Another look at purchase of Zenon, othersí N275b loans by AMCON
Category: Mergers & Aquisitions
November 9, 2011 / By Kingsley Ighomwenghian , Finance Editor
If Mustafa Chike-Obi, chief executive of the Asset Management Corporation of Nigeria (AMCON) had imagined on October 21, 2011, when he announced the purchase of the loans owed by Zenon Oil, Seawolf and Geometric Power from some banks by his corporation would go away very soon, he was proved wrong over the weekend, when the matter took the front burner at a gathering of professionals, including bankers.
There were expectedly much more questions that the answers that came, as the various speakers gravitated between angst and shock, dismay and hopelessness, at the actions of the corporation and the Central Bank of Nigeria (CBN), which approved the purchase.
Chike-Obi, had during a media chat announced concluding the purchase of the debt owed by Seawolf Oilfield Services Limited and Geometric Power Industries, owned by Power Minister, Prof. Barth Nnaji, worth N275 billion from some banks, even while they are “largely performing,”.
According to a breakdown, Femi Otedola’s Zenon owed N150 billion to about eight banks; Seawolf, an oil services is exposed to First Bank to the tune of N100 billion; while Geometic Power, owes Diamond Bank N25 billion.
He insisted that the loans, were taken over at between 85 and 95 per cent of face value, because “they could potentially pose a risk. So we compelled the banks to sell them.”
The AMCON boss insisted that the decision and choice of qualifying facilities, were devoid of political considerations, he stressed: “The banks did not want to give up the loans, but (were compelled) because they were systematically important, so we had to get them to give it up… AMCON insisted because the loans are too big for the banks… The borrowers don’t like this (the takeover, because) AMCON is more powerful.”
The choice of the loans which were approved by the CBN, he continued, and was arrived at from a pool of all the large loans in the system, the capital base of the banks involved and the concentration of such facilities, noting that the loans had to be performing to be considered.
Despite the arguments by Chike-Obi, the gathering recalled that it had been touted that AMCON would purchase the Zenon loan in particularly, several months before, especially following the face-off with his bank creditors over the said loan.
“So, you see, this AMCON deal is incestuous and political,” noted one of the discussants, just as another corroborated, stressing that key officials of the debtor companies are indeed close to government as members of the Economic Management Team headed by Dr. Ngozi Okonjo-Iweala, the Finance Minister and Coordinator of the national economic team.
“Amcon cannot determine for a bank whether the size of a facility constitutes a systemic danger to it,” the argument continued.
“AMCON’s is government money and cannot be used to purchase the three debts,” the banker continued.
Turning prophetic, the bank chief stressed: “So you see, the debts will hang and if AMCON insists on collecting it, the MD and EDs will be sacked by government.
“Friends of government are having their loans passed to AMCON.
Then, the questions started coming: “The loans being taken over were they performing or not?
“What was their risk rating?
“Until a loan gets to the point of being lost and a bank has exhausted all means to collect it, AMCON cannot take it over. The owner or d principal person in any loan taken over by Amcon must be declared bankrupt.”
He pressed further: “Where are we?”
When contacted on Monday, Chris Enyinnaya, a chartered banker and public commentator, told our correspondent via sms: “It is strange that a performing loan will be purchased by AMCON.”
He is also dissatisfied with the choice of bank debtors chosen for the gesture by the corporation, noting that the protest by stakeholders quite “is in order, because AMCON was set up to acquire non-perform, and not performing loans.”
Daily Independent had in January 2010, reported the Seawolf facility granted by First Bank, out of which N85.1 billion had been drawn to acquire three rigs. The rigs, one of such rigs had been purchased at the time, while the remaining two were being expected to arrive Nigeria, also served as collaterals for the loans. Part of the money, it was learnt, was used to acquire a Norwegian company.
The bank, worried by the possibility of having to make such huge provision amidst business uncertainties in the country, drafted Oladele Oyelola, then executive director and Chief Financial Officer to Seawolf, based in Lagos, as Vice Chairman, to ensure judicious management of the company to enhance recovery of the debt. Zenon
There are those who doubt the veracity of the AMCON claim that the loans were performing, especially given the fact that Zenon had dragged early in the year dragged six banks before a Federal High Court in Lagos (suit No. FHC/L/446/2011) over the debt.
The suit was between Zenon Petroleum & Gas and Access Bank, First City Monument, Guaranty Trust, United Bank for Africa and Zenith, the plaintiff accused the defendants of wrongfully computing its debt (principal and interest) to N169.953 billion or $1.133 billion as of December 31, 2010.
While Zenith Bank was owed N68.109 billion; UBA’s facility was N36.862 billion; GTBank, N30.732 billion; FCMB, N18.722 billion; and Access Bank, N15.526 billion in both principal and accrued interest over the period. The five-paged writ of April 12, 2011, is believed to have been triggered by the Mareva Injunction obtained by Access Bank.
Although it is not known for how long the debt has accumulated, the books of most of the banks are believed to have taken serious bashing as a result of heavy provisions arising from their exposure to debts like this, with significant impact on the profitability of some of them.
Pledged primarily for the loans to the various banks are prime landed properties, while shares were used as secondary collaterals such as: 159.395 million units, 67.053 million units and 36.4 million shares of AP Plc to Zenith Bank, FCMB and UBA respectively. Zenon and Otedola also pledged 1.441 billion units of Zenith Bank shares to the bank, in addition to 24.813 million units of MRS Oil, and 14.163 million shares of Mobil Oil; 1.85 million units of Zenith also to UBA; and another 1.775 million units of MRS to FCMB.
With the takeover of the loan by AMCON, the corporation now holds 262.848 million units of Forte Oil, representing 24.33 per cent of its 1.08 billion outstanding shares.
Assets pledged for the loans are estimated at about N70 billion, out of which the shares listed above was worth about N30.963 billion, going by closing prices on the Nigerian Stock Exchange (NSE) at the close of trading on Friday, April 15, 2011.
According to the writ, “the Plaintiff states that its Statement of Account with the respective Defendants contains various illegal and wrongful deductions. The plaintiff shall at trial rely on a bundle of banks statements from the defendants’ banks, (arguing further) that all charges, debits and deductions to its accounts by defendants are not in line with CBN regulations.”
Zenon in the statement of claim noted that the indebtedness is that high because of illegal and excess bank charges inclusive of interest debited to its accounts by the banks.
The plaintiff therefore prayed the court to declare the said indebtedness “incorrect, inaccurate and not in accordance with the prevailing contract between the parties,” besides seeking a declaration that he is “entitled to a refund and full recovery of all excess charges and 100 per cent penalty from the defendants together with interest thereon arising from the management of the Plaintiff’s account by the Defendants in contravention of the Monetary Credit, Foreign Trade and Exchange Policy No. 37 of January, 2006 and all subsequent monetary Guidelines of CBN in that regards.”
The details of this transaction is shrouded in mystery. We have requested for details but have yet to receive a positive response.