Category Archives: receiverships

Ghana bank reforms continue

Continuing banks reforms in Ghana, from back in 2018, the Bank of Ghana issued a new statement (PDF) on the state of banking in the country for the end of that year.

It stated that they had inherited a system with distressed banks that were not adequately capitalized, and which had high non-performing loans, and cases of insolvency and illiquidity – largely a result of poor corporate governance, false financial reporting, and insider dealings.

They noted that they had revoked seven licenses and arranged for those banks to exit in an orderly way and that after a recapitalization push, there were 23 banks with universal banking licenses in Ghana that had met the minimum paid-up capital of GHF 400 million (~$83 million) at the end of the year.

Excerpts:

  • The Bank of Ghana had approved three merger applications – (i) of First Atlantic Merchant and Energy Commercial banks, (ii) of Omni and Sahel Sahara banks and that of (iii) First National and GHL banks, as pension funds had invested equity in five other banks through a special purpose holding company called the Ghana Amalgamated Trust (GAT).
  • Another bank, GN Bank, was unable to comply with the capital requirement and its request to downgrade, from a universal banking license, to a savings and one had been approved. 
  • The Bank of Baroda has divested from Ghana following a decision by its parent bank which is wholly-owned by the Government of India. Subsequently, the Bank of Ghana has approved its winding down plan and allowed all the customers, assets and loans of Baroda Ghana to be migrated to Stanbic Bank Ghana.
  • Two other banks Premium and Heritage had their licenses revoked, and a receiver manager from PricewaterhouseCoopers appointed to take charge of the banks. Premium was found to have been insolvent while Heritage had obtained its license in 2016 on the basis of capital with questionable sources. All deposits of the banks were transferred to Consolidated Bank and the Ghana government has issued a bond to support the transfer of assets.

EDIT August 16 2019: The Bank of Ghana revoked the licenses of 23 insolvent savings and loans companies and finance house companies as well as 2 non-bank financial institutions.

The regulators had assessed the savings and loan and finance house sub-sectors and found challenges of low capital, excessive risk-taking, use of depositor funds for personal projects, weak corporate governance, creative accounting and persistent regularity branches and non-compliance.

The institutions are Accent Financial, Adom S&L, Alltime Finance, Alpha Capital S&L, ASN, CDH, Commerz S&L, Crest Finance, Dream Finance, Express S&L, First Allied, First African, First Ghana S&L, FirstTrust, Global Access, GN S&L, Ideal Finance, IFC, Legacy Capital, Midland, Sterling Financial, Unicredit Ghana and the Women’s World Banking Ghana S&L .

Top Imperial Bank Depositors to received end with 35% of funds

EDIT April 5, 2019: CBK and KDIC announced that they have accepted a final and revised offer from KCB for Imperial Bank that is 19.7% over and above the 35% recovery announced in December 2018. The remaining depositors of Imperial will be paid 12.5% of the funds with the signing of the agreement, 12.5% on the first anniversary and then 25% over the subsequent three years during which their funds will earn interest.

KCB will take over five branches of Imperial as KDIC and CBK will explore further options for the remaining branches (Earlier it been announced that NIC bank would take over Imperial’ s branches). The deal excludes Kshs 36 billion (~$360 million) of loans that are being pursued through litigation in the courts.

Original December 16, 2018: The Central Bank of Kenya (CBK) and the Kenya Deposit Insurance Corporation announced the conclusion of the Imperial Bank receivership that will probably not satisfy customers who still had vast sums deposited at the bank that was suddenly closed in 2015.

KDIC and CBK announced  they had accepted a modified biding offer from KCB, Kenya’s largest bank for Imperial Bank (in receivership) that comes with a payment of 12.7% of the balances that were owed to the remaining depositors.

Since making a first payment in three years ago through KCB and Diamond Trust, of up to Kshs one million that took care of most of teh small depositors, further payments have been availed  to larger depositors. But with the acceptance of the offer today, they will have only accessed 35% of the deposits held in the bank when it was placed under receivership, with the balance of the funds now uncertain.

A loan verification process will be done through teh first quarter of 2019 after which depositors may be able to receive more of their funds

The collapse of the bank started in the days after the the sudden death of its Managing Director, after which revelations of fraudulent accounts he managed, secret off-the-book loans, fishy undocumented cash transfers came to light.

