Allan Gray sounds warning on Net1 - TechCentral

Allan Gray sounds warning on Net1

Allan Gray, one of South Africa’s biggest money managers, said it’s “increasingly concerned” over the running of Net1 UEPS Technologies, a company whose lending practices to people on welfare have been criticised as unethical by human rights organisations.

The second biggest shareholder in Net1, with a 15,6% stake, said its research into the company shows that the business doesn’t always answer its phones when called by clients, who are among South Africa’s poorest and least educated.

Net1 has the contract to distribute welfare payments to more than 17m South Africans and has been accused of illegally using information it gleans to help its subsidiaries sell those people services such as mobile airtime and loans.

“It’s not illegal not to answer your phone but it’s not good business practice,” Andrew Lapping, Allan Gray’s chief investment officer, said in an interview on Thursday. “We’ve been trying to find out exactly how beneficiaries are treated. If you have a problem how easy is it to get hold of them? How easy is it to cancel debit orders?”

“We’re increasingly concerned. Our concerns have not been alleviated,” he said.

Last month, the constitutional court ordered the nation’s welfare agency to extend Net1’s contract, which it had ruled invalid in 2014, to distribute the monthly grants for a year to prevent the system from collapsing after the government failed to comply with an order to find a replacement. It expressly prohibited the use of information about grant recipients for marketing purposes.

The Cape Town-based fund manager is compiling research into how Net1 treats its customers and areas for improvement, which it will present to the Net1 board.

Bridget von Holdt, an official at Burson-Marsteller, a PR company employed by Net1, wasn’t immediately available for comment.

Allan Gray wants Net1 to appoint several nonexecutive directors to strengthen the board. The company currently has five directors, three of whom are nonexecutive. “It’s extremely important because we need change,” Lapping said.

Allan Gray will also make changes to the way it makes its investments and has hired someone to investigate companies’ social and economic impact.

“We’ve had introspection and looked at our processes extremely carefully and we’ve made a few changes in our investment process in terms of oversight,” Lapping said. “There’s stuff we should have known and we didn’t know it. We need to be on the ground getting the facts.”

Equal Education, a South African non-governmental group, said in a statement on Wednesday that it has met with Allan Gray and asked it to sell its investment in Net1, saying its members have been affected by the activities of the company.

Net1 said on 7 April that it split the chairman and CEO roles and would appoint “additional independent directors”.

Net1’s biggest shareholder is the International Finance Corp, the private finance arm of the World Bank. IFC has also asked the company to improve its lending practices. The IFC didn’t immediately respond to a request for comment.  — (c) 2017 Bloomberg LP

  • CharlieTango

    Too little to late by Allan Gray. They have been shareholders for some time but are only now conducting research into Net1’s business practices following the public outcry. The PR spin is not working.