13 October 2011

Zimbabwe: Saruchera 'Exceeded Mandate' - Timba

RENAISSANCE Merchant Bank (RMB) curator Regis Saruchera is misdirecting himself to the prejudice of Renaissance Financial Holdings Ltd (RFHL) and does not have the financial engineering, structuring and knowledge of the banking business, the banking group founder Patterson Timba said.

In a letter dated September 29, 2011 to RFHL chairman Christopher Chetsanga, Timba said Saruchera did not understand his role at RMB and needed to read his terms of appointment together with the Corrective Order issued by the Reserve Bank of Zimbabwe.

"To my recollection in terms of the Corrective Order issued to RFHL, the Reserve Bank also gave this responsibility to RFHL, which means the Curator should read his terms of appointment together with the Corrective Order. We find it strange that the curator appears to have deliberately left out RFHL in all his communications with NSSA," Timba said.

Timba says Saruchera "exceeded his mandate" when he attempted to dispose of all of RFHL's businesses.

Saruchera, according to Timba, attempted to sell ReNaissance Securities, which is not under curatorship, is operating normally and has never been offered for sale.

"Where he gets this authority baffles the mind," Timba questioned. "It is therefore our considered view that the curator is grossly misdirecting himself to the prejudice of RFHL and we request that the RFHL board takes up its fiduciary duty to protect company and shareholder interests before any permanent damage is suffered."

Timba urged Chetsanga and his board to ensure that RMB did not end up a shell like other banks that went through the curatorship route.

"We certainly do not want to end up in the position of Trust Bank, Royal Bank and Barbican or ENG Capital for that matter, where the shareholders eventually recovered their businesses after seven years, but only received shells," he said.

"RFHL has been and still is a great example of indigenous businesses and it will be a sad day if we followed the Curator's obviously flawed recommendation and actions."

Timba also questioned why NSSA wanted to take controlling shareholding in the bank, adding that should the

national pension fund takeover the business, it would lack appropriate strategic leadership.

"NSSA as a national pension fund is not structured to undertake a controlling shareholder role. This by the way is not unique to NSSA, all pension funds, including private schemes do not have major shareholder-type infrastructure," Timba said.

The business, Timba said, would lack not only appropriate strategic leadership but would face a massive destruction of value and significant losses to NSSA's beneficiaries.

Timba also questioned the structure proposed by Saruchera, saying it was outside NSSA's investment mandate and pension fund's own internal limits.

"RFHL is not a building that they can simply hand-over to a Real Estate Agent," Timba said. "NSSA carries a mandate to facilitate and support local businesses, not to own them."

Timba attacked Saruchera's assertion that NSSA was not interested in investing in the bank and should get it for free and enjoy the returns.

"This with all due respect, is commercially unsound," he said.

Timba says Saruchera's reasoning is rather unique in his 17 years of banking experience and devoid of "any investment logic."

"It appears to us the Curator, having exceeded his bounds and made certain commitments to the RBZ and NSSA, is now desperately trying to justify his commercially unsound decision which serves no other purpose except to totally decimate RFHL," he said.

According to Timba, Saruchera's valuation is identical on a line-by-line basis with an RMB "management" valuation.

He says valuations are not an "exact science" and carry a lot of "assumptions and subjectivity."

"It appears the curator would like the world to believe that his thinking is exactly identical to management; with all due respect, this is not possible," Timba added.

"In any event, which management is this? Certainly not RFHL management who are the owners of the business. We are reliably informed that the management team was led by Messrs James Mabasha and Loveday Chamisa."

Timba questioned Mabasha's competence to proffesionaly evaluate any business in the 17 years he has known, him while Chamisa had only ever worked at the bank's risk department and has also "never valued any business entity.

"The Curator, in various meetings, some of which you attended professor, categorically stated that his role did not include negotiating values and shareholdings with investors but to facilitate dialogue between RFHL and potential investors," Timba said. "It appears that he has now turned into a financial advisor to NSSA, when one reads his valuation analysis."

Timba also sees the central bank's hand at play.

According to Timba, judging by the way Saruchera provided information to both NSSA and the RBZ prior to discussing it with RFHL, one presumed the RBZ had already given its approval, considering the Curator's visit to Masawara on Friday to persuade them to ignore the PWC valuation and instