Afede Drops Bombshell …Raises Concerns Why NIB Does Not Need GAT To Survive
Togbe Afede XIV, the Board Chairman of the National Investment Bank (NIB) has expressed concern about major investment areas under the Ghana Amalgamated Trust’s recapitalization of the NIB to meet the Bank of Ghana’s (BoG) new minimum capital requirement.
In a confidential letter written to the Finance Minister, Kenneth Ofori-Atta, documenting and reiterating earlier concerns raised before the finance minister in a meeting held, Togbe Afede outlines key concerns why the NIB does not need the Ghana Amalgamated Trust to stay afloat in the banking sector.
“Finally, we reiterate NIB’s ability to raise the required capital without GAT, and particularly if the Government provides NIB with the 100% sovereign guarantee that it has made available to GAT”, the letter states in part.
Below is the full unedited letter;
Mr. Ken Ofori-Atta
Honourable Minister
Ministry of Finance
Accra
February 11, 2019
Dear Sir,
Re: Meeting to Discuss Ghana Amalgamated Trust’s Proposed Agreement Confirmatory Letter
We would like to express our gratitude to you and your office for granting NIB Board’s representatives, Togbe Afede XIV (Chairman), Mr. Roland Akosah (Director), and Mr. Felix Addo (the BOG-appointed Advisor), the opportunity, at the meeting held on Sunday February 10, 2019, in your office, to present to you our key issues and concerns with regards to GAT’s Proposed preliminary Investment Agreement.
We appreciate the need to recapitalize NIB, and transform it into an industrial development bank. However, as a fiduciary responsibility to our shareholders, and to ensure compliance with existing laws and good corporate governance principles, the Board finds it necessary to reiterate these issues and concerns. As we confirmed to you, the Board had met with representatives of GAT and their transaction advisors, and subsequently held a meeting on Friday, February 8, 2019, with NIB legal and corporate and development finance terms in attendance, to discuss GAT’s Proposed Preliminary Investment Agreement.
Prior to our February 8, 2019 Board meeting, and pursuant to a Board directive, the NIB Legal Department did an evaluation of GAT’s proposed agreement with regards to its compliance with the Companies Code, NIB’s Regulations, the Banks and Specialized Deposit-Taking Institutions Act, 2016 (Act 930), as well regulations.
Similarly, the Corporate and Development Finance Department did an analysis of the commercial terms and conditions of the agreement. The purpose of this letter is to document the following issues and concerns we brought to your attention at the meeting we had with you in your office on February 10, 2019.
1. Authorization
Any issue of shares to GAT would require NIB shareholders’ approval. This may require the holding of an Emergency Shareholders’ Meeting. Alternatively, the Directors of NIB may undertake a rights issue of shares, prorate to all existing shareholders that would enable the Government to renounce its rights in favour of GAT. The amount to be raised would be fixed such that the amount required from the Government, holder of about 95% of the shares, would amount to the GH¢1.4 billion that GAT proposes to invest.
However, the Director of NIB will formal need a formal, duly documented instruction of Government, the majority shareholder and driver of the transaction, to proceed and to execute an agreement with GAT.
2. Shareholders’ Agreement
In any case, given the special privileges GAT would enjoy under the proposed agreement, and the implications for the rights of other shareholders, GAT should enter into a shareholders’ agreement with NIB’s existing shareholders.
This would mean that the requirement of shareholders’ approval is inevitable.
3. Bank of Ghana Approval
The proposed transaction will also require the formal, duly documented approval of the Bank of Ghana (BOG).
4. Amount Required
As the NIB Board has said on numerous occasions, NIB does not need the sum of GH¢1.4 billion to meet BOG’s minimum GH¢400 million capital requirement.
NIB’s external auditors, Deloitte and Touche, insisted on 100% provision against loans granted to Government’s contractors (totaling GH¢759 million, GH¢402 million being certified work). They also did not accept the write-back of provisions made against Government debts, after the Government repaid GH¢240 million of these debts. The Board is surprised at the sudden change of approach by Deloitte and Touche, who have been the bank’s auditors over the past 5 years.
