JOHANNESBURG — The young democracy of South Africa is a noisy place, especially during periods of political power shifts. And after the ejection of Jacob Zuma, wild accusations are being thrown against both the guilty and innocent. Even in this context, a scathing five page letter penned on political party UDM’s letterhead by its leader Bantu Holomisa is impossible to miss. Sent to president Cyril Ramaphosa and then surreptitiously distributed via the internet, Holomisa targets four black businessmen. He pegs financial services entrepreneur Tshepo Mahloele as the kingpin of this apparent “iceberg of corruption” which he claims has plundered the State pension fund. I met Mahloele this week and took along my recorder to hear his side. And got the story of a low profile financial service entrepreneur who has rode the Capitec wave from R30 to R900 and whose private equity fund has invested $1bn into African infrastructure. An unsung hero or a corrupt villain? I know where my money lies. – Alec Hogg
This is The Rational Perspective, I’m Alec Hogg, and in this episode Tshepo Mahloele hit back, after being accused of creating an iceberg of corruption. Two weeks ago, Parliamentarian, Bantu Holomisa, sent a scathing 5-page letter on his UDM Party letterhead to President Cyril Ramaphosa, urging him to investigate 4 black businessmen, whom he accused of systematically plundering the Public Investment Corporation. This letter, supposedly confidential, is now widely available. Holomisa named Tshepo Mahloele as the kingpin in a corrupt nexus with PIC chief executive Daniel Matjila, former deputy finance minister Jabu Moleketi, and Warren Wheatley, a director of Mahloele’s rapidly developing financial business, LeBashe.
Mahloele worked for Rand Merchant Bank, the PIC, and the Development Bank of SA before more than 10 years ago, founding is private equity firm, Harith. The firm well-known in development finance circles has raised $1bn from major financial institutions for investment into infrastructure projects on the African continent. It’s also generated these investors a return of 15% a year. Mahloele is also the key player in a Black Economic Empowerment consortium, which in 2007 bought 10 million Capitec shares at R30 each. That has been a spectacularly successful transaction, with Capitec stock having risen 30-fold, to its current R900. That created a base from which Mahloele has himself created LeBashe, which is investing in other financial businesses.
The scale of his achievements was recognised by the Association of Black Securities and Investment Professionals, which in 2014, named him the CEO of the decade. But now, Holomisa is accusing the man of being behind an iceberg of corruption. Mahloele has responded to the attack by launching an urgent interdict against Holomisa and his political party. So, to find out what was going on I went along to the Harith offices in Johannesburg to talk to this low-profile, heavyweight and started, as usual, by asking him to introduce himself.
I’m Tshepo Mahloele from Harith General Partners.
You are the focus of an allegation from Bantu Holomisa, of a political party in SA, the UDM. He wrote a long letter, which accuses yourself and associates of yours of being crooks. What are you doing about it?
We are taking the matter to court on an urgent basis, and the basis upon which we are taking this, is that what he said is factually incorrect. It’s not true. LeBashe and Harith are private entities.
So, these are your two companies, Harith and LeBashe?
Yes, they are two separate entities.
Which we’ll get into in a moment, so you’re taking him to court?
Yes, on the basis that what he said is factually not true. Secondly, that he’s causing harm, commercially, in terms of our business, in terms of our reputation with our associates and our various companies.
It’s an extraordinary letter that Holomisa wrote, sending to the President of SA. He’s put himself out on a limb by saying a lot of the stuff that he has in there. Why would he do something like this?
You know Alec, I think there’s political or commercial interest, but from Holomisa’s point of view, perhaps more political for instance but perhaps other interests. The problem I have with it is that he’s never come and asked for clarification about what this is all about, and then to go on a tangent about some perceived issue of us fleecing the PIC of funds is totally unfounded.
So, let me get this right. He hasn’t engaged with you at all and said, ‘these are the things that I’m concerned about?’
He’s never written a letter to us. He’s never phoned me. He’s never phoned any entity that we are associated with and asked anything, in terms of what is Harith? How is it structured as the fund manager managing funds? And how is LeBashe, as a separate entity, altogether which is now our platform whereby we’re building a financial services platform.
