Thursday, September 26, 2013 / Renaissance Capital
Corporate governance, in our view, is an issue that should never be far from investors’ thoughts. After all, directors and top management are the stewards of their investments in companies. Corporate governance issues, when brought to light, are magnified in the SSA context, not least because they often seem to be brushed under the proverbial carpet.
ETI has been in the news of late due to a boardroom dispute over corporate governance. There are a number of issues, which have been reported repeatedly in the Financial Times.
In essence, the initial point of contention involved the chairman, Kolapo Lawson, and his outstanding loans. There are two separate issues here: the first a real estate loan made by Ecobank’s Nigerian subsidiary to a property company owned by the chairman, known as the Agbara Estates loan; and the second relating to other loans to Lawson from other Nigerian banks.
The Agbara Estates loan had previously been disclosed in Ecobank Nigeria’s annual report at a value of $8.6mn (we note it was classified as doubtful in the 2012 report). According to management, this loan was restructured in July 2012, with the chairman agreeing to make a bullet payment for the outstanding capital and incurred interest on 31 July 2013.
Management informed us that this payment was duly made on 26 July 2013, and the chairman has no further outstanding loans with the Group. While we are uncomfortable with the chairman having had a loan that required restructuring in the first instance, we take some comfort in the fact that it has been repaid in full.
The more contentious issue is around the other loans sourced from third-party banks. According to press articles, these loans were transferred to the Asset Management Corporation of Nigeria (AMCON) as NPLs, and consequently the question of Lawson’s fitness as chairman became the subject of a Central Bank of Nigeria (CBN) letter. Lawson allegedly failed to inform the board of directors about this letter. We should note that the ETI home regulator is the West African banking commission headquartered in Abidjan (Cote d’Ivoire), while the CBN has jurisdiction only insofar as its Nigerian subsidiary is concerned. Press reports indicate that these loans have now been repaid or restructured (since the issue came to light). We further note that the board reaffirmed its confidence in its chairman with some alacrity.
The matter did not rest there. In early August, ETI’s CFO, Laurence do Rego, sent a letter to the Nigerian Securities and Exchange Commission (SEC) and the board of directors. The letter alleges that Chairman Lawson and Group CEO Thierry Tanoh were attempting to sell non-core assets at values below market, that the two attempted to manipulate the 2012 results to enable the Group to show much better 2013 growth, and questions procedures around the approval of a substantial increase in Tanoh’s 2012 bonus (which he subsequently opted not to receive). She also alleges that she was asked to write off debts owed by a real estate company Lawson also chairs; it is unclear if this is a separate issue from the Agbara Estates loan. We discussed the matter extensively with management, given that Do Rego is currently under suspension. Management explained that the board and Do Rego were informed of her suspension in early July (with a view to terminating her position), following a review of senior management positions by the new CEO.
According to the official statement from ETI, she misrepresented her professional qualifications – an allegation she disputes. A month later, in early August, she submitted her dossier to the SEC. According to management, prior to her suspension she had not raised any of the issues presented in the dossier with either the board or the SEC.
Whatever the outcome, the public nature of the dispute casts a pall, in our view, on corporate governance at ETI, and in particular on the current chairman. According to recent press articles, the honorary president and one of the founders of Ecobank, Gervais Koffi Djondo, has called for Lawson to step down. (We note that the other founder of Ecobank, Adeyemi Lawson, is the father of the existing chairman.) The chairman’s term is due to end in 2015, and he will not be eligible for re-election.
We are reluctant to label this as an example of faulty stewardship in SSA, yet the fact that the CBN and SEC are involved does lend credence to at least some of the allegations. Unfortunately, in our view, the media reports on the issue highlight some of the potential difficulties of investing in Africa.
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