Flowers by the Lake: Karuturi and the Bankers

Kenya is known as one of the giants of the giants of the fresh flower world, producing roses, lilies and other carnations that are freighted around the world to be used as gifts, tokens of affection, and to spruce up weddings, offices and restaurants.

A large share of these flowers come from farms around Lake Naivasha, a tiny lake in the Rift Valley of Kenya about 90 kilometers Northwest of Nairobi.  Many of the farms are on Moi South Lake Road, which is also where most of the picturesque Naivasha tourist lodges are also located. The road is a bumpy, potholed road, one which seems illogical given the investments on each side of the road, that run into tens of millions of dollars of lodges interspersed with flower farms, that neighbour each other for almost ten kilometers. In between are small ramshackle town structures that are a common peri-urban feature across the country housing bars, chemists, mobile money agents and other shops. There are also schools named after flower companies and you may spot hundreds of school children playing football or lounging at break time as other kids walk towards their homes, along the road which has sparse traffic of flower company buses and land cruisers and minivans ferrying tourists to different lodges, with familiar names like Simba, Enashipai, Sopa, Pinkman, Crayfish and Crescent. There are also signs for land for sale, usually on the left side of the road, away from the prime lake shore and some with unfinished building structures, outcomes of a dream sold years ago of Naivasha as a place to buy a holiday home.

Then there appears a large group of greenhouses, on the right side of the road, the preferred side. But unlike other farms you have passed, you can see past the ever-present Naivasha thorn bushes and security fences, that the greenhouses plastic walls and roofs are torn, flapping in the wind.. Inside the compound looks overgrown, and devoid of busy activity at other flower farms.

This is Karuturi, a farm that has spawned a long-running case in the Kenya courts. It is not the longest, not by far.  If you spend time in Kenya’s courts you will discover there are cases, commercial and civil, that stretch as far back as ten, twenty, and even thirty years.

The case, Civil Suit No. 78 of 2014 of Surya Holdings, Rhea Holdings and Karuturi Limited, against CFC Stanbic Bank collectively known Karuturi case is a unique one. One that has roped in banks in Kenya and India, landowners, flower pickers, workers unions, schools, two receiver managers, audit firms, suppliers and government agencies.