So, he’s accusing yourself, he’s accusing Dr Dan, the head of the PIC, he’s accusing Jabu Moleketi, your chairman, who is also the chairman of Brait, (amongst others), a former deputy finance minister. He’s also accusing Warren Wheatley now, those individuals, what is their connection with you?
Jabu Moleketi is the chairman of Harith General Partners, which is our fund management business.
How did he become chairman?
Jabu became chairman, initially, of Harith Fund Managers in 2006, when we initially started because he was the chairman of the PIC at that time, and when this initiative was started, you know, PIC had a share in Harith Fund Managers and then they selected him to be the chairman of Harith Fund Managers.
And he stayed since then?
And he has stayed since then, and even when we changed to Harith General Partners, we have kept him as the chairman of Harith General Partners. He’s neither a shareholder of Harith General Partners or any of the funds.
But just again for context, if I remember correctly, he was the chairman of the PIC because he was deputy finance minister, but he gave that up when the Zuma-administration came in.
Yes, in 2008, when the new administration came in and President Mbeki got out of office, he left at that time and he went on his own.
But you kept him as the chairman of your business?
We kept him as chairman of the business. It’s a private entity in which we could keep him as chairman. There was anything untoward about that.
But there’s no connection between him and the PIC, given that he was no longer the chairman of the PIC.
None at all since 2008.
Dan Matjila is the current CEO of the PIC. When Harith was setup in 2006, Dan was the risk manager at the PIC, he had no approval process into what Harith was or how it became and all that. That’s like a totally separate entity. So, at that time he was not… And even the approval to invest in the funds that Harith manages. That approval comes directly from the Government Employees Pension Fund. It’s not an approval by the PIC.
Warren Wheatley is a partner of mine in LeBashe, an investment group wherein we are building a Financial Services platform, to look at assets that we can aggregate and then play a much wider impact in the financial services space. We think that there’s a space for a platform like ours, whereby you can build inclusive financial sector assets to drive this agenda. We know that there’s a big opportunity in that regard. We are driven by the successes of entities we’ve seen like Remgro, like PSG, like Brait. How they morphed and became successful investment holding entities, which have managed to aggregate assets – build them up and make them successful. That is what drives us.
You’re in the news now, you’re in the spotlight now, but for most of your career you’ve kept pretty much under the radar. How did it start out? Where did you learn about financial services, given that you’re past 50?
I’m 51 and I’ve been having fun. I started having fun at 50, it was good, but I started when I was 27, I had my first business. I got funded by Investec and Citibank to buy a furniture business. I started when I was 27 so my journey didn’t start now. I’ve worked for entities like Rand Merchant Bank, where I was in corporate finance, and where I was in BEE Funding. I learnt that there. My infrastructure funding background – I worked for a common wealth development corporation, funding infrastructures like the M4, and all that, so I’ve been at this for quite a while. I have preferred up to now, even in the build-up of Harith to say, ‘let that which we’ve built speak on our behalf.’ As opposed to us saying that and up to now, what we have done for the past 12 years, I’ve treated it as just the foundation and we are not going to now start – we can take what we have done and make it 3 to 4 times more than what it is, in terms of what we see and what opportunities there are. We’ve spent the last 12 years building this up. We’ve now got assets spread all over the continent. We’ve got energy assets, which impact on 30-million people across the continent. We’ve got transport assets, which have changed – have contributed to the GDPs in the smaller countries. The GDPs in some countries like Cote d’Ivoire. So we know what it is that we have but believe that we’ve now laid the foundation to enable us to take this to the next step.
So, Harith, you mention 12 years, how did it come into being?
Harith was as a result of an initiative to see how do we get Africa pension funds to invest in infrastructure on the continent? Then at that time, PIC took the initiative on and said, ‘just go and see how this can be structured, can you raise the money, where do you raise the money from, can you get other African entities to invest in this, and do that?’ And they said, ‘here’s the funding to investigate all that, and if it’s a successful setup the fund manager and the funds to do that,’ and raise the money from all and sundry so that we can then take a longer-term view on the future of the continent, and have funds committed to that because we need longer term funds, like pensions, who can look to the growth of the continent, and that is how Harith was started. PIC, at that stage, gave us seed funding for R21m to go and investigate and see how that platform can be raised.
