The Department for International Development has sold its 40 per cent stake in the emerging markets investment company it set up in 2004, Actis Capital. In return, DFID is receiving $10m in cash and a large share of future profits, expected to be worth over $100m over the next ten years.
The company was spun out of the Commonwealth Development Corporation when its managers paid £373,000 for 60 per cent of the business. It has gone on to become one of the world’s leading private-equity firms specialising in emerging markets, but in that time the revenue to the taxpayer for its minority share has been zero.
Despite the fact that DFID was supposed to receive 80 per cent of the company’s profits, no payments were made, because the company had set up a charitable arm which reduced reported profits to zero. In 2011, Andrew Mitchell, the secretary of state for international development, told the Commons that he was “amazed and surprised at the way the management of Actis have so enthusiastically exploited the taxpayer’s position.”
What is fascinating about this sell-off is that Mitchell apparently decided that, since Actis’ managers weren’t playing fair, he wasn’t going to either. The government’s financial adviser suggested that its share in Actis was worth between $3m and nothing, yet they managed to get almost forty times that. The BBC’s Robert Peston reports how:
It is understood that Mr Mitchell – a former banker at Lazard – threatened to use the government’s residual shareholding to frustrate the smooth operation of the business. For example he has the right to veto the appointment of Actis’s chair and one non-executive.
The government will have been emboldened by the political background of the Actis spin-off, since the Conservatives have always maintained that Gordon Brown privatised it for far below its fair value; yet from a party which is so often accused of using privatisation to give “hand-outs” to private-sector allies, it is rather refreshing to see genuine antagonism.