News / National
ZB directors mull liquidation and surrendering licence
02 Oct 2022 at 08:58hrs | Views
With three months left before year-end, it is now crunch time for ZB Financial Holdings (ZBFH), which is currently under increased pressure to recapitalise its building society within the grace period afforded by the Reserve Bank of Zimbabwe (RBZ), amid revelations the group recently sought legal opinion to explore the possibility of liquidating the unit and surrender the licence.
Initially, ZBFH proposed amalgamating ZB Bank and ZB Building Society (formerly Intermarket Building Society) to meet the stipulated US$30 million minimum capital requirement by December 31, 2022.
In January 2020, the central bank increased minimum capital requirements for banking institutions.
Although the deadline for compliance was December 31, 2020, it was extended by 12 months owing to the advent of the coronavirus pandemic.
By December last year, however, only five of the 18 banking institutions — AFC Commercial Bank, Nedbank Zimbabwe, CBZ Building Society, National Building Society and ZB Building Society — failed to meet the deadline.
Subsequent plans by ZBFH to merge the bank and the building society, however, suffered a stillbirth after Transnational Holdings Limited (THL) — a direct shareholder in Intermarket Holdings Limited (IHL), which controls the building society — insisted that the transaction could only proceed once "the Government-brokered settlement for the resolution of the dispute between Transnational and ZBFH over the scandalous and fraudulent acquisition of Intermarket by ZBFH is fully implemented".
In a letter dated November 22, 2021, addressed to ZBFH company secretary Mr Tinashe Musiiwa, THL founder Mr Nicholas Vingirai said "until the settlement is fully implemented, Intermarket and ZBFH remain separate entities".
It is not the first time that attempts to merge the two entities have failed to materialise.
In May 2020, then ZBFH group chief executive officer Mr Ronald Mutandagayi wrote to RBZ governor Dr John Mangudya, pleading with the regulator to sanction the transaction.
"It is imperative from a management and operational point of view for the ZBFH Group to merge ZB Bank and ZB Building Society. Regrettably, the bank's Supervision Department continues to withhold authority for this," he wrote.
"May I appeal to your good offices to intervene in this matter.
"While we appreciate the current shareholder dispute, with respect, that should not be used as a basis to prevent the integration of ZB Bank and ZB Building Society, especially in view of the proposed new capital levels of the local equivalent of US$30 million. The group will not be able to sustain both licences, hence the urgent request to merge the two institutions."
Liquidation
Realising that the option of amalgamating ZB Bank and ZB Building Society is highly unlikely in the current circumstances, ZBFH is reportedly now seriously mulling liquidating and surrendering the licence held by the building society.
An internal memo seen by The Sunday Mail Business after a July 15, 2022, meeting convened by directors of the group under a project code-named "Project Eagle" indicates that winding up the building society and surrendering the licence was considered as "the option of choice".
"In the course of implementation on Project Eagle, the directors of ZB Financial Holdings Limited have undertaken to explore alternative ways of resolving the future of ZBBS (ZB Building Society)," reads the memo.
"The option of licence surrender and winding up ZBBS was considered a suitable route and a legal opinion was consequently sought from external counsel . . .
"The legal opinion is sound to the extent of the ordinary steps required by the law in a voluntary liquidation. However, the RBZ, acting within the ambit of its regulatory discretion, may attach supplementary conditions to a proposed course of action.
"In line with the preceding point, the RBZ has previously asked, among other conditions, that a resolution of historical shareholder impasses be secured in advance of any amalgamation of the bank and building society."
ZBFH believes "it is abundantly reasonable" to conclude that the RBZ may insist on the same since the same set of interested parties is still involved.
"The lack of co-operation by a section of the minorities with regards to all transactions involving ex-Intermarket assets remains an ongoing matter and requires decisive closure," it adds.
Overall, the directors recommend that "while an amalgamation may have been the most commercially suitable option, the practical considerations around majority shareholder concerns point to a winding up of the building society and licence surrender as the option of choice under the circumstances."
It is feared that the abandonment of "the most commercially suitable option" of "merging" in favour of the voluntary liquidation route might potentially prejudice ZB's minority investors.
The memo further says: "While this option of choice is competent in settling questions around the future of ZBBS, it is important to note that the co-operation of minority shareholders remains imperative.
"Consequently, implementation of the proposed winding up should proceed on a written communication to the regulator, updating on the steps taken under Project Eagle to date and the fact that liquidation is contemplated as an alternative course of action."
ZBFH also made an undertaking to explore ways of achieving a holistically negotiated settlement as a long-term solution to transaction bottlenecks experienced by the group.