So, ‘gave us,’ were you working at the PIC or were you on your own at that stage?
I was working at the PIC until March 2006, when I resigned from the PIC. I was not seconded from the PIC and then I got hired by this initiative. By the Facilitation Trust to see, ‘can this thing work?’ Had it not worked or been successful, I would have been without a job so it became successful, we established the fund. We raised the funds from pension funds from Ghana.
But it was a different world in 2006. How keen were people to support you, like the IFC and part of the World Bank?
At the time, when we set out to raise $1bn for infrastructure on the continent in 2006, the narrative was that there isn’t enough bankable deal flow on the continent to sustain a billion dollar fund. Fast forward that 12 years, we know where we are today, and we want to believe that, in our own small way, we’ve our done bit for improving them. Take this 12 years back, to 2006, the four biggest economies on the continent was SA, Nigeria, Algeria, and Egypt, and for the three other countries, outside of SA, you needed to add up their GDP for them to match up to SA. Fast forward that to 12 years forward. Today, SA is number 2 or even 3 sometimes, and Nigeria is number one. So we believe that this growth of the continent will continue. It’s not a jackpot. It’s a long-term build. The funds of Harith are built on the back of long-term, creating an environment for Africa so that it can realise the potential and using long-term funds. But not just using long-term funds but also doing that for those pension funds and investors on a commercial basis.
So you raised a $1bn?
In the two funds we have now raised a $1bn. The initial fund was $635m. We didn’t get the target of a billion but now the second fund we’ve raised over $400m so therefore the two funds are over $1bn.
But they’re funds, it’s not your money. It’s not investors in Harith. It’s what Harith allocates.
Yes, Harith is the fund manager. The two funds are very separate legal entities, which Harith manages and which have done well. We have built airports in Tunisia. We’ve built sub-sea cables in West Africa. We’ve built the largest renewable project on the continent, the wind-power at Lake Turkana of 320 megawatts, in a remote part of Kenya. Our power assets now impact on over 30-million people. We have done, I think, good stuff in these terms, we take the view that let everybody do their bit to improve their situation, and that’s what we continue to do.
How much has the PIC put into Harith?
PIC only put in the initial R21m.
Did you repay that?
The R21m was paid within 18 months, with interest and since then the PIC has enjoyed dividends from the fund manager, since then, and I don’t think I’d be wrong to say that the PIC for that R21m has now received in excess of R120m or R130m, in dividends and being paid back.
So you’re being accused of being crooked, using the PIC’s money but actually the PIC has been getting money from you? The flow has been the other way around.
PIC has done very well out of it’s exposure to the Harith Group so in that regard, there is no truth in that allegation.
Okay, so we move onto the second one, which is LeBashe, which is something outside or separate to this infrastructure fund. What exactly is it?
LeBashe is an investment holding entity that we have built up and that we are creating on a bag of opportunities that we see for aspiring black entrepreneurs, to build up a platform within the financial services sector, which is very different to what has been done here and also, it’s building up an ability to fund or contribute towards inclusivity of the financial services sector.
Where did it all begin? Where is LeBashe’s roots?
The roots of all this was; I’ve had exposure to Capitec shares since 2007, as an individual. In 2015, Warren, who is my partner in LeBashe, came to me and said we can look at a structure, which can enable the acquisition of more shares, of those Capitec shares, to enable us to grow this balance sheet in the financial services space, and that’s how LeBashe has been built, so that’s a very separate entity. Out of that exposure, we’ve taken that balance sheet and we’ve used it to buy into other assets, in the financial services space, and we will go on tomaybe build it up into a much more diversified entity. The idea is to build up a balance sheet which can create and build up more assets.
Let’s unpack the story because it goes back to 2007. How did you get that exposure to Capitec?
When we got exposure to Capitec in 2007, the share price of Capitec was R30. Capitec’s market cap was R3bn. We got funded for 10% of that acquisition, 100% by IDC.
So not the PIC?
Not the PIC at all, so in 2007, when we got exposure to the initial 10% of Capitec we were funded by the IDC.
And what happened then? What happened to the 10%?
