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OVER the past two decades, Patrice Motsepe has gone from lawyer to one of only a handful of black dollar billionaires in the world. Motsepe's fabled rise started even before empowerment became mandatory in SA and he's likely to remain ahead of the curve as he carves out new territory.

Though best known as a mining magnate, Motsepe's next big move is likely to be in the financial services sector, where for the past decade, he has quietly made his mark as empowerment partner to Sanlam, one of SA's leading assurance firms.

Motsepe is looking to use his relationship with Sanlam to help set up Ubuntu-Botho Financial Services, a concern that will sell insurance, provide asset management and private equity services and which he hopes to list on the JSE.

The diversification into financial services has happened over the past 10 years since he became Sanlam's black economic empowerment (BEE) partner. This does not mean that he will selloff his mining interests, he says. Motsepe won't be the first to start a black-owned financial services firm, but compared with others who took the risk but did not manage to stay afloat, his partnership with Sanlam gives him an edge.

In 1975 legendary businessman Sam Motsuenyane, who had long argued for the creation of a black-owned bank, started African Bank through the National African Chamber of Commerce. However, by 1995 African Bank ran into trouble and its licence was bought and turned into what is now known as African Bank Investments Ltd, headed by Leon Kirkinis. In the early 1990s, the Foundation for African Business & Consumer Services established Future Bank in partnership with WesBank, but this also fell out of black hands.

In 1993 Sanlam sold Metropolitan Life to a black empowerment consortium which was eventually called New Africa Investments Ltd (Nail). But Nail unbundled its shares. Metropolitan was later incorporated into Momentum.

Motsepe's desire to mix mining and financial services is not unusual in SA.

Colourful Randlord Barnett Isaacs, popularly known as Barney Barnato, established Barnato Bank while digging in the diamond fields in Kimberly. More recently, Royal Bafokeng Holdings, which has a significant portfolio in the resources sector, bought into RMB Holdings, the investment company behind FirstRand and RMI Holdings, an investment company with interests in Discovery, MMI (Momentum and Metropolitan) and Outsurance.

Sanlam's BEE scheme, Ubuntu-Botho, matured at the end of 2013, creating more than R15bn in unencumbered value for shareholders. Motsepe says he is not looking to sell his stake and intends to partner the insurer for decades to come to create a globally competitive black-controlled financial services outfit.

Motsepe, through his family-controlled investment vehicle Sizanani-Thusanang-Helpmekaar, owns 55% of Ubuntu-Botho, and at current market prices the stake is worth just over R8bn.

"We are thankful that this mutual commitment has worked so well and are looking forward to the next phase of Ubuntu-Botho Financial Services company that we are forming in partnership with Sanlam," Motsepe told the Financial Mail in an interview.

He's ambitious about the new company.

"We have always been committed to building world-class companies. It's got to be globally competitive with the best management skills and expertise and we see the partnership with Sanlam growing."

Motsepe, who is deputy chairman of Sanlam, says he is not a short-term investor and that Sizanani-Thusanang Helpmekaar is "not going to sell a cent" of its Sanlam stake as he believes it is worth staying an investor in the company.

"Sizanani is there for the next 10, 20, 30 years. This is the foundation of a globally competitive black-owned financial services company. It's not just going to be in SA. In the medium to long term it will work all over the continent and we will look at Africa and in the Brics (Brazil, Russia, India & China) countries. We see opportunities there," Motsepe says.

"Our dream long term is to get banking exposure. We will start with private equity, asset management, brokerage and those sorts of things ... I am convinced that the real benefit of a black-owned financial services company is growing it from the beginning and developing it," he says.

Temba Mvusi, group market development CE at Sanlam, believes the new entity likely to be created between Sanlam and Ubuntu-Botho "will be huge". The more than R15bn in unencumbered value that has already been created for black shareholders through Sanlam's BEE scheme is likely to help empower more, he believes.

When the BEE deal was done, Sanlam traded at around R7,65/share. It is now about R52/share.

Mvusi says though shareholders are free to sell, he hopes they will stick with the investment or use the capital acquired to reinvest in other ventures.

He describes Motsepe as visionary for wanting to use the gains from Sanlam to create another financial services entity.