Also, the Board had proposed the sale of its 24% stake in Nestle for between GH¢400-450 million to bring in additional capital and liquidity but could not get the Government’s approval.
We acknowledge, nonetheless, that, for NIB to pursue it original mandate of supporting the industrial sector, the more capital it has, the better.
5. Transaction Period
It is important that GAT furnishes the bank with indicative timelines within which it intends to complete the capital-raising and investment programme.
Customarily, an exclusivity period, enshrined in an agreement of this nature, must have a clearly delineated time schedule. And this is particularly important because of the restrictions and limits that GAT intends to impose on the Board and management during this period.
6. Valuation and Pricing
GAT proposes a 1xNAV (a unit multiple of net asset value) for the purpose of valuing NIB and pricing its shares for purchase. It however proposes to sell at any time over the next five (5), through the proposed put option and at a minimum of 1.2xNAV.
We do not think the 1xNAV valuation of NIB is fair to existing shareholders. It is also important to note that a lot of NIB’s equity holdings and non-financial assets are in the book at historical values. The Board thinks that it would be prudent to mark these assets to market, and apply a modified NAV that is, adjusted NAV, to the agreed multiple in pricing NIB’s shares.
7. Put Option
The Put Option in the proposed agreement gives GAT the option to sell the NIB shares it acquires any time after the transaction date. It means they can legally be exercising their right even only days after the transaction, literally.
We propose that GAT should not have the right to exercise the Put Option earlier than 36 months after the transaction.
8. Tag Along
The proposed agreement gives GAT the right to sell the NIB shares it acquires on a pro rata basis and on the same terms and conditions, if any of the other shareholders of the Company sell their shares. This right presents difficulty because, 1) Government is not the only shareholder, and 2) NIB is a publicly traded company and the other shareholders have an unlimited right to sell their shares, which rights cannot be curtailed or denied.
We suggest that, 1) the GAT’s right should apply only when Government is selling, and 2) the right to sell shares on a pro rata basis when Government is selling should be given to all other shareholders.
9. Commercial Terms
We see conflicting objectives when the commercial terms of the proposed agreement are juxtaposed against the plan to transform NIB into a development bank.
The commercial terms expounded in the proposed agreement would make it nearly impossible for NIB to re-chart a path towards supporting the industry sector within the duration of GAT’s investment.
For example, the lending rates, typical of an industrial development bank, cannot be sustained by NIB, under the terms of GAT. Also, NIB may not be able to focus its lending power on industrial corporations, the borrowing needs of which would be for medium to long-term, with appropriate moratoria.
10. Costs and Fees
Considering the fact that the GAT is an investor, the expense reimbursement rate of 5% is prohibitive, and more so when GAT will be imposing other costs directly on the bank. This figure must be negotiated down substantially. Notably, GAT expects to have 100% sovereign guarantee, with respect to NIB. We therefore envisage a less ponderous fund-raising effort.
Professional fees in last year’s MTN Ghana IPO, which raised GH¢1.14 billion, were estimated at 1.24%. This was without a sovereign guarantee.
11. Banking Consultant
The Board does not see the need for GAT to appoint a Banking Consultant, who will be paid by the Bank. The provision that GAT shall appoint additional directors to the board, so as to advance the transformation of NIB, ought to suffice. Meanwhile, NIB is already receiving guidance from a BOG-appointed advisor. Any additional expense to the bank must be of critical concern at this stage. The appointment of a Banking Consultant is an unnecessary operational expense.
12. Valuation of NIB’s Assets
The Board thinks NIB needs its own advisors, particularly with regards to the valuation of its equity holdings and non-financial assets. The Board has accordingly requested management to engage the services AESL and other transaction advisors for NIB. This should position the Bank to be able obtain a fair value in its negotiation with GAT. We acknowledge that time is of the essence, but that cannot be an excuse to short-change current shareholders.
13. Dispute Resolution
We recommend the insertion of an arbitration clause in the agreement, to ensure that the resort to court is not the only option when a dispute arises.
14. NIB’s Capacity to Raise Capital
Finally, we reiterate NIB’s ability to raise the required capital without GAT, and particularly if the Government provides NIB with the 100% sovereign guarantee that it has made available to GAT.
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