The 10%, you know the share price grew from R30 to over R200, and in 2012 we decided like the Debt Consortium to capture some of the value in the growth, sell 50% of that, to pay off the expense that we had from IDC, and that’s basically what happened. The shares were then sold to PIC at 15% discount, their weighted price at the time in 2012. We then took that and paid off all the debt. Therefore, that consortium was then left with 5% of Capitec, which was totally unencumbered.
So when the dividends came through they were there to be used?
Dividends came through and then they were all just distributed to the shareholders. So that entity, which is Coral Lagoon, was just to receive dividends and it didn’t do anything beyond that.
Who’s in that entity?
In that entity you have entities like The Regiments, you have Nozala.
Regiments is a bad name.
How did you get involved with them?
I think, at the time, when you put together a consortium, you just take all and sundry into a vehicle and you say, you’re creating a consortium to do that. In 2007, this was all seen to be that we were just creating a consortium of different entities to do that. Then some of the other people around the table said, let’s invite this one and this one, in as much there was Regiments, there was also Thebe, so it was to create a broad-based entity to go and just acquire 10%, and that’s been the route that most BEE-SPVs are created. You find the people and then you put them together and then you just hold as assets.
But it’s been an incredible asset. As you said, from R30 to a R1,000 at one stage. You hit the jackpot with Capitec.
Alec, I won’t lie, it’s done very well for us. Some people like to say, ‘maybe they were clever’ or maybe we were damn lucky. Sometimes it can go the other way around. There are people who thought that African Bank would be something, but at that stage we were there to take the opportunity and the opportunity worked for us. The issue is, ‘what do we do with that opportunity once you have you it?’
And that’s the question, whereto now? So, in 2012, you sell back half of the 10% of the Capitec that you own. Who did you sell it to?
We sold it to the PIC to pay off the debt.
To the IDC so to two different entities?
Yes, we sold it to the PIC to pay back the IDC because the PIC could take a listed share. It was a listed share and they could do that and it was doing well at that time. So, that’s what it basically was. It was to enable us to pay the debt. We are now a separate entity in LeBashe. We’ve taken that value, which we have built up, out of the growth of Capitec, and we are using that value to grow and expand our financial services play. To grow and expand our other opportunities, which we see in the market to create a long-term balance sheet. To create LeBashe into a player, which can play in very different sectors.
So where have you invested the money in LeBashe?
We have invested in RainFin, which is like a market peer-to-peer lending platform.
Absa are in there as well.
Absa was in there but when Absa sold out, we bought it. The management came to us and said, ‘Absa is selling out, would you guys be interested to look at us?’ That’s when we bought into RainFin. At the time we bought in at 30% and as it needed to raise more funding, we’ve now got to a stage whereby we now own over 75% of RainFin, because we’ve provided them with funding. But we believe in the growth that it is trying to achieve.
The next leg, if you like, of the Capitec story is you’ve now sold 5% to the PIC. You want to buy that back, or you’ve bought that back. I guess that’s also where Holomisa is perhaps getting his story a big confused.
What happened is Warren, my partner, came and said, we can put together a structure totally funded by Investec to go and buy those BEE shares, which are held by PIC, which we had sold in 2012. This was now in 2015 when he came to say this. We then did get the term sheet from Investec, which enabled us to go and offer 100% acquisition of that share, which was, at that time, R325.
What to sell it to the PIC at?
At about R220, or something.
So, PIC has made a good profit on those three years.
PIC cannot say that they have not done well out of exposure to Capitec. Like most people have had a good run on Capitec, PIC has done well. But in addition to that. Even out of funding, buying at 15% discount, even funding a BEE entity to do that and being paid at market related funding – PIC has done well. It has done in excess of 25%, I don’t know the exact numbers now but we can do a calculation. They have done very well out of us.
Why did you go back to buy more Capitec, given that you already have the exposure on the other 5%?
Those are BEE shares.
What do you mean by that, BEE shares? Are they only for black people to own?
They are only meant for black people to own, then we thought that we could find a structure that can fund shares which are just for BEE shares. Then the value of those shares in the main, many times, it’s only based on what dividends you can get because you can only sell it to other BEE entities, and which can hold it for that long.
Is there a lock-up on these shares?