Motsepe invested R200m of his own money in the Sanlam BEE deal, making him an attractive partner.

He raised the money after selling shares in African Rainbow Minerals.

At the time, Sanlam CEO Johan van Zyl said that most black people with money were tied down in other ventures.

Motsepe's willingness to risk his own funds and reputation were key factors when it came to choosing a partner, Van Zyl told the Financial Mail.

"We needed somebody with stature who could be the face and the driving force of a broad-based group that [would] focus on the business. Patrice stood out in these requirements. He had a reputation of being ethical, honest - a culture very similar to ours . We had a very long negotiation because Old Mutual, as well as a few other people, wanted him too and made him offers, but in the end he chose us," says Van Zyl.

The close links Motsepe has with politicians had been a consideration, says Van Zyl, as the company did not want to get involved with someone with an active political association.

"We were, however, satisfied, which was confirmed over the past few years, that Patrice manages to maintain an appropriate distance between his business involvement and his politically connected family relations. We were not aware of this beforehand. It's only when we did the due diligence on him and sat around the table that we actually found [this] out."

His sisters, Bridgette and Tshepo, married justice minister Jeff Radebe and ANC deputy president Cyril Ramaphosa, respectively.

Van Zyl says Motsepe has shown tremendous commitment to Sanlam, attends meetings regularly and, as part of the BEE deal, helped grow the business in the black market.

Motsepe prefers not to comment on Old Mutual's wooing him, saying he saw an opportunity to form a partnership with Sanlam as it had a history of empowerment.

"The R200m we put in came from mining shares but there was also a fundamental reason. For us it was also part of black and white coming together ... We told Sanlam that we wanted them to help us do the same thing for black people that they had done for the poor Afrikaners since 1918," says Motsepe.

"I wanted us to learn from their contribution to Afrikaner upliftment and help with black upliftment. It's very, very key. The future of SA depends on creating opportunities for all our people, particularly the poor and marginalised."

Motsepe has long had to battle criticism for benefiting merely from being close to the ANC.

He denies this, saying he has worked hard to distinguish himself.

"Whoever says that my mother and father made me what I am is 100% correct. You can never build a business dependent on political relationships or patronage. Never, never. My father built a business, a successful business, that was built on hard work, creativity and competitiveness."

Motsepe comes from a family immersed in entrepreneurship. His grandfather and father were businessmen. From a young age he worked behind the counter in his father's shop during school holidays.

He studied law at Wits University and became the first black partner at law firm Bowman Gilfillan, where he did mining law. He was seconded to US law firm McGuireWoods, which named him one of its outstanding alumni in 2009.

Motsepe and Van Zyl boast about the value created in the Sanlam BEE deal.

The Ubuntu-Botho consortium incurred R1,1bn in debt to purchase an initial 6% stake in Sanlam. The debt has since been paid off and the stake is now 14% (see story on page 23).

Ajay Lalu, the MD of Blacklite Consulting, says the rise in Sanlam's share price is not unusual as many shares have gained.

However, Lalu says that with many financial services-sector deals reaching maturity at the end of this year, there will be a question over the "once-empowered, always empowered" rule.

As Motsepe has no intention of selling out of Sanlam, it will not be faced with this dilemma.

"I think Sanlam so far is on a winning ticket. I think the shareholders should be happy with the relationship with Patrice Motsepe, which has created value historically and will continue creating value," Lalu says.

The increase in the Ubuntu-Botho stake and settlement of its debt is in sharp contrast to some other deals where BEE stakes are often diluted by the time the deal matures.

An often cited instance is that of Barclays Africa Group, previously Absa Group, which did a BEE deal in 2004, transferring 10% ownership or 73,1m Absa shares to the Batho Bonke consortium, led by Tokyo Sexwale's Mvelaphanda. More than 1,2m black people benefited, including those in community trusts, women's groups, stokvels and small & medium enterprises. However, Batho Bonke's stake was reduced to just over 5% after the deal was refinanced in 2009. The Batho Bonke consortium sold off its shares in the banking group for about R2,3bn after eight years.

Motsepe is cautious about owning a bank, saying that banks are overpriced and part of the secret is to not overpay and acquire too much debt.