 A summary of the case events:
  • December 2012: Stanbic advances facilities to Karuturi; with the main loan to be repaid over five years. The facilities are secured by guarantees from directors of Karuturi as well as Rhea Holdings and Surya Holdings, related companies which are the registered owners of the land parcels the farm was situated on, The first repayment was made in January 2013 but then none was made for the next three months in succession.
  • January 2014: Stanbic obtained an advisory opinion which showed that the Karuturi farm was insolvent, its financial accounts were questionable for 2012 and it appeared the directors of Karuturi had abandoned the farm. They advised that putting the farm under receivership was the only way to stop further degradation of the assets. as the farm had stopped sales and production of flowers at Naivasha in August 2013.
  • February 2014: Stanbic places Karuturi in receivership and appoints Kieran Day and Ian Small as Receivers and Managers.
  • February 2014: Receivers advised the bank to move to dispose of the farm as soon as possible and to preserve assets by continue trading.
  • March 2014: Karuturi sues to challenge the appointment of receivers and stop the sale of the charged properties.
  • June 2014: Court rules that the appointment of receiver managers was proper. It also restrains the receivers from selling the charged properties (Rhea’s LR 10854/60 and Surya’s LR’s 12248/20, 12248/21, 12248/38, 25261 and 25262)
  • Karuturi was reported to have been relocating to Ethiopia in March 2014  in what was seen to signal a loss for Kenya as a preferred flower growing powerhouse.
  • October 2014: The Receivers create a company called Twiga BV to facilitate the sale of Karuturi flowers to the Netherlands and to receive revenue in order to pay expenses, staff and suppliers of the business. This came after Karuturi BV had been declared insolvent.
  • October 2015: One of the Receiver Managers is relocating from Kenya and the firm resigns. The bank appoints Muniu Thoithi and Kuria Muchiri of PWC as the new receiver-managers. Twiga was transferred to the new receivers at the end of 2015.
  • March 2016: In a hearing of a case filed to wind up Karuturi, and with lawyers for Polythene Industries, Agility, Ivaco, Inter Label, ICICI and Stanbic, the lawyers for Karuturi side with the winding up clause and allowed this process to proceed.
  • October 2016: A High Court judge finds that Karuturi had admitted (in March 2016) that they owed the bank $4M and Kshs 2.7 million before the receivership and that Surya and Rhea had provided securities to secure this debt. The court also directs that an independent forensic audit be done on business and operational transactions during the receivership period and look at items such as the expenses paid by the bank, repayments by Karuturi to the bank, balances outstanding, exports and production, payments to workers, tax payments, status of assets bought or sold during the receivership inventories, and compare the performance of the company between 2007-2012 to the receivership period.
  • November 2016: The suit parties settle on Deloitte to do the audit.
  • August 2017: Karuturi applies to the court seeking to pay $3.8M and Kshs 2.7 million within sixty days and have the bank release the land titles of Surya and Rhea.
  • October 2017: The audit report to the court reveals that, in addition to the debt owed before the receivership of $6.2M, another $9.4M had been spent during the receivership. The audit showed that 403 million good quality roses had been harvested (between February 2014 and May 2016), 2% of which could not be accounted for. Altogether in 2015 and 2016 Twiga received $23.6 million and paid $23.5 million for vendor expenses and administrative functions. Also, the assets of the company were intact, contrary to a Karuturi claim that the receiver managers had run down the assets of the company and it dismissed many of the accusations of Karuturi including that on transfer pricing and found that the receivers had not engaged in misconduct. The audit also found that the last known date of production at the farm was early in May 2016 and that the farm was descending into disrepair as costs continued to be incurred in preserving it.
  • October 2017: ICICI Bank of India wins a separate demand for $40 million from Karuturi.
  • January 2018: Courts rule that the receivership was proper and that Karuturi directors should pay the pre-receivership debt of $4M and Kshs 2.7 million, with interest, within 60 days. Also that, within 90 days, they are to pay $6.3M owed to creditors during the receivership and $6.7M advanced by the bank during the receivership period up to December 2016 and another $0.97M of receivership expenses incurred the following year to July 2017.
  • March 2018: Reports that an American company, Phoenix Group, has invested an undisclosed sum, said to be $2 billion, in Karuturi Global to help it pay its debts and revive its Kenya operations.

  • May 2018: The Receiver Manager of Karuturi (in liquidation) puts the movable assets of the company on sale. These include 1,400 steel greenhouses, vehicles, refrigeration and irrigation equipment. The land they occupy at Moi South Rd, Lake Naivasha is not part of the transaction.
  • Later in the month, Karuturi appealed against the court judgment and sought to terminate the receivership and also stop the sale of assets.

  • September 2018: The case is due for hearing this month. In the meantime, Kenya has enacted new company laws and insolvency laws. The main difference is that whereas before a receiver manager would act in the interest of the bank, they are now mandated to act on behalf of the bank and all creditors of the company.

Chase Bank Reopens as SBM Kenya

Monday saw the conclusion of the receivership of Chase Bank as SBM Kenya, part of a Mauritius financial group, completed a carve out of assets, staff and branches of Chase Bank that was overseen by the Central Bank of Kenya and the Kenya Deposit Insurance Corporation.

CBK Governor Patrick Njoroge said this was a historic event in Africa, not just in Kenya, as previously when banks were shut down, they stayed closed – but that since Chase closed and was reopened in April 2016, 97% of its depositors had been paid in full, and the remaining (large) depositors could now get structured access to 75% of their deposits through SBM (including 50% of their deposits immediately) over a three-year period during which they will earn interest.

He said this had been accomplished as a private sector-led initiative, supported by KCB, and that the process had been transparent throughout, with a unique EOI (expression of interest), done to maximise value for depositors and stakeholders. He added the remaining 25% of the assets would remain with Chase Bank (in receivership) and that CBK and KDIC would continue working to pursue the full recovery of the assets that were illegally taken from Chase Bank.