It is a lock-up, yes.
For how long?
Half of the shares have like an evergreen locking and the other half have a remaining 5% for 5-years, which is left, out of the initial 10 years.
So, they’re not negotiable in the marketplace?
They are not negotiable in the marketplace.
Hence the discount?
A massive discount so therefore we saw it as an opportunity. As I said, look, we can play the long game. We can hold these shares for long but we can use that value between its intrinsic value and then the market value, to use that and leverage that to buy other businesses, but we will hold those shares for a very long time. Why should we lose that value because we have no intention of selling, so from a value point of view – it’s got that value but from a fundability point of view it is very difficult. But we’ve used that to build up a balance sheet on the back of that. That’s what we have gone on to do. We buy other businesses, as a result of that value. We have gone to Sanlam to fund us, to raise some other debt to buy these other businesses. We have gone to Peregrine, we’ve gone to Absa. They’ve funded us way in excess of what PIC has funded us.
What do they think about all these allegations that Holomisa is throwing at you?
Absa, no, it’s in that structure. It has funded us. Investec has funded.
But these are your partners. They’re funding partners. Reputation is important.
Yes, they have funded us and reputation is very big and that’s why, for us, it’s important to clear the air about what this really is because in a 2 or 3-minute interview on the radio or on TV, it’s very difficult to set out a fund management structure, which started in 2006. How it started, and how it raised funds from all sorts of entities from all over the continent, and in terms of what it has invested in because another thing, Holomisa said, ‘What happened to the pensioner’s money?’ It’s in all the investments which are spread across the continent and they’re doing well. And our partners would worry about it and that’s why, for us, it is important to go to court because reputationally we’ve been affected by being referred to as crooks, when we are not.
There are a number of companies that have been raised in the letter of Holomisa, including EOH, and we know EOH has got a bit of a smelly reputation at the moment, given its relationship or alleged relationships with the Gupta entities and whoever else might have been involved there. What’s your involvement with EOH?
Alec, I look for value. If you look at the size of EOH. I think it’s one of the largest IT companies on the continent. In terms of number of people, it has and its revenue, and if you look at it right now, the multiple that it is trading at. For somebody like me, who’s looking for cheap places to get into and be able to impact them and look for growth because I don’t have all the balance sheets in the world to buy things at premium. I look for things which represent good value, that we can add some added benefit to it and grow it. At this value we think that it is a good opportunity. But besides that, those entities in there, they are doing that revenue. They can be that if we maybe come in and as it is now. They’ve changed some of the management structures. They’re going to refocus the businesses. For somebody who comes with BEE and value, like I come from, this represents an opportunity.
Have you invested in them?
No, we have not invested in EOH.
You haven’t invested in EOH?
No, not yet.
So, why are you being accused of doing stuff with them?
I don’t know but we are looking at it. It has been public knowledge that EOH is talking to us. We are interested in the business and we think for value, for growth, for Black Empowerment opportunity it represents the type of things that we should be looking at.
But as of right now, you are not an investor in EOH? Have you ever been invested there?
No, as of right now we have not, we’ve not invested in EOH.
Then the other name that’s being thrown around is Venda Building Society (VBS), which has all kinds of chaos going on there.
We have never been invested in VBS. We’ve got nothing to do with VBS. There’s nothing, which connects us to them. To the extent there’s an insurance license, which is owned by Valor, which is one of the shareholders of VBS, and because even Valor is also under a potential threat of liquidation – there’s an insurance license, which we think it’s valued at R1. And for an entity like Labour Share, which is looking at growing its financial services platform – I would look for things for value that we can build up on. So, that, for us, represents an opportunity but we’ve got no involvement at all with VBS. We’ve got no involvement at all with the Valor Group.
So, it’s a bit like what Whitey Basson did with OK Bazaars, when he bought it for R1, but there was a lot of liabilities in OK Bazaars. Are there liabilities in this insurance entity?
We have looked. We’ve got in experts who have worked in this sector and who’ve looked at what the liabilities are in the insurance business. Not the whole of Valor, not the whole of VBS, just insurance businesses and we think that the liabilities, even for an entity like us, which is not too big, like Labour Share, we can manage those liabilities and we think that if we can get that for R1 – it represents a very good growth opportunity because the issue is, can we find assets, which we can grow for value. As opposed to the old narrative of just buying into anything and just creating a BEE vehicle to buy that. We want to grow up assets and we think this represents good value to get exposure to very few insurance licenses for a platform like us.
