Source: Fortiz/Merchant Bank Deal Questionable-CFA
Dated: 27-11-2013
The Centre for Freedom and Accuracy (CFA) has described the sale of 90% majority shares in Merchant Bank to Fortiz Private Equity as a “dash” and has therefore called for a halt in the controversial transaction.
Mr. Andrew Awuni, Executive Director of CFA who addressed the media last Monday stated that “but we at the Centre for Freedom and Accuracy are well acquainted with the reasons for the indecent haste with which these approvals were given to Fortiz. Indeed whereas First Rand bank was made to travel a journey of three solid years from the day they were introduced to the day they got their approvals, Fortiz managed to do this in a record two and a half months”.
“We have seen the SHARE PURCHASE and SUBSCRIPTION AGREEMENT and can tell Ghanaians that the Merchant Bank Sale is more of a dash than a sale. I can go on and on to punch holes in SSNIT’s publication but I know that those who understand these things can read in between the lines and I can tell you industry players are having a good laugh at that so-called ‘best proposal’ from FORTIZ”, Mr. Awuni continued.
Published at page 8 is the full Press Statement Mr. Awuni read on Monday at the Freedom Institute.
ADDRESS BY MR. ANDREW A. AWUNI-EXECUTIVE DIRECTOR OF THE CENTRE FOR FREEDOM AND ACCURACY ON THE MERCHANT BANK SALE: MATTERS ARISING, ON MONDAY NOVEMBER 25, 2013 AT THE FREEDOM INSTITUTE.
Good Morning Ladies and Gentlemen of the Media and thank you for honouring our invitation. Since we last met here when we addressed you on the Merchant Bank Sale, there have been a lot of developments some of which you may be aware of.
Since that press conference at which we kicked against the sale of SSNIT’s Shares in the Merchant Bank, many people have contacted us either to give the Centre information or seek some clarifications from us.
SSNIT has also been responding to the information the Centre put out. In four full pages of a daily newspaper, SSNIT presented some information on their deal with FORTIZ Private Equity Fund in which they sought to justify their choice of FORTIZ as the ‘best investor’.
However the problem with the advertisement is that it contained too many inaccuracies, misrepresentations and sometimes outright lies. It also inadvertently made some very damning revelations about the deal itself. For instance in the advertisement SSNIT acknowledges that due diligence is yet to be conducted on FORTIZ. Their publication says the Financial Intelligence Centre has been contracted to carry out the due diligence on Fortiz.
The question then is, if we are yet to conduct due diligence on FORTIZ, then on what basis did the Bank of Ghana grant its approval? What happens if the FIC finds something untoward with FORTIZ during their investigations? Will the Bank of Ghana reverse its approval?
But we at the Centre for Freedom and Accuracy are well acquainted with the reasons for the indecent haste with which these approvals were given to FORTIZ. Indeed whereas First Rand Bank was made to travel a journey of three solid years from the day they were introduced to the day they got their approvals, FORTIZ managed to do this in a record Two and a Half Months.
FORTIZ was introduced to Merchant Bank on the 22nd of August 2013 as an investor who was interested in buying the Bank. Even before FORTIZ could arrive at Merchant Bank, SSNIT on September 13, 2013 wrote to the Bank of Ghana to inform them of their decision to sell to FORTIZ. Then on October 13, 2013 BOG, without knowing who FORTIZ is, granted approval for SSNIT to sell to FORTIZ. Then on November 1st, 2013 BOG granted approval for the consummation of the deal.
Now ladies and gentlemen I will soon show you why this indecent haste on the part of SSNIT and the Bank of Ghana, but before that I wish to point out one or two deliberate misrepresentations in SSNIT’s advert on the FORTIZ deal.
In that advert, SSNIT gave the impression that Rand Bank was not interested in the Bad Debts of the Merchant Bank. That is an outright lie and they know it. Rand Bank requested that the bad debts be taken off the books of the Bank and dealt with as a separate matter. With advice from the Bank of Ghana, Rand Bank and the existing Shareholders were to enter into an arrangement with a local Recovery Company (UT Recovery) to manage the recovery. Any amount that was recovered was to be paid to SSNIT. SSNIT did not have to pay a dime for the recovery. Rand Bank offered to pay all the cost associated with the recovery. SSNIT was therefore not paying anything for Bad Debt as they sought to portray in that advert. It is simply not true and they know.
On the other hand, FORTIZ says it will manage to collect only 30 per cent of the Bad Debts which will go to all shareholders including themselves and that the remaining 70 per cent of the Bad debts will be the responsibility of SSNIT. We have also heard the argument that FORTIZ is a local-Ghanaian entity and that we should be proud that a Ghanaian group wants to take over Merchant Bank. Ladies and Gentlemen Merchant Bank as it exists today is already a wholly owned Ghanaian Bank owned by the ordinary people of this country. But if even we should go by their illogical submission, should we package Merchant Bank and gift it to a group of friends just because we want a Ghanaian group to own it? What we are asking for is VALUE FOR MONEY. What we are saying is that with the present arrangement it appears we are virtually giving away Merchant Bank to FORTIZ.
We have seen the SHARE PURCHASE and SUBSCRIPTION AGREEMENT and can tell Ghanaians that the Merchant Bank Sale is more of a dash than a sale. I can go on and on to punch holes in SSNIT’s publication but I know that those who understand these things can read in between the lines and I can tell you industry players are having a good laugh at that so-called ‘best proposal’ from FORTIZ.
Now my dear friends I will like to appraise you with some aspects of BOG’s own requirements for licensing so that you yourselves can compare that with the BOG’s own recommendations and Post Approval Activities in the case of FORTIZ
Under section 5C of the Banking Act, 2007 (Act 738)
The Bank of Ghana shall not grant license unless it is satisfied with:
(a) the technical knowledge, experience, financial conditions and history of the applicant;
(b) the adequacy of the capital structure of the applicant;
(c) the character of the business and its management;
(d) the adequacy of the applicants accounting control systems and records;
(e) in the case of an applicant incorporated outside Ghana, that the applicant is a branch or related company of a foreign bank of established international reputation; and
(f) ability and willingness of the applicant to comply with other conditions that the bank may impose”
Per the SSNIT press release Fortiz are yet to submit the following document:
§ Detailed Turnaround strategy, including financial projections for the next five, liquidity mobilization, and recruitment of additional key management personal for necessary due diligence(“simply they have not submitted a business/strategic plan”)
- Detailed CVs and complete Personality Note Forms of the directors and key personnel
- Submit board resolution from MBG in support of the acquisition by Fortiz
- Amend the Share sale and purchase agreement issues raised in the banking supervision department
Additionally, the Bank of Ghana is yet to carry out due diligence on the Fortiz Private Equity Fund Limited and also ascertain the appropriateness of Fortiz role in the transaction from another key regulator, the Securities and Exchange Commission.
From the foregoing, is the Bank of Ghana breaching its own laws and guidelines? Clearly Bank of Ghana did not carry out the necessary due diligence as stipulated in the above Act, except for the initial due diligence based on the initial CV submitted by Fortiz and the public records of directors and shareholders.
If all the above basic requirements have not been met what was the basis of Bank of Ghana’s approval of the transaction? Did they consider the technical knowledge, experience and financial capacity of Fortiz and the adequacy of their capital structure?
And Now Ladies and Gentlemen, if you missed anything I have said so far, make sure you don’t miss this one. What I am about to say you now is the main story for today. It is crux of the matter and after Ghanaians have heard this there will be no need for anymore discussion on this matter.
A fortnight ago the Board of Merchant Bank met over the Share Purchase and Subscription Agreement and something important happened there. We managed to intercept the proceedings of that meeting and I now want to share with you excerpts of those proceedings.
The Chairman of the Board Mr. Noel Addo invited further comments from the Directors in relation to the SPSA and this is what transpired there. From this point I will be quoting from the minutes.
Professor Pupulampu (a Director of the Bank who also attended the meeting) indicated that his concern has largely been that whatever transaction is agreed on would deal with the challenges of MBG with reference to what the Bank needs as discussed under the Financial Performance review of the Bank in the minutes of 22nd October, 2013.
He said the Purchase Price as shown in the document (the Fortiz deal) is weak given the fact that the principal Shareholder (SSNIT) is being diluted to 10 per cent when compared to the FirstRand transaction, this transaction (the FORTIZ Transaction) does not give the Bank Value.
Professor Pupulampu said in his view FORTIZ is buying a Bank and must have the pedigree to own a Bank. He indicated that he was happy to have debated the document but he would want to recluse himself from approving the Sale. Professor Pupulampu has since resigned his position as Director of the Bank.
Mr. Anafure the Board Member representing the minority shareholder SIC LIFE also stated that the KPMG report as circulated shows that of the three (3) parties who expressed an interest in the Bank, the two (2) namely; UT Bank and Sabre would have satisfied the requirements to address the Bank’s challenges. Infact he said an acquisition by Sabre would have taken the Bank’s Capital Adequacy Ration to 17 per cent. He said with the current FORTIZ transaction FORTIZ is getting 90 per cent of shareholding but Merchant Bank’s Capital Adequacy Ratio is only going up to 10 per cent being the minimum requirement of the Bank of Ghana.
