FirstCred catches the blues

• The curse of Dave van Niekerk’s blues

FirstCred is in a place of extremes. Its CEO Dudu Garekwe dropped the name of Dave van Niekerk as the mastermind. With years of experience in the microfinance industry, Van Niekerk is one of the founding members and current Founder and Executive Chairman of the pan-African fintech company, MyBucks S.A. Luxembourg.

MyBucks held the brands Haraka, GetBucks, GetSure, GetBanked, Opportunity Bank and New Finance Bank.  FirstCred began life under the name GetBucks Limited, trading as GetBucks Botswana. It was originally 100 percent owned by GetBucks Mauritius, which was in turn wholly owned by MyBucks S.A before being disposed.   As the mother company, MyBucks guaranteed notes issued under a P500 000 000 domestic Medium Term Note Programme for the subsidiary. The notes raised an aggregate amount of P200 000 000 according to FirstCred CEO who told the court that most of it was looted by former management led by van Niekerk.

MyBucks has been a troubled company. It had accumulated mounds of debt under its brands and was incurring losses as well. The company said it embarked on a financial restructuring in March 2019. Against this background, in 2020 it had reportedly reduced its consolidated indebtedness by about EUR26.5 million through a disposal of its wholly-owned subsidiary, GetBucks Limited Mauritius (the holding company for its GetBucks Botswana operation). The buyer was none other than MHMK Group Limited (MHMK), a company owned by George Manyere, a key figure in the Ecsponent organisation (South Africa’s Financial Mail reported in 2017 that he was the CEO).

The sale of GetBucks was parallel to a sell-down of stakes in its operation in Mozambique and Zambia to Xtenda Financial Holdings Limited (Xtenda). MyBucks said in a statement then that it would retain a 25 percent stake in Mozambique. The aim was to rightsize “its business through curtailing of costs and retrenchment of over hundred staff and a strategic reassessment of its portfolio leading to a disposal of non-core assets and the establishment of a focused bank holding company in Africa to hold its banking operations”.

The disposals came as a surprise to Edison Investment Research, a research firm with offices in North America, Europe, the Middle East and Asia Pacific. This because MyBucks wanted to grow its banking operations in existing markets. The group also was after a commercial banking licence in Botswana.

According to Edison Investment Research, Ecsponent was one of MyBucks’s major shareholders with a 42.97 percent stake as at end-March 2020. Curiously, Edison Investment Research had noted that MHMK (Ecsponent’s parent company) “also has a direct holding in MBC (MyBucks) and, together with its indirect holding through Ecsponent, has a majority stake in the company (c 63 percent according to Bloomberg data as of 15 September 2020)”.

Ecsponent had also experienced some financial stress. Edison Investment Research indicate also that Ecsponent’s board had also “instructed another forensic investigation into the use and distribution of funds from a US$7.5m third-party loan facility, but at this stage it is not clear if these funds were used for investment into MBC or any of its subsidiaries”. The investment research firm concluded that there are risks associated with MyBucks, suggesting that it would not receive any additional funds from Ecsponent following the completion of its second phase of restructuring. MyBucks had also allegedly been fouled by its subsidiary South African subsidiary, VSS Financial Service which this publication can confirm that it received funds for GetBucks Botswana. Media reported that indicated that the mother company was pursuing former senior executives, for alleged financial mismanagement and accounting irregularities.

MyBucks was bleeding millions and turning around the insitution has been difficult since then. Early this year, it was reported that it was placed under liquidation by the Luxembourg tax authority. According to media reports, Afristrat has “concluded an analysis of MyBucks regarding its financial position, which culminated in the realisation that the future prospects of MyBucks as an investment vehicle was unsustainable and would not provide any realistic turnaround value for Afristrat in the future”.

It is Blue Financial Services all over again. In 2020, Financial Mail reported that van Niekerk, “…helped sink microlender Blue, in the process costing shareholders — like Absa — hundreds of millions of rands back in 2009”. Van Niekerk founded Blue Financial Services. In an interview with How We Made it in Africa back in 2017, he explained that the company encountered funding issues around the financial crisis time. It is the same funding challenges experienced with FirstCred. Blue’s biggest shareholder at the time was AIG.  “When you had AIG on board as a shareholder pre-2008 financial collapse, it was something to be proud of,” he was quoted as saying.

AIG was among those who gambled on collateralised debt obligations and lost. Van Niekerk says Blue needed to raise more capital and [with] the nature of their funding structure and of their shareholders, weren’t able to raise more capital. Ultimately he said “they brought on board a new shareholder who said that they wanted to take the reins and actually run the business”. He stepped down but trouble still followed him.

After the new shareholders injected capital, they experienced growth. However, three years later Blue financial Services encountered difficulties in its business due to bad debts. Creditors were breathing down its neck. News24 reported at the time that in 2010 it suffered a R1billion, “which was caused by, among others, a failed operating model; an inadequate capital structure; significant corporate maleficence; and a significant amount of individual entity annual financial statements not having been completed”.

According to the report, a decision had been taken to proceed with the liquidation and/or closure of the company due to their lack of viability: Blue Kenya, Blue Financial Services Lesotho, Blue Financial Services Mauritius, Blue Financial Services Swaziland, Blue Employee Benefits Uganda, and Mobile U.” A turnaround strategy was started in 2010 with recapitalisation.

The Blue debacle earned the company a suspension on the JSE and the BSE. The BSE had been attempting to get in contact with Blue directly and through the JSE where it is primary listed in an effort to encourage the company to rectify its standing with the bourse. The company did not publish its financials. The BSE said back then that the company had not responded to any of its communications.  The JSE, as the primary market then, moved to delist the company and the BSE has followed suit in accordance with its Listings Requirements. Van Niekerk told How We Made it in Africa that ever since “then they have sort of said it is previous management’s fault. So it is a little bit like crying foul two or three years after the initial management team left”.