A US government-backed private equity fund has taken over the management of Africa Telecommunications, Media and Technology Fund (ATMT Fund), the company that controls Wananchi Group Holdings.
The Business Daily has learned that the Overseas Private Investment Corporation (OPIC) last week wrote to owners of triple-play service firm Zuku to invoke a rule, technically known as ‘bright-line test’, to protect the $50 million (Sh5 billion) senior debt it advanced ATMT Fund and which has so far accrued $12 million (Sh1.2 billion) in interest.
“We are writing to inform you that OPIC has determined to require that EACP [East Africa Capital Partners ] step aside as manager of the fund and holdings pursuant to its rights under the amended and restated finance agreement,” OPIC said in the letter to EACP principals.
OPIC has also kicked out the funds’ three directors from the Wananchi board to forestall possible default on the loan following the recent outbreak of shareholder wars that have rocked the Internet and pay-TV service provider.
This means that Richard Bell, Tanzanian billionaire Ali Mufuruki, and businessman Mark Schneider are no longer directors at Wananchi Group.
The three were representatives of EACP, a venture capital fund that managed the $100 million (Sh10 billion) ATMT Fund, which in turn controls about 70 per cent of Wananchi Group.
OPICwas to press the distress button when the value of its investment in Wananchi falls below 1.25 per cent of principal debt plus interest owed, and which currently stands at $62 million (Sh6.2 billion), according to documents seen by the Business Daily.
“OPIC has made this demand on the basis of its determination that the net value of the fund’s assets is such that the ‘bright line test’ under the finance agreement has been triggered, which constitutes a technical default,” says the letter dated April 21, 2017, which also acknowledges that there has been no default by the fund on its obligations to OPIC.
The tech conglomerate started off as Wananchi Online in 2000 with ICT secretary Joe Mucheru and former CEO Njeri Rionge among its founders.
In 2008, the business transformed into Wananchi Group after new investors joined the company following several rounds of fundraising through a mix of debt and equity from State-owned Export Development Canada, Emerging Capital Partners, Dutch telcoms firm Altice, Nasdaq-listed cable firm Liberty Global Inc, and New York-based Prudence Holdings, among others.
This resulted in Wananchi Group adopting a complex ownership structure made up of several classes of shares (A, B, C, D and E); multiple special purpose vehicles; and a hybrid of financing structure designated as mezzanine, senior and, junior debt.
“OPIC may be in touch with you separately to provide details of how they plan to manage the fund, holdings and the Wananchi Group investment going forward,” says the letter addressed to shareholders and financiers.
Mr Bell confirmed the developments at Wananchi but declined to comment on the matter, citing ‘confidentiality rules.’
Sources at Wananchi said that ongoing shareholder wars and tax disputes facing the regional telcoms firms have adversely affected its valuation.
Wananchi has operations in a dozen African countries — including Kenya, Uganda, Tanzania, Rwanda, South Sudan, Burundi, Ethiopia, Somalia, Zambia, Malawi, and Mauritius.
The drama at the telecoms firm burst to the public domain in November 2016 when the Kenya Revenue Authority demanded Sh3.4 billion from it and appointed Mr Bell as a tax agent to collect and remit the taxes.
This tax demand followed a decision by Wananchi to dispose of its loss-making corporate data arm and use the proceeds to capitalise and expand the lucrative but cash-intensive Zuku business.
The units to be sold are public data operator SimbaNET, satellite provider iSAT Africa, and fibre optic cable firm Wananchi Telekom.
But Mr Bell moved to court to contest the tax evasion allegations and his appointment as a tax collector on behalf of the taxman. The case is yet to be concluded.
Matters took a dramatic turn last week when Mr Bell went to court to forestall other shareholders from instituting any civil or criminal proceedings against him or EACP as fund managers for alleged mismanagement, asset stripping and tax fraud schemes.