An investment Analyst, Mahama Iddrisu has argued that some processes in private equity fund, Foritz\u2019s\u00a02013 acquisition of extra shares in Merchant Bank, now UMB Bank, may have been illegal.<\/p>\n
According to him, if the claim by the two major shareholders, SNNIT and SIC Life, that they were not involved in the processes is true, then the acquisition of more shares was\u00a0illegal.<\/p>\n
Fortiz acquired 90 percent of then Merchant Bank for 90 million cedis in 2013 and was expected to inject an additional 50 million into the bank subsequently as part of the agreement.<\/p>\n
Fortiz however, after acquiring the 90 percent shares paid GHC 10 million as equity capital and entered into an unsecured subordinated debt instrument facility referred to as a convertible loan to take care of the extra GHC40 million.<\/p>\n
The Social Security and National Insurance Trust (SSNIT) and SIC Life went to arbitration claiming that the conversion from debt to equity of the tier two debt was done on their \u00a0‘blindside.’<\/p>\n
According to the claimants, the entire 50 million cedis was initially expected to be provided in the form of equity and it was because Fortiz was unable to provide the entire amount that the Bank of Ghana directed it to inject a mix of equity and tier two debt capital into the company.<\/p>\n
They therefore argued that it was not right for Fortiz to have used the means it did to acquire more shares than contemplated in injecting the GHC 50 million into the bank.<\/p>\n
Speaking on Eyewitness News<\/strong>, Mr. Iddrisu explained that if the claim by the two shareholders that this happened on their blindside was correct, then that renders Fortiz’s act illegal.<\/p>\n “They had a contract that converted that loan into equity. That money that was borrowed actually was a guarantee for the three shareholders banks to take that money meanwhile it was converted to benefit only Fortiz,” Iddrisu added.<\/p>\n [contextly_sidebar id=”Ds9tDJLgbK1adkKykPgxltzwIg8SibhW”]The arbitration panel however dismissed the claims of SSNIT and SIC Life saying “although the consideration paid by Fortiz in acquiring UMB could have been made payable to SSNIT and SIC Life, they agreed to use the money to increase the capital adequacy ratio of the bank, which agreement the panel did not find illegal.”<\/p>\n In the formerly wholly state owned Merchant Bank, the Social Security and National Insurance Trust (SSNIT) controlled an 89.6 percent stake with the remaining 10.4% belonging to SIC Life.<\/p>\n SSNIT and SIC Life sold 90 percent of the bank to Fortiz, with the expectation that they could claw back more shares when a plan by the special purpose vehicle, the Merban Assets Recovery Trust (MART) succeeded in recovering more than 30 percent of the bank\u2019s bad or impaired loans.<\/p>\n But Fortiz opted for a cause of action which resulted in the increasing their stake in UMB, whilst reducing the state owned entities\u2019 shares from 10 percent to 5 percent jointly.<\/p>\n Problems with contract<\/strong><\/p>\n Mr. Iddrisu said all these problems for the state entities stemmed from a contract that \u201cwas not properly construed.\u201d<\/p>\n \u201c\u2026the GHc 40 million [borrowed from the bank] actually belongs to the two shareholders and not\u00a0Foritz for borrowing the money, because that same money was sitting in the bank and the bank assets were sitting as collateral.\u201d<\/p>\n He noted further that the money belonged, by extension, to workers but was converted to equity, constituting an illegality.<\/p>\n \u201cThey borrowed it from the asset management company, that actually belonged to the total bank, and which\u2019s money belonged to workers and that same money was used to convert to equity\u00a0up front, making them reduce the shareholding down to 4.3 percent. That alone is an illegality.\u201d<\/p>\n Background<\/strong><\/p>\n Fortiz paid GH\u00a290 million for a majority stake in the bank with the understanding that an additional injection of GHS 50 million would be injected within a six month period.<\/p>\n The amount gave them a controlling stake of 90 percent in the bank, leaving the minority 10 per cent to the country\u2019s pensions fund manager,\u00a0SSNIT\u00a0and SIC Life Limited.<\/p>\n But after an initial payment of GHS 10 million to UMB as equity capital by\u00a0Fortiz, it entered into an unsecured, subordinated debt instrument facility, referred to as a convertible loan with the bank, through which an additional\u00a0GHS 40 was invested into UMB.<\/p>\n Soon after it was concluded, the loan was converted into equity, in accordance with the Term sheet as approved by the AGM.<\/p>\n This led to SSNIT’s shares reducing from 8.96 to 4.43% of the\u00a0company and valued at GHS 2,565, 537, while that of SIC life reduced from 1.04% to 0.51% and valued at GHS 297, 780.<\/p>\n Subsequently, SSNIT and SIC Life took Fortiz and UMB to arbitration in January 2017 claiming among other things that\u00a0Fortiz\u00a0erred in the means it did to acquire more shares in the bank.<\/p>\n The arbitration panel however roundly rejected the claims by the two.<\/p>\n –<\/p>\n By: Delali Adogla-Bessa\/citifmonline.com\/Ghana<\/p>\n","protected":false},"excerpt":{"rendered":" An investment Analyst, Mahama Iddrisu has argued that some processes in private equity fund, Foritz\u2019s\u00a02013 acquisition of extra shares in Merchant Bank, now UMB Bank, may have been illegal. According to him, if the claim by the two major shareholders, SNNIT and SIC Life, that they were not involved in the processes is true, then […]<\/p>\n","protected":false},"author":14,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[10,11],"tags":[3,10673,10674,10675,326,10651],"yoast_head":"\n