The incestuous relationship among Tetrad Holdings’ subsidiaries — TFS Management Services, Tetrad Investment Bank (TIB) and Multiridge Finance — through which the asset management business was used as a “honey pot” from which funds were sourced to prop-up the parent company’s other activities ultimately collapsed the asset manager.
This is the conclusion reached in a report compiled by Tetrad final liquidator, Mr Knowledge Hofisi.
TFS was placed under provisional liquidation on April 15, 2015 with Mr Hofisi of Aurifin Capital as the provisional liquidator, before his confirmation as the final liquidator exactly three months later.
The unit is considered insolvent as its liabilities exceed assets by US$1,5 million.
It is understood that the venture was killed by declining business volumes, an illiquid market and corporate incest.
But it is the “irresponsible” investments that were made in other units that are disturbing, noted the liquidator.
Among some of the questionable decisions that were made by TFS Management Service — which curiously had only one director Mr Gail Conway in contravention of Section 169 of the Companies Act — was the US$9,8 million sank into Tetrad Investment Bank.
The investment actually constituted 60 percent of TFS Management Services’ portfolio and there are fears that this amount cannot be recovered if the bank, which is currently under final judicial management, is eventually liquidated as is feared.
But client funds were not only channelled to the investment bank alone, as US$600 000 was used to capitalise the microfinance unit, Multiridge.
“It is not without basis to infer that TFS mobilised funds for TIB and ultimately the group before such funds could be channelled in the grey markets.
“According to the information obtained from the company records, Multiridge Finance, a microfinance arm of the group, was capitalised to the tune of US$600,000 using TFS clients’ funds, further showing the level of incestuous relationship that characterised the group,” was Mr Hofisi’s observation in his 10-page report.
At its peak, TFS managed a US$25 million unit trusts portfolio. Former manager Mr Anthony Fisher pulled the rug from under the feet of the business when he left TFS in 2013, as he moved away with a portfolio worth US$9 million to another asset management company.
This torched viability challenges.
There are on-going investigations to ascertain allegations that additional funds from the asset management business could have been used to increase the parent company’s hold on listed agricultural business, Zimplow.
There are also investigations to ascertain allegations that Tetrad Holdings may have acquired additional shareholding in Zimplow Holdings using unit holders’ funds.
So opaque were the dealings at TFS that even the trustees of the asset management business, Broc Financial Services, who were responsible for overseeing the business, are not aware of some properties owned by TFS.
The properties in question – 1 Kenilworth Gardens, 69 Josiah Tongogara and Sanilam Centre in Harare – are registered in the names of companies whose shareholding cannot be linked directly to TFS.
As the full extent of the corporate sleaze in Tetrad’s business units continues to unravel, there are indications that the asset management business could have been viable had management been prudent.
Notwithstanding the fact the TFS was making money, its capital fell short of the minimum requirement of US$500 000 stipulated by the Securities and Exchange Commission of Zimbabwe as at December 31, 2013 as it was bled by its peers.
Instead of US$500 000, TFS capital stood at a paltry US$17 000.
It, however, improved to US$204 000 as at March 31, 2014; US$451 000 by September 30, 2015; and US$788 000 by March 30, 2015.
Although SecZim issued a final corrective order to TFS in April last year “there was vacillation by TFS board in taking decisive action over eight months” as there was growing optimism that discussions the group was having with a potential investor would ultimately rescue the business.
When the firm’s trading licence expired on September 30, 2014, an extension of three months was sought from SecZim before directors raised the white flag on December 31, 2014.
Three months after surrendering the licence, management filed an application for liquidation. Despite being repeatedly prodded by SecZim to realign its portfolio to reduce risk concentrated on money market investments and as TIB was beginning to experience liquidity challenges, both TFS and its trustees took no remedial action.
When TIB was put under judicial management on January 29, 2015, the trustee filed a claim of US$10,8 million.
It is doubtful if the full amount will be recovered as money market investments by TFS in TIB on behalf of its clients were unsecured, making TFS clients concurrent creditors in TIB.
Concurrent creditors are paid from any proceeds of unencumbered assets that remain after preferential creditors have been paid in full.
Whilst another asset manager has been identified to take over TFS’s portfolio, Mr Hofisi believes closure can also be achieved through disposal of remaining assets, “more so considering the uncertainty regarding the ownership of the property and usurpation of the role of the clients”.
It is thought that some of the properties could have been pledged as collateral with creditors. This could not be independently verified.
A forensic audit is expected to establish any criminal liability on the part of directors.
To underline the challenges among Tetrad Holdings’ subsidiaries, TIB is also under final judicial management and creditors are mulling converting their debt into equity to avoid liquidation.
It is understood that creditors with investments valued at US$30 million in TIB are supportive of the idea ahead of a critical meeting on October 1, 2015 to consider the request for TIB to be taken over and reconstructed by creditors. Last year, TIB was on the verge of sealing a US$200 million rescue package with Horizon Capital Consortium led by Russian Mr Sergey Pokusaev, Government and local investors, but the deal fell through under unclear circumstances.