Bank of Uganda’s takeover and eventual sale of Crane Bank, a commercial bank started in 1995 by businessman Dr. Sudhir Ruparelia, rocked the country late in 2016 and early 2017 leaving the banking sector panicking and uncertain.
A year later, the debacle is still shaking up the banking sector as the central bank, Crane Bank shareholders and dfcu bank the financial institution that bought Crane Bank from the receiver, Bank of Uganda take on each other in fruesome court battles.
The sale of Crane Bank to dfcu however left many Ugandan with questions as it was not clearly and thoroughly explained by the central bank. A leaked sale agreement between Bank of Uganda and dfcu however bares a few details and inconsistencies.
In this article published by CEO East Africa reveals gaps and mistakes made by Bank of Uganda its adventure of selling Bank of Uganda to dfcu. Read on.
We have all been told that Crane Bank was a very toxic bank whose bad debts had eaten into their core capital and were therefore insolvent, thus justifying its takeover by the central bank in October 2016 and subsequent sale to Dfcu in January 2017.
In technical terms, Bank of Uganda told us — and we believed — that “Crane Bank’s Core and Total Capital was eroded to below the minimum on-going Capital Adequacy ratios of 8% and 12%, effectively making Crane Bank undercapitalized.”
But up until now, no one has satisfactorily explained why the very rushed sale but most importantly how a very troubled bank could single-handedly help Dfcu Bank attain a 396% growth in net-profit in just 5 months of acquisition.
It should be recalled that Dfcu took over Crane Bank on January 27, 2017, and by end of June 2017, Dfcu reported in their half-year results that profit for the period had grown five times from UGX23 billion in the first six months of 2016 to UGX114 billion in the first half of 2017.
This is regardless of the fact that Dfcu’s expenses almost doubled from UGX48 billion to UGX91 billion in the same period.
Comparatively, other banks such as industry leader Stanbic witnessed an 11.07% decline in profit- from UGX107.3 billion to UGX95.42 billion. Bank of Baroda, also listed on the stock exchange and nearly as big as the pre-Crane Bank acquisition Dfcu, also reported a 33.21% decline in profitability to UGX16.70 billion in H1 2017 compared to UGX24.98 billion in the same period in 2016.
Surely there was something so good about Crane Bank so good, that all banks were rushing to buy it and even when Dfcu did the bidding and buying, the agreements were kept too secret- until they surfaced recently, with the help of a whistle blower.
UGX1.3 trillion for a price of UGX200 billion
Perhaps even more baffling is the fact that Dfcu was asked to pay a mere UGX200 billion for Crane Bank, for over a period of three years–money that Dfcu, at this rate, will make in just from merely the cash assets it acquired from Crane Bank.
While it is difficult to estimate the real value of Crane Bank as it was not listed on the stock market, using the 2013 sale of Dfcu Bank, the CEO East Africa team can estimate the worth of Crane Bank.
In May 2013, London-based private equity fund, Actis, sold a 45% stake in Dfcu at (USD43.2 million) to Rabo Development B.V. and The Norwegian Fund for Developing Countries (Norfund). This would roughly put the value of the entire Dfcu which at the time had Shs1.196 trillion in assets at about USD96 million.
Comparatively, Crane Bank, which at the time was UGX250 billion larger than Dfcu, with assets above UGX1.451 trillion should at least have been much more than USD100 million.
Selling Crane Bank at an equivalent of just USD55 million (UGX200 billion) three years later and moreover to be paid within a period of three years, was equivalent to the proverbial peanuts.
For this, Crane Bank’s former shareholders, want the central bank which took over and in their words, “fraudulently sold” their bank, Dfcu bank and its laweyers who partook in the said “fraud’ be brought to book.
Collusion to undervalue assets
The shareholders, we understand, believe there was a “deliberate and fraudulently ploy to over-estimating the problems of the bank so as to capture it and sell it off for a fraction of its worth.”
An insider close to the case says this explains why the shareholders were never given options to redeem their bank when they had all the means to and this was characterized by a hurried sale- in less than two weeks, without even a market valuation of the assets of Crane Bank prior to their transfer to Dfcu as required by law under the FIA.
“The Central Bank had a year within which to take action as a receiver but they were in a hurry to sell. The shareholders also want to know why some assets were deliberately under-valued during the sale of Crane Bank and once they were in Dfcu’s hands, their value immediately appreciated,” said the source.
For example, the shareholders claim that at the time of takeover by Dfcu, the branch network valued at only UGX10 billion but “within just days of taking over the assets, Dfcu revalued the same at UGX47 billion; showing an overnight discrepancy of UGX37 billion given to Dfcu.