Mr. Anafure said if any questions are asked as to why of the three Fortiz deal is the best he would not be able to respond satisfactorily. However as a minority, the majority shareholder (SSNIT) has taken the lead, so SIC Life would follow its lead. Mr. Anafure added that If MBG is being taken to the barest minimum in terms of Capital Adequacy Requirement, at least the Information Technology Challenge and Disaster Recovery should be taken care of.
Another Director, Dr. Seddoh stated that he is unhappy with the way Directors have been rushed to consider the SPSA. He said this is an important document for which a lot of time and efforts must be spent to study and make it a good document. Dr. Seddoh indicated that SSNIT as a majority Shareholder does appear to appreciate fully the Bank’s situation especially with the MART. Dr. Seddoh said the impression created by the FORTIZ Transaction is that SSNIT is giving the Bank away. He said SSNIT should have taken its time to find a lasting solution for MBG.
Mrs. Quartey on her part thanked the Chairman for allowing discussions on the sale. She said the Directors have demonstrated to the seller (SSNIT) that given the chance they would want to do their best. Mrs. Quartey said she would have appreciated it however if there was more time and that the Board could have been part of the process of choosing a buyer. She said for posterity sake it has to be placed on record that it would have been a better way to handle the transaction. She cautioned however that Directors must be careful not to be seen as a stumbling block.
Mr. Tetteh, a Board Member and Managing Director of MBG indicated that his passion for leading the Bank has always been to take the bank to a better level that is if the Bank is handled well. He stated that he has been far from satisfied from the way the Ag. Director General of SSNIT has been dealing with him and rushing him to sign the SPSA which at that time he had not seen or read. Mr. Tetteh said on hindsight it was a good thing that the SPSA was brought to the Directors meeting for all to see.
Mr. Tetteh averred that the Transaction to take the Bank out of its challenges has to address four key challenges affecting the Bank:
· MART Issue
- Liquidity
- Capital Adequacy
- And Infrastructural Issues
Mr. Tetteh said the current Fortiz arrangement for managing the bank’s debts will not augur well for the bank. He asked “who will bear the MART credit impairment provision of some GHS112m assuming as stated in the Agreement that 70% of the portfolio is unlikely to be recovered. He said over looking this reality can undermine the Transaction in the long term. He also said that if care is not taken with the current arrangement the Bank will continue to make losses even after the take over.
Mr. Tetteh reiterated the concern that MBG as an institution and its Board have not been involved in assessing the commercial nature of the FORTIZ Transaction. It has solely been between SSNIT and the Bank of Ghana. These are legitimate issues of concern which have to be addressed in order to take the Bank to the next level.
The Chairman of the Board Mr. Noel Addo apologized to Directors for the initial stance he took in authorizing the Directors to sign the SPSA even though they had not discussed it. He said he appreciated their concerns but that the Majority Shareholder SSNIT had a different perspective.
The Chairman said the duty of the Directors is to represent the both the Bank and the Shareholder. He said SSNIT takes FULL RESPOSBILITY FOR THE TRANSACTION AND THAT DIRECTORS WERE ABSOLVED AS INDEED SSNIT HAS INDEMNIFIED ALL DIRECTORS FROM RESPONSIBILITY AS REFERRED TO IN THE SPSA.
Ladies and Gentlemen Four Members of the Board have since resigned from the Board. So now you can understand when a former Chairperson of the Board Mrs. Marian Banor says in her resignation letter that and I quote “.my resignation is prompted by recent events which in my view erode the confidence in the role and work of the Board of directors. On the grounds of principle therefore, I consider that increasingly, my role has become redundant and I do not want to compromise the firm principles of corporate and institutional governance which have guided my service to the country, the bank and the Board as its Chair.”
Ladies and Gentlemen this is how your bank, my bank, our Bank; Merchant Bank Ghana, was delivered to FORTIZ PRIVATE EQUITY FUND. Need I say more? Before I go, I want to salute these gallant men and women of Board who on the grounds of principle, refused to be part of this manipulation. Am encouraged by their actions and am convinced that we still have men and women in this country that put the national interest over and above their personal and parochial interests. I thank them and also thank all of you for your attention.
Source: http://www.thenewcrusadingguideonline.com/index.php?option=com_content&view=article&id=2280:fortizmerchant-bank-deal-questionable-cfa&catid=54:close-politics&Itemid=445
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