What makes resolution of the dispute between ZB and THL urgent for the former is the need to complete a separate transaction to merge CBZ Holdings and ZBFH, which is presently in the works. By last week, CBZ was still flighting notices to shareholders on the proposed deal.
ZBFH had not responded to questions sent by The Sunday Mail Business on Wednesday by the time of going to print.
On the other hand, Mr Vingirai said he could not comment as he was unaware of the latest development.
Under a project code-named Project Goliath, former ZBFH directors swooped on Intermarket's assets when it was put under curatorship over allegations of externalisation in what has since been termed by market watchers as the most brazen white-collar financial fraud ever seen in Zimbabwe. However, in October 2012, the RBZ absolved Intermarket of any wrongdoing and ordered the restitution of assets that had been taken by ZBFH.
This culminated in the 2016 Government-brokered Settlement Agreement, through which Mr Vingirai's THL was supposed to get 33 percent in the banking group.
However, only 22 percent had been transferred by August 2020.
While the remaining stake was expected to be settled through the transfer of part of the 37,8 percent shares held by NSSA in ZBFH, the envisaged transaction fell through after the shares were somehow transferred to Datvest Nominees.
Separation
Sources say after inordinate delays and failure to consummate the Settlement Agreement, THL is amenable to the separation of Intermarket and ZB.
In fact, in 2017, the parties unanimously agreed to separate the two banking groups.
RBZ subsequently appointed accounting firm Grant Thornton to facilitate the
"divorce".
But faced with the inherent prohibitive costs of the process, the RBZ persuaded THL to take up the 33 percent stake from a possible 38 percent as spelt out in the Settlement Agreement.
There are, however, concerns that assets belonging to ZB Building Society and Intermarket Banking Corporation have been progressively "co-mingled and subsumed" by ZBFH, raising fears that separating the assets would be increasingly difficult, if not impossible.
As at December 31, 2014, Intermarket Building Society's core capital stood at US$15,6 million compared with ZB Bank Limited's US$9,6 million.
It is, therefore, believed that separation of ZB assets from IHL would leave the former poorer.
In August 2005, RBZ-appointed curator Mr Ngoni Kudenga reported that as at August 31, 2005, after debt conversion, the bank (Intermarket Banking Corporation Ltd) and the Discount House were solvent, with net asset positions of Z$68,9 billion and Z$105,5 billion and net liquidity positions of Z$22,3 billion and Z$96,1 billion, respectively.
But, curiously, ZBFH proceeded to surrender the licence of the Discount House to RBZ and subsequently transferred the $175 billion "net assets" — of which $118 billion was cash — to ZBFH.
Initially, ZBFH proposed amalgamating ZB Bank and ZB Building Society (formerly Intermarket Building Society) to meet the stipulated US$30 million minimum capital requirement by December 31, 2022.
In January 2020, the central bank increased minimum capital requirements for banking institutions.
Although the deadline for compliance was December 31, 2020, it was extended by 12 months owing to the advent of the coronavirus pandemic.
By December last year, however, only five of the 18 banking institutions — AFC Commercial Bank, Nedbank Zimbabwe, CBZ Building Society, National Building Society and ZB Building Society — failed to meet the deadline.
Subsequent plans by ZBFH to merge the bank and the building society, however, suffered a stillbirth after Transnational Holdings Limited (THL) — a direct shareholder in Intermarket Holdings Limited (IHL), which controls the building society — insisted that the transaction could only proceed once "the Government-brokered settlement for the resolution of the dispute between Transnational and ZBFH over the scandalous and fraudulent acquisition of Intermarket by ZBFH is fully implemented".
In a letter dated November 22, 2021, addressed to ZBFH company secretary Mr Tinashe Musiiwa, THL founder Mr Nicholas Vingirai said "until the settlement is fully implemented, Intermarket and ZBFH remain separate entities".
It is not the first time that attempts to merge the two entities have failed to materialise.
In May 2020, then ZBFH group chief executive officer Mr Ronald Mutandagayi wrote to RBZ governor Dr John Mangudya, pleading with the regulator to sanction the transaction.
"It is imperative from a management and operational point of view for the ZBFH Group to merge ZB Bank and ZB Building Society. Regrettably, the bank's Supervision Department continues to withhold authority for this," he wrote.
"May I appeal to your good offices to intervene in this matter.
"While we appreciate the current shareholder dispute, with respect, that should not be used as a basis to prevent the integration of ZB Bank and ZB Building Society, especially in view of the proposed new capital levels of the local equivalent of US$30 million. The group will not be able to sustain both licences, hence the urgent request to merge the two institutions."
Liquidation
Realising that the option of amalgamating ZB Bank and ZB Building Society is highly unlikely in the current circumstances, ZBFH is reportedly now seriously mulling liquidating and surrendering the licence held by the building society.