Kee Chong Li Kwong Wing, Chairman of SBM Holdings, said that they would work with local staff and management of the bank, first to get it back to $1.5 billion assets it was before the closure and then to double in size in 3 to 5 years. He said the vision was for SBM Bank Kenya to have its own local investors, board and management and eventually be listed on the Nairobi Securities Exchange. He added that the model of managing overseas subsidiaries by remote control had not worked in Mozambique and Zimbabwe and that they would not repeat that in Kenya which had potential to be a key partner with Mauritius.

SBM Kenya now moves from being a Tier III to Tier II bank as SBM will also invest an additional $60 million (Ksh 6 billion) for the bank’s growth, taking its investments in Kenya to $86 million. The bank has taken on and rebranded 50 of 62 previous Chase branches and absorbed 825 staff into SBM Kenya.

ARM Cement goes into Insolvency

The appointment last Friday of joint administrators for ARM Cement was a surprise for the shareholders of the cement company that is listed on the NSE. But by ARM going into insolvency, this will give the company an opportunity to continue operations while organizing its debt position.

ARM Cement had loans with Stanbic Bank Kenya, African Finance Corporation and overdrafts with  Barclays, Stanbic, Guaranty Trust and UBA banks. Maweni, its Tanzanian subsidiary, had loans with Eastern and Southern African Trade and Development Bank (PTA Bank), and Development Bank of South Africa and overdrafts with Stanbic and Standard Bank (Mauritius). The financial statements for the year prior to the ARM insolvency noted that the company was not in compliance with financial covenants  with AFC, Stanbic, and Aureos

The ARM Insolvency move comes two years after Britain’s CDC invested in the company and became its largest shareholder, while earlier this year the company insisted a process to sell its non-cement businesses to further reduce its debt position.

But the moves appear to have not been completely successful and there have been a raft of board changes this year that has seen the exit of Pradeep Paunrana the company CEO and founding family representative and other longtime directors of the company and the arrival  last week of Linus Gitahi (former CEO of the Nation Media Group), as the new Chairman alongside other directors from CDC . The ARM insolvency move apparently has the support of CDC.

EDIT August 19: Official  Statement: ARM CEMENT PLC (In Administration) 9 TH FLOOR, THE WESTWOOD, RING ROAD, WESTLANDS P.O. BOX 41908 – 00100 NAIROBI, KENYA

To all shareholders and Stakeholders,
ARM CEMENT PLC (IN ADMINISTRATION) -PRESS RELEASE. _____________________________________________
As the Board, we acknowledge that on 17 August 2018, ARM Cement PLC was placed under administration following an application by the secured lenders. The running of the Company has now been placed in the hands of PwC’s Muniu Thoithi and George Weru, who have been named the Joint Administrators of ARM Cement Plc.

According to the Kenyan Insolvency Act, Administration is a proceeding intended to maintain the company as a going concern. The powers of the Board transfer to the Administrator who owes its duties to the company, and to the court. This is in contrast with receivership, where the Administrator owes duty to creditors.

We support any orderly process that secures the long-term viability of the company and the future of employees, suppliers and other stakeholders and shall lend our support where called upon to ensure that this goal is realized.

By Order of the Board
LINUS GITAHI (Kenyan), PRADEEP H PAUNRANA (Kenyan), JOHN NGUMI (Kenyan), ROHIT ANAND (British) KONSTANTIN MAKAROV (American), SOFIA BIANCHI (Italian),ALIYA SHARIFF (Canadian),THIERRY METRO (French).
TEL: +254 202 692 978 (PILOT LINE) + 254 202 667 675/6 MOB: + 254 733 636 456 EMAIL: INFO@ARMCEMENT.COM WEBSITE: WWW.ARMCEMENT.COM

EDIT May 21 2019: The Joint Administrators of ARM Cement PLC, George Weru and Muniu Thoithi of PricewaterhouseCoopers announced that National Cement Company had signed an agreement for the acquisition of all cement and non-cement assets and business of ARM Cement PLC in Kenya as a going concern for a purchase price of USD 50M (~Kshs 5 billion). National Cement, a cement manufacturer and distributor under the “Simba Cement” brand, is a subsidiary of the Devki Group.

Absa Bank, through Barclays Financial Services and Barclays Kenya, acted as financial advisers to the Company, while Walker Kontos acted as legal advisers to the Administrators and Bowmans (Coulson Harney LLP) acted as legal advisers to National Cement.