EOCO to Investigate Collapse of Merchant Bank

The Economic and Organised Crime Office (EOCO) has been petitioned to investigate the collapse, sale, and purchase of Merchant Bank, now known as Universal Merchant Bank.

The Petition also wants the specialised economic and organised crime agency to also probe what happened after the purchase of the bank by Fortiz Private Equity Fund, a wholly-owned Ghanaian entity.

The Petitioner, Isaac Boatey-Agyei, a private citizen, says he is a concerned Ghanaian who followed the Merchant Bank deal in 2013 and believes that “citizens deserve to know what really went on, or what happened to the bank”.

The sale of Merchant Bank to Foriz four years ago was shrouded in controversy with many civil society groups demanding an investigation into the transaction.

These calls for investigation into the deal were largely ignored by the state.

Meanwhile, the storm over the sale of the bank raged on for months, culminating in a court action by Executive Director of the Centre for Freedom and Accuracy, Andrew Awuni, over the matter.

Mr Awuni described the sale of the indigenous Merchant Bank to Fortiz as “a bad deal”, insisting that everything about the sale shows that “it is being cooked up and a ploy to hand over Merchant Bank to some people”.

Mr Awuni’s attempt to block the deal failed eventually.

Mr Boatey-Agyei’s petition, which Myjoyonline.com sources say have reached the Flagstaff House states, among other things, that “some of us do not understand why Merchant Bank was sold at a time when a lot of people and companies owed the bank and no serious efforts were made to collect the loans, but the debts were handed over to the new company which was able to collect the debts.”

Controversy

In 2012, state-owned pensions giant, SSNIT initiated a process to offload 75% of its 98% stake in Merchant Bank to South African firm, First Rand., but the deal was allegedly blocked by forces at the Presidency, occupied at the time by former President John Mahama.

Public opposition to the deal intensified when it was revealed that while First Rand was prepared to invest 176.4 million Ghana cedis for 75 percent in Merchant Bank, Fortiz was investing 90 million Ghana cedis.

Also, persons close to the deal revealed that while Fortiz’s deal would leave SSNIT with 8% stake, First Rand’s offer promised SSINT a 23% stake.

Relying heavily on news publications about the controversy that surrounded the deal and allegations of underhand dealings and possible conflict of interest by state actors, the Petitioner asked EOCO to initiate the probe into the transaction that may have left the state worse off.

“It looks like Ghanaians, especially the Ghanaian pension contributors have been short-changed, so I would be very grateful if you could investigate the whole of Merchant bank’s operations prior to the sale (including the debts), through the sale and purchase, as well as what happened after the sale…”

The relevant portions of Mr Boatey-Agyei’s petition are published below.

According to the Daily Guide and GhanaWeb of 8 March 2013, “In Early 2012, state-owned pension giant, Social Security and National Insurance Trust (SSNIT), the majority shareholder (98 percent) of MBG, and the bank’s management concluded arrangements for 75 percent stake of MBG valued at US$ 91 million to be sold to the South African entity.”

The sale of Merchant Bank to First Rand Bank of South Africa was however blocked by former President John Mahama.

According to a myjoyonline article dated 04-11-2013, “three institutions formally applied to take over Merchant Bank: UT Bank, SABRE Advisors, and FORTIZ equity fund.”

Information from the transaction advisors indicated that, “SABRE was prepared to invest 200 million Ghana in Merchant Bank. But they withdrew their offer after their request for extension to submit a detail offer was not granted.”

“UT Bank on the other hand wanted to invest 150 million Ghana Cedis. But they also withdrew their offer.”

“There was also a proposal from Fidelity Bank to acquire Merchant Bank for 35 million dollars and merge the two institutions, but their offer could not reach the transaction advisors.”

“Fidelity wanted to give SSNIT and SIC Life 28 percent stake in the new entity after the merger.  They also planned to inject additional 100 million dollars to help recapitalize Merchant Bank.”

Joy Business also learnt that, “FORTIZ planned to invest 36 million Ghana cedis for a 100 percent stake in Merchant Bank.”

The article stated that, FORTIZ was buying Merchant for 90 million Ghana cedis in return for 90 percent stake. “The initial proposal sent to SSNIT through KPMG also showed that, FORTIZ wanted to buy Merchant Bank and sell it out to an international partner to help restructure and rebrand it.”

The article also stated that, “While First Rand was prepared to invest 176.4 million Ghana cedis for 75 percent in Merchant Bank, FORTIZ was investing 90 million Ghana cedis.”Another issue that came up was what would be SSNIT’s stake after the acquisition. “While FORTIZ’s deal would leave the state pension trust with 8 percent, First Rand’s deal would give SSINT 23 percent stake.”