An internal memo seen by The Sunday Mail Business after a July 15, 2022, meeting convened by directors of the group under a project code-named "Project Eagle" indicates that winding up the building society and surrendering the licence was considered as "the option of choice".
"In the course of implementation on Project Eagle, the directors of ZB Financial Holdings Limited have undertaken to explore alternative ways of resolving the future of ZBBS (ZB Building Society)," reads the memo.
"The option of licence surrender and winding up ZBBS was considered a suitable route and a legal opinion was consequently sought from external counsel . . .
"The legal opinion is sound to the extent of the ordinary steps required by the law in a voluntary liquidation. However, the RBZ, acting within the ambit of its regulatory discretion, may attach supplementary conditions to a proposed course of action.
"In line with the preceding point, the RBZ has previously asked, among other conditions, that a resolution of historical shareholder impasses be secured in advance of any amalgamation of the bank and building society."
ZBFH believes "it is abundantly reasonable" to conclude that the RBZ may insist on the same since the same set of interested parties is still involved.
"The lack of co-operation by a section of the minorities with regards to all transactions involving ex-Intermarket assets remains an ongoing matter and requires decisive closure," it adds.
Overall, the directors recommend that "while an amalgamation may have been the most commercially suitable option, the practical considerations around majority shareholder concerns point to a winding up of the building society and licence surrender as the option of choice under the circumstances."
It is feared that the abandonment of "the most commercially suitable option" of "merging" in favour of the voluntary liquidation route might potentially prejudice ZB's minority investors.
The memo further says: "While this option of choice is competent in settling questions around the future of ZBBS, it is important to note that the co-operation of minority shareholders remains imperative.
"Consequently, implementation of the proposed winding up should proceed on a written communication to the regulator, updating on the steps taken under Project Eagle to date and the fact that liquidation is contemplated as an alternative course of action."
ZBFH also made an undertaking to explore ways of achieving a holistically negotiated settlement as a long-term solution to transaction bottlenecks experienced by the group.
What makes resolution of the dispute between ZB and THL urgent for the former is the need to complete a separate transaction to merge CBZ Holdings and ZBFH, which is presently in the works. By last week, CBZ was still flighting notices to shareholders on the proposed deal.
ZBFH had not responded to questions sent by The Sunday Mail Business on Wednesday by the time of going to print.
On the other hand, Mr Vingirai said he could not comment as he was unaware of the latest development.
Under a project code-named Project Goliath, former ZBFH directors swooped on Intermarket's assets when it was put under curatorship over allegations of externalisation in what has since been termed by market watchers as the most brazen white-collar financial fraud ever seen in Zimbabwe. However, in October 2012, the RBZ absolved Intermarket of any wrongdoing and ordered the restitution of assets that had been taken by ZBFH.
This culminated in the 2016 Government-brokered Settlement Agreement, through which Mr Vingirai's THL was supposed to get 33 percent in the banking group.
However, only 22 percent had been transferred by August 2020.
While the remaining stake was expected to be settled through the transfer of part of the 37,8 percent shares held by NSSA in ZBFH, the envisaged transaction fell through after the shares were somehow transferred to Datvest Nominees.
Separation
Sources say after inordinate delays and failure to consummate the Settlement Agreement, THL is amenable to the separation of Intermarket and ZB.
In fact, in 2017, the parties unanimously agreed to separate the two banking groups.
RBZ subsequently appointed accounting firm Grant Thornton to facilitate the
"divorce".
But faced with the inherent prohibitive costs of the process, the RBZ persuaded THL to take up the 33 percent stake from a possible 38 percent as spelt out in the Settlement Agreement.
There are, however, concerns that assets belonging to ZB Building Society and Intermarket Banking Corporation have been progressively "co-mingled and subsumed" by ZBFH, raising fears that separating the assets would be increasingly difficult, if not impossible.
As at December 31, 2014, Intermarket Building Society's core capital stood at US$15,6 million compared with ZB Bank Limited's US$9,6 million.
It is, therefore, believed that separation of ZB assets from IHL would leave the former poorer.
In August 2005, RBZ-appointed curator Mr Ngoni Kudenga reported that as at August 31, 2005, after debt conversion, the bank (Intermarket Banking Corporation Ltd) and the Discount House were solvent, with net asset positions of Z$68,9 billion and Z$105,5 billion and net liquidity positions of Z$22,3 billion and Z$96,1 billion, respectively.
But, curiously, ZBFH proceeded to surrender the licence of the Discount House to RBZ and subsequently transferred the $175 billion "net assets" — of which $118 billion was cash — to ZBFH.
Source - The Sunday Mail