“This undervaluation benefited Dfcu and Bank of Uganda officials (as well as their legal advisors) on this transaction,” contend the shareholders.
Massive UGX600 billion suit to be brought against BoU, Dfcu and lawyers
According to other sources close to the suit that is in the works, the above issues form part of the crux of the multibillion case.
This follows the surfacing a the prior top secret agreement signed between Bank of Uganda and Dfcu on January 27, 2017.
The BoU Governor, Tumusiime Mutebile, and Margaret Kasule, a legal counsel, signed on behalf of the central bank, while Juma Kisaame and William Sekabembe, the Dfcu managing director and executive director, respectively, signed on behalf of Dfcu.
So secretive was the deal that the contract itself, mentions nothing about the sale price, payment terms and the nature and extent of the assets sold. The agreement however gives a blanket cover to Dfcu, should they be sued for anything arising out of the sale agreement, except for their own negligence.
Shareholder rights trampled upon as BoU illegally assigns UGX600 billion loans to Dfcu
Shareholders are to contend that while part of the contract states that BoU has “negotiated and concluded an arrangement in the interests of and for the benefit of the depositors and creditors of Crane Bank, with the purpose of releasing the receiver from depositors’ and creditors’ claims” the same contract ignored the interests of the shareholders.
“This is wrong because the Receiver is also obliged by law to also cater to the interests of the shareholders of Crane Bank. The nature, structure and detail of the agreement are directly intended to defraud the shareholders and to benefit DFCU and Bank of Uganda at the expense of the Shareholders,” observed the source.
Crane Bank’s shareholders are also riled that in the run-up to the sale of Crane Bank, BoU classified a set of Shs600 billion as bad loans and removed them from the list of Crane Bank assets to be sold.
BoU then made the shareholders of Crane Bank to pay for these loans out of their share capital and as a result of this transaction, the shareholders lost capital worth UGX350 billion (as payment for these loans). In addition the shareholders subsequently paid to BoU an additional amount of UGX23.5 (UGX85 billion) to make for some of these bad loans.
“By this arrangement, these non-performing loans were no longer the property of the property of Crane Bank (in receivership), but belonged to the shareholders who had paid for them with their capital contributions. Surprisingly, the non-performing loan book (which was not an asset on Crane Bank’s balance sheet) was also secretly transferred to Dfcu in this transaction,” said the source close to the shareholders and familiar with the pending suit.
Also to be sued are the two law firms that represented BoU–MMAKS Advocates and AF Mpanga (BOWMANS) Advocates who, despite being legal advisors of BoU in this sale transaction, immediately became Dfcu’s legal advisors and “began to make collections for Dfcu on the same assets and portfolio they had just transferred to it.”
“This is evidence of collusion to defraud the tax payer and shareholders of Crane Bank,” said the analyst, adding: “This explains why the agreement is lopsided and in favour of Dfcu and completely against the interests of Crane Bank, BoU and Crane Bank’s shareholders.”
“They acted for BoU and DFCU to make money on both sides! That is illegal, fraudulent and unprofessional conduct. They have made billions of shillings in fees from both BOU and Dfcu. The money BOU has paid them is on account of Crane Bank’s shareholders. The shareholders intend to file a legal claim against these lawyers to recover all the legal fees that have been made on these illegal transactions,” said a source close to the case.
It shall be remembered that recently, the High Court of Uganda struck off the two law-firms from the list of BoU lawyers in the suit in which BoU and Crane Bank, brought against Sudhir and Meera Investments Limited- his property investment arm.
UGX1 trillion legal suits
What started off as a normal BoU takeover of a troubled bank, is not promising to be perhaps Uganda’s largest commercial case history with claims and counter-claims in billions of shillings.
It all started off with the main suit in which the Central Bank sued Sudhir and Meera Investments for Shs400 billion, prompting a counter-suit for USD8 million (UGX29 billion) for breach of clause 12 of the Confidential Settlement and Release Agreement (CSRA).
Additionally, he argued in the CSRA, the two parties (Sudhir and BoU) had agreed “not to sue, commence, voluntarily aid in any way, procure, instigate, prosecute or cause to be commenced or prosecuted against any other party or its related parties any action, suit or other proceedings concerning released claims, in Uganda or in any other jurisdiction.”
The main suit is yet to be heard, and Sudhir’s legal team has fired off a series of legal suits this time against Dfcu for trespassing on his 42 pieces of property, previously occupied by Crane Bank as well as for breach of contract. Both case are to the tune of over $20 million alone.
Should the UGX600 billion suit come to pass, claims and counter-claims on this case alone will be well over UGX1 trillion, a new record in Uganda’s commercial jurisprudence.
SOURCE: CEO East Africa