The Financial Mail understands that about two years ago a consortium, which included Motsepe and businessman Jerry Vilakazi and backed by Sanlam, looked at the possibility of investing in Ubank, a retail bank previously known as Teba Bank and predominantly used by mineworkers. Ubank is owned by a trust managed by the Chamber of Mines and the National Union of Mineworkers. However, no deal materialised.

The deal with the Ubuntu-Botho consortium has not been a free ride for black shareholders - one of the conditions anchoring the deal was that the consortium helped Sanlam expand into the black market.

Van Zyl says Sanlam needed black clients and it made sense to bring on board black shareholders.

Sanlam had exited the black entry-level market when it sold Metropolitan to the group that formed Nail.

The Ubuntu-Botho deal gave Sanlam an opportunity to re-enter this market.

"Sanlam had a competitive disadvantage, our competitors grew and we had agreed with Nail not to play in the emerging black market. When I arrived at Sanlam in 2003, it operated mainly in the Afrikaans markets but then started to make inroads into the English-speaking market," says Van Zyl.

He says as the black market was growing, it made sense for them to not do merely an empowerment deal but to find partners who could help them increase black clients.

It bought African Life, Safrican , Channel Life and similar businesses and consolidated them into what is today called Sanlam Sky. The division resides within Sanlam Personal Finance, and grew operating profit by over 100%, to R761m from R375m in the 12 months to end-December 2013.

"We had to get Sanlam into businesses it has never been in before or that it can't get into or does not understand," says Motsepe. "We took them to all the black sectors - the middle class, the teachers, Sadtu (SA Democratic Teachers Union), Nehawu (National Education, Health & Allied Workers Union), government employees, traditional leaders, youth and the ZCC (Zion Christian Church) are all shareholders and this opened doors for Sanlam."

The deal helped Sanlam do more business in the public service and in state-owned enterprises, a sector it would have dominated under apartheid.

Mvusi says transformation tends to be less of an issue with retail clients but with institutional clients such as trade unions it carries weight.

Mvusi believes a remaining challenge is affordability of short-term insurance in the entry-level market which Sanlam is trying to address.

Another is the recruitment and retention of portfolio managers. Often state enterprises demand black portfolio managers before giving financial services firms their business.

 

Sanlam, however, can show progress.

Out of 12031 employees, including advisers, 65% are black and 35% white. Sanlam recently achieved a level 2 B-BEE status.

Before the Ubuntu-Botho BEE deal Sanlam had about 100000 black clients - today it has between 1,6m and 1,7m, says Van Zyl.

It runs an investment professional development programme in an effort to train more black portfolio managers. Bursaries and vacation work programmes also aim to recruit young black professionals.

But Van Zyl is convinced that the next wave of empowerment will come from the community trust aspect of the BEE deal.

Ubuntu-Botho is 55% owned by the Motsepe family's Sizanani-Thusanang Helpmekaar; 25% by broad-based groups, including trade unions; women, youth and church groups; and the remaining 20% by the Sanlam Ubuntu-Botho Community Development Trust.

Van Zyl says the trust shows that BEE deals should not only be about ownership.

Its assets have grown about R2,8bn and it will receive about R100m in dividends.

Van Zyl says if that's combined with Sanlam's corporate social investment spend, it would have about R200m to invest in education and other projects "that can make a difference".

"I think the real empowerment not only comes through ownership, the real empowerment comes through education," he says. Though the money will be invested in education and other social infrastructure, the aim is not to replace government services, but to be a partner, he says.

In 2008 Ubuntu-Botho paid out its first dividend worth R50m to more than 800 shareholders, including the Ubuntu-Botho Community Development Trust. A number of institutions, including the Nelson Mandela Children's Fund, benefited from donations by the trust.

Motsepe says part of Ubuntu-Botho's commitment is to contribute to greater empowerment.

"We have this huge commitment to how we make a contribution towards the empowerment, the development and the upliftment of our people, the poor black communities and also to education and skills provision," he says.

Motsepe prides himself on philanthropy (see story on page 24).

Whatever he does next, whether in business or philanthropy, he'll undoubtedly be watched closely.