Tshepo, listening to you and having this interview, and engaging with you. There’s one of two things. The one thing Holomisa is right, and everything you’ve told me is a lie. The second thing is that you are a very astute businessman in that you started something many years ago, which has raised $1bn for infrastructure on the African Continent. You have a separate entity that invested in Capitec early on. You’re using the benefits of that, by not buying another fancy car but by reinvesting to build a Patrice Motsepe-type organisation. That’s what I’m getting but Holomisa is saying something very different so how do you answer? What’s behind all of this because you can’t be both?
Alec, I’d like to think that perhaps now we represent, as we grow, somebody like me, how did he get it right, and they don’t understand? I can’t speak for Holomisa and what he’s driving.
Have you tried to phone him, to talk to him?
He has never phoned us. He put out a letter without giving us a call or writing to us, and he made it very public so there was nothing quiet about what he did. So we need to also respond. He has not phoned us, he has not asked for anything so therefore in that regard that’s that. But from our point of view, Alec, he can say what he can say. Everything that I am saying to you, I can show you our investments. All our governance and everything in Harith is very independent. The investments in our funds are driven by the investors themselves. Not even like Harith. Therefore, it’s very independent. The funds are not owned by Harith. They are owned by the investors because we have investing infrastructures in that regard.
Who are these investors in Harith?
We’ve got SSNIT, which is the pension fund in Ghana. We’ve got Liberty, we’ve got the Government Employee’s Pension Fund. We’ve got Absa. We’ve got Old Mutual, Momentum, we’ve got Metropolitan.
Well these are reputable organisations with compliance teams.
Yes, and their representative sits on the Investment Committees. They know where those investments have been made. They know that we’ve been audited since 2007, we’ve never had any issues. They know how these assets are. They know the impact of our intervention in this regard of Harith and the funds that it manages have done, and the impact, which it is had, so therefore that is factual. That cannot be changed and that cannot be taken away from Harith and the people who have been here for the past 12 years. That is factual, and the partnerships we have. We have partners… We invested in things like Dark Fibre Africa. If Holomisa wants to know where’s part of the R8m, it’s also partly in Dark Fibre Africa, also part of it is in Lanseria, part of it is in a sub-sea cable in West Africa, which is working and has changed lives there. It’s in over 8 power assets across the continent, which are changing the lives of Africans. That’s where all this money has gone to and doing very well.
So the return on investment?
The return on investments, for our Rand investors, out of PDF/A-1 we have given a return right now, standing at gross, in excess of 15%, on the Rand side. Then in Fund-2 it’s even doing better. We’re doing net in excess of 15% in Dollars in Fund-2.
So with these allegations, that is going to prevent you from raising more money to put into these infrastructure projects?
Alec, that’s the sad part about it and that’s what we’re looking to get out there and sort out and fight for our space and sort out this untruth, which has been said about the funds which we manage and about how LeBashe was formed. We will go out and do that. We will sit down, like I’ve started doing, with our investors. They know Harith – they sit on our Governance Committees. They can be told about the funds and what they’ve invested in – they know that very well. But there’s lots of other stuff we are trying to do. We can also view that somebody is also trying to put a spanner in the works in terms of them. There are listed entities on the Harith side that is thinking, ‘shall I do business with?’ There are listed entities that we are trying to do business with so to the extent that a lot of noise is created commercially, it impacts on us. There’s lots of noise right now in SA about all sorts of issues, corruption and all that. It impacts on us. We are getting thrown into the same pot and we have to do what we have to do to defend that. We have people who work here. We’ve got assets, which are managed by ourselves, which have to be looked after, so we have to protect that value. To make unfounded allegations, based on not knowing how these things are run – it’s terribly irresponsible.
That was Tshepo Mahloele. Is he a crook, or actually a financial mogul in the making? That answer should be pretty obvious by now.
This has been The Rational Perspective, I’m Alec Hogg. Until the next time, cheerio.