IFC, Allan Gray frustrated with Belamant’s golden handshake

Net1 UEPS’ two largest shareholders, the International Finance Corporation (IFC) and Allan Gray, have expressed shock at the whopping R265 million golden handshake that outgoing CEO Serge Belamant will be paid.

Both shareholders have again raised concerns with Net1’s board on governance issues, including severance pay to executives.

Net1, which has a primary listing on the US Nasdaq, revealed in a disclosure to the US Securities and Exchange Commission on Tuesday that Belamant would receive an $8 million (R105 million at the time of writing) severance payment.

Last week, Belamant resigned as CEO and took early retirement effective May 31, 2017. CFO Herman Kotzé will replace him on June 1.

The retirement of outspoken Belamant comes in the wake of widespread criticism of Net1’s role in the controversial handling of social grant payments to 10.6 million beneficiaries by the South African Social Service Agency (Sassa) via its subsidiary Cash Paymaster Services (CPS).

The severance payment is not the only parting gift to Belamant.

His payout is further enlarged by Net1’s repurchase of his more than one million shares at $10.80 (amassing $10.8 million or(R142 million), representing a premium of nearly 13% from Tuesday’s $9.41 close of the company’s shares on the Nasdaq.

Net1 will also pay Belamant $50 000 (R657 000) per month for consulting services, which it said will be for two years, to offer technical expertise for the development of the company’s international operations. This equates to $1.2 million (R15.7 million) over 24 months.

Considering the above-mentioned forms of payments, it means that Belamant would be awarded $20 million in total or R265 million in rand terms.

Net1 has justified Belamant’s payout by saying it represents his 27 years of service with the company as a founder and CEO.

The repurchase of Belamant’s shares doesn’t represent his entire shareholding of 1.2 million shares or 2.1% stake in Net1, according to its latest annual report. Net1 agreed to allow the accelerated vesting of his remaining 200 000 shares.

IFC spokesperson Desmond Dodd said the company learned of the terms of Belamant’s departure from Net1 like other shareholders, through the public disclosure. “While responsibility for negotiating and approving these terms belongs to Net1’s board of directors, IFC is frustrated with the situation in which the board finds itself. IFC has been deeply concerned with the governance issues at Net1,” he told Moneyweb.

IFC, a member of the World Bank, is Net1’s largest shareholder with a 17% stake.

Andrew Lapping, chief investment officer at Allan Gray, which owns a 15.6% stake in Net1, said he was surprised at how Belamant was able to negotiate “such an extravagant deal” and believes the payout is unjustified.

“For a number of years we have been concerned about multi-million rand ex-gratia severance payments made to executives and that shareholders are unable to block such payments,” said Lapping.

He said Allan Gray has raised its concern to the King IV team on corporate governance and the JSE to recommend that severance payments to executives should be subject to a vote by shareholders. “As our proposals have not been implemented and we were not privy to the negotiation with Belamant, we regret the settlement reached.”

Net1 came under fire after the continuation of its contract to distribute social grants between CPS and Sassa despite it being declared invalid by the Constitutional Court as the tender process was flawed. The CPS contract expired on March 31, 2017. At the eleventh hour, the court extended it for another year after civil rights organisation The Black Sash asked the court to supervise a new social grant payments contract.

Belamant was recently gagged by Net1’s board for his controversial comments regarding CPS being the only service provider that can manage grant payments. IFC and Allan Gray also called for board changes at the company.

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