghana revoked the licenses of 23 insolvent savings and loans companies and finance house companies as well as 2 non-bank financial institutions.

The regulators had assessed the savings and loan and finance house sub-sectors and found challenges of low capital, excessive risk-taking, use of depositor funds for personal projects, weak corporate governance, creative accounting and persistent regularity branches and non-compliance.

The institutions are Accent Financial, Adom S&L, Alltime Finance, Alpha Capital S&L, ASN, CDH, Commerz S&L, Crest Finance, Dream Finance, Express S&L, First Allied, First African, First Ghana S&L, FirstTrust, Global Access, GN S&L, Ideal Finance, IFC, Legacy Capital, Midland, Sterling Financial, Unicredit Ghana and the Women’s World Banking Ghana S&L .