Vodacom Group is suing Absa for losses of at least US$64.1 million (R1.2 billion) it claims it incurred due to an alleged unauthorised payment by Absa’s Tanzanian subsidiary from Vodacom’s accounts to that country’s tax agency last year.
TechCentral can reveal that the JSE-listed telecommunications group is also demanding that Absa pay it $221.9 million (R4.3 billion) in terms of a multibillion-rand guarantee signed between the parties last year.
Vodacom alleges Absa defaulted on that guarantee.
In total, Vodacom is suing Absa for as much as $286-million (R5.5 billion) as the telecommunications group wants the bank to indemnify it against the loss of $64.1 million or more and pay it out the guaranteed $221.9 million.
On 9 January 2020, Vodacom applied to the high court in Johannesburg for Absa to pay interest and costs of the legal action.
Phumza Macanda, Absa head of media relations, said the bank is defending the claim. In its plea, Absa has asked the court to dismiss Vodacom’s claims with costs. The bank plans to file a “heads of argument” where its full case will be made clear, a source with knowledge of the matter said.
TechCentral has a copy of the guarantee that has led to the legal ructions. Vodacom Group CEO Shameel Joosub signed the document on 7 August 2019; Absa treasurer Deon Raju and financial director Jason Quinn countersigned the guarantee five days later.
This guarantee was called on as part of a multibillion-rand acquisition by Vodacom Group of investment company Mirambo’s remaining stake in Vodacom Tanzania last year – but Absa didn’t pay out the money covered by the guarantee.
It’s not clear from the court documents why Vodacom needed to take out a multibillion-rand guarantee backed by Absa. The guarantee governed the funds that Vodacom placed in the accounts of Tanzania ‘s National Bank of Commerce (NBC), in which Absa has a controlling 55% stake.
The conditions of the guarantee include that Absa pays back monies in the NBC accounts in US dollars within four days of receiving a written demand and that Absa indemnifies Vodacom against any losses.
Vodacom said in court papers that Absa’s NBC failed to comply with Vodacom’s notice, dated 26 September 2019, for payment of $221.9 million under the guarantee. Instead, it transferred $63.5 million to the Tanzania Revenue Authority (TRA) on that date and paid a further amount of $629 006 to the tax agency on 7 October 2019.
Vodacom said that on 25 September 2019, the TRA served NBC with notice that it pay funds from Vodacom’s Tanzanian accounts.
It is not clear why the TRA sought to get take this money from Vodacom’s accounts when it was tax due from Mirambo.“This amount purportedly represented capital gains tax and stamp duty due to TRA by Mirambo,” Vodacom said.
In response, Absa, in a plea filed on 9 March, said that NBC was bound under Tanzanian law to make the payments to the TRA.
Vodacom suffered a loss of at least $64.1-million because of the money transferred from its NBC accounts to the TRA instead of transferring that money to Vodacom’s Standard Bank account in South Africa, the telecoms group alleged in its court papers.
However, Absa has denied this.
Held in escrow
A Vodacom spokeswoman said Absa’s failure to make the $221.9 million payment under the guarantee meant it had fewer funds, held in escrow, for the purchase of Mirambo’s shares than the agreed purchase price of $224 million.
“This required Vodacom and Mirambo to renegotiate aspects of the transaction, in order to complete it,” the spokeswoman said. She said the matter is still before the court and remains unresolved. “We have not yet reached the point in the court process where we have been allocated a hearing date.”
The background to the deal is that on 15 February 2018, Vodacom entered into a written share purchase agreement with Mirambo as well as GR8T Holdings, Cavalry Holdings and East Africa Investments. Cavalry Holdings is an entity controlled by Tanzanian tycoon Rostam Aziz.
Subsequently, shareholders of Vodacom Tanzania approved the sale of Mirambo’s stake in the business to Vodacom Group in November 2018.
Vodacom Tanzania has 14 million customers and is the East African nation’s largest telecoms company. Tanzania is Vodacom’s most important operation outside South Africa.
Mirambo is the investment vehicle of Aziz, who is one of Tanzania’s wealthiest people and a former local politician.
In an offer document dated 6 August 2019, Vodacom’s Joosub wrote that the group was excited at the prospect of acquiring a further stake in the business. The offer was open from 9 August to 2 September 2019, with the transaction completed on 1 November, increasing Vodacom Group’s stake in Vodacom Tanzania from 61.6% to 75%.Mirambo placed the order with local brokerage firm Orbit Securities Company to sell its stake in Vodacom Tanzania to Vodacom Group on 3 July 2019. Vodacom Tanzania is listed on the stock exchange in Dar es Salaam.
On 26 September 2019, and again on 19 November 2019, Vodacom demanded payment of $221.9-million from Absa in terms of the guarantee.
TechCentral has a copy of the 26 September letter, which is marked as strictly private and confidential, and is a “formal notice instruction to immediately return completion payment to Vodacom”.
In this letter, Sugnet Pretorius, Vodacom’s managing executive of group finance, and Till Streichert, Vodacom’s group chief financial officer, demanded NBC transfer a total of $221.9-million from its two accounts held with the bank to its Standard Bank account in South Africa.
The letter was sent to three NBC staff and copied to four Absa staff, including Raju.
In the 19 November letter, which TechCentral also has in its possession, Joosub and Streichert wrote to Raju and Premising Naidoo, an Absa manager. The subject line of the letter is “guarantee demand” and it said: “Notwithstanding NBC having been so instructed, NBC failed to make the payment.”
They again demanded that Absa, within four business days of the date of the letter, pay the $221.9 million into Vodacom’s Standard Bank US dollar account in South Africa. As an alternative, Vodacom demanded that Absa indemnify it against the loss of at least $64.1 million as a result of the payment to the TRA.
Absa, in its plea, said Vodacom had made these demands but denied that it was required to meet them. The sale of Mirambo’s stake to Vodacom was due to be settled on 23 September 2019.
Vodacom said: “NBC’s failure to repay the amount of $221.9-million immediately upon receipt of the repayment notice constituted a failure on its part to make a payment in respect of the guaranteed obligations.”However, there was a delay to this settlement due to the announcement by the TRA on 20 September 2019 that it had revoked a previous tax ruling it issued related to the deal. The TRA issued a tax ruling regarding the deal on 28 March 2019 and issued a tax clearance certificate on 28 August 2019, according to documents in TechCentral’s possession.
Absa has denied this.
Vodacom said it complied with all its obligations in terms of the agreements with Absa. Absa, in its plea, also denied this. The bank also denied that NBC was obliged to comply with Vodacom’s notice to repay $221.9 million.
Vodacom has an alternative line of legal attack included in its court papers – in case clause 4 of Absa’s guarantee is not applicable, then it will rely on clause 5 of the guarantee. In terms of clause 4, Vodacom demanded Absa pay $221.9 million, and as an alternative, in terms of clause five of the guarantee, Vodacom demanded that Absa cover the $64.1 million loss.
However, Absa said that after 26 September 2019, Vodacom and Mirambo implemented the share purchase agreement. Vodacom received the shares and paid Mirambo and the TRA.
“Vodacom accordingly no longer has a claim against NBC or Absa for return of the completion payment,” Absa said in its plea. — © 2020 NewsCentral Media
This article was first published on TechCentral here.