The article went on to say that, “Finally, the issue about the 175 million Ghana cedis bad debts on the books of Merchant Bank, First Rand was prepared to appoint an independent company to collect the debt and pay to SSNIT, however FORTIZ is planning to collect 30 percent of the debt and pass on the remaining to SSNIT to collect.”

It can be seen from above information that, there were better offers for Merchant Bank than that of FORTIZ, so it makes sense for the bank to have been sold for a better offer. It is therefore important to know why better offers which could have saved the country a lot of money were turned down in favour of the FORTIZ deal.

At a press briefing on December 13, 2013, the Trades Union Congress (TUC) said that, the BoG and SSNIT, the majority shareholder of the bank, should stop the transaction and conduct further due diligence.

“After a careful study of the transaction and taking into account concerns expressed by workers who are contributors to SSNIT, it will be prudent that the SSNIT Board and the BoG suspend the transaction to allow further investigations into the matter,” TUC’s Secretary-General Kofi Asamoah told the press.

According to Graphic Online of 03 January 2014, “The sale of Merchant Bank Ghana Limited to Fortis Equity Fund faces yet another test, as Parliament is expected to debate the deal when it resumes for a special sitting on Monday, January 6, 2014.”

The Minority were opposed to the sale of Merchant Bank to Fortis Ghana Limited, describing the transaction as “fraudulent, a daylight robbery and a dash from the Social Security and National Insurance Trust (SSNIT) to FORTIZ, with the full blessing of the Bank of Ghana (BoG).”

The minority in parliament accused SSNIT of opting for a deal that did not give value for money and added that the BoG did not conduct full and proper due diligence.

However, The Speaker of Parliament, Mr Edward Doe Adjaho did not allow Parliament to debate the sale of Merchant Bank so there hasn’t been any detailed information in relation to what caused the debts of Merchant Bank that prompted the sale of the bank, the details of the sale and purchase, as well as what happened after the sale.

According to Myjoyonline article dated 06-01-2014, The Speaker of Parliament, Edward Doe Adjaho “dismissed the motion filed by 80 Minority Members of Parliament demanding an investigation into the controversial sale of Merchant Bank to Equity fund, Fortiz.”

An article on Citifm dated 29/08/2017 states that, “SSNIT and SIC Life’s shareholding in UMB has been diluted by 50% following what appears to be their lack of understanding of the transaction they entered into with Fortiz in the takeover of the erstwhile troubled Merchant Bank.”

“Prior to the troubles of the hitherto wholly state-owned Merchant Bank, SSNIT controlled an 89.6% stake with the remaining 10.4% belonging to SIC Life.”

“Fortiz paid GH¢90 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.

The amount gave them a controlling stake of 90 per cent in the bank, leaving the minority 10 per cent to the country’s pensions fund manager, SSNIT and SIC Life Limited.”

The article further states that, “after an initial payment of GHS 10 million to UMB as equity capital by Fortiz, it entered into an unsecured, subordinated debt instrument facility, referred to as a convertible loan with the bank, through which an additional GHS 40 was invested into UMB.”

What this is basically saying is that, Fortiz borrowed and used GHS40million of Merchant Bank’s own money to invest in Merchant Bank. This needs further investigation because that was not what was agreed before the purchase.

The article continues that, “Soon after it was concluded, the loan was converted into equity, in accordance with the Term sheet as approved by the AGM.”

“This led to SSNIT shares reducing from 8.96 to 4.43% of the company, 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.”

The article further states that, “unhappy with the turn of events, SSNIT and SIC Life took Fortiz and UMB to arbitration, in January 2017 claiming among other things that it was not right for Fortiz to use the means it did to acquire more shares in the bank.”

The arbitration panel however roundly rejected the claims by the two, stating “even if the deal struck by the claimants does not appear to be very favourable to them, that deal is what has to be enforced.”

The tribunal explained further that the money paid by Fortiz to acquire shares in UMB could have been paid to SSNIT & SIC Life, “But this was not the option chosen. Rather, they agreed to use this consideration paid by the First Respondent (Fortiz) to increase the capital adequacy ratio of the bank.”

Considering all the above information, it looks like Ghanaians, especially the Ghanaian pension contributors have been short-changed, so I would be very grateful if you could investigate the whole of Merchant bank’s operations prior to the sale (including the debts), through the sale and purchase, as well as what happened after the sale leading to the arbitration.

Source: Myjoyonline