In what may be seen as a sign of collapsing confidence in local financier Rajan Mahtani, Credit Suisse has dumped a 25% stake in Finance Bank of Zambia Limited (FBZL), reducing their shareholding in the company to 15% from its former “strategic stake” of 40%.
The dumping of such a large portion of shares just weeks before Finance Bank was expected to launch an Initial Public Offer (IPO) on the Lusaka Stock Exchange (LuSE) raises a number of questions regarding the unusual arrangement reached between the two institutions, as well as ongoing concerns regarding the bank’s compliance under the Banking and Financial Services Act (BFSA).
According to information published on the Finance Bank website, the current shareholding of the bank is distributed as follows: 25% held by Clarkwell Limited, 25% held by Finsbury Investments Limited, 25% held by Rajan L. Mahtani, 15% held by Credit Suisse Investments (Nederland) BV, 6.5% by Job Albert T. Samuel, 2.5% by the Estate of the Late Pat Bwalya Puta, and 1% by Patrick S. Chamunda.
The key difference in the shareholding structure is Mahtani’s personal stake of 25%, which is assumed to have been absorbed from Credit Suisse.
When contacted regarding the transfer of this 25% stake in Finance Bank, a Credit Suisse public relations representative issued an “official no comment” on the transaction.
The Credit Suisse shareholding in Finance Bank was originally announced back in April 2008. According to a press release at the time, Finance Bank Chairman Mahtani said that “Together with our colleagues at Credit Suisse, we will also explore the opportunity to simultaneously list Finance Bank Zambia on the London and Johannesburg Stock Exchanges.”
The promised listings from seven years ago never came to pass, however.
At the end of 2010, the Bank of Zambia (BoZ) intervened to suspend shareholder interests in Finance Bank after an investigation found numerous cases of money laundering, fraud, and violations of the BFSA, in particular the fact that Mr. Mahtani had unlawfully exceeded the maximum shareholding of by an individual by possessing more than 25% through nominees.
Credit Suisse as a strategic shareholder of 40% of the bank never took any legal action to protest the liquidation or seek to recover damages.
According to a leaked forensic audit of the bank’s shareholdings from the firm Edward Nathan Sonnenberg published on Zambian Watchdog, there were concerns not only that Mahtani actually owned more than 56% of the bank through false fronts, but also that the Credit Suisse “investment” was actually a loan disguised as an equity transaction.
The auditors were alarmed by a “Put and Call Option Deed” attached to the Credit Suisse stake, which means that not only has the bank mysteriously declined to receive dividends since 2008, but also that Credit Suisse would be guaranteed a 17% return on its investment from the IPO (whether the listing took place or not – and it now appears to be cancelled).
The ENS auditors wrote, “A possible explanation for the guarantee provided by Dr Mahtani is that the entire Credit Suisse transaction may simply have been a loan of USD 80 million which was secured via an elaborate sale of shares agreement. The security for the loan takes the form of the equity stake.”
If Credit Suisse had retained its 40% stake in Finance Bank, then in theory according to the deal, the rumoured IPO listing would figure to be a $13.6 million pay day – but instead they opted to dump shares.
So given the unusual conditions attached to the Credit Suisse stake, either Mahtani had asked to buy them out, or Credit Suisse made the banker absorb the shares as part of an unwinding of the arrangement. In an environment of increasing Know Your Client (KYC) regulations placed on banks, Credit Suisse could in theory be preparing to limit its exposure to an individual known to be tied to numerous money laundering allegations.
According to one financial analyst who spoke to us on background, Credit Suisse could be working its way out of a deal that offers no benefit to them, especially considering that Mr. Mahtani could be facing criminal liability as part of the corruption tribunal taking place against the Director of Public Prosecutions Mutembo Nchito, who was responsible for issuing nolle prosequis in many of Mahtani’s criminal cases. The current Finance Minister Alexander Chikwanda has made statements alluding the illegal standing of the bank on court record: “There are two things, his bank has continually and persistently and consistently breached the conditions of the Banking and Financial Services Act (…) It can put me in a moral conflict to allow other banks to conform to the provisions of the Banking and Financial Services Act while Mahtani gets out.”
The issue of the listing of Finance Bank IPO on the LuSE by the end of March has been subject to conflicting reports. Earlier this week, Zambia Reports cited reports by Zambian Eye that the Mahtani was pulling Finance Bank from the listing. Then on March 9, representatives of Mr Mahtani published a denial, insisting that the listing was on course. This was followed on March 10 by another publication on a Mahtani-owned website entitled “Finance Bank and Zambia will have to wait, Dr Rajan Mahtani Saves Thousands.” The article quoted Mahtani as saying that he was sorry to disappoint by cancelling the Finance Bank listing, but that due to the “volatile nature of the stock market” they had to cancel the listing, thereby he would be “saving thousands of local investors” from losses.
The article announcing the cancellation of the IPO was promptly removed from the website, but a cached image of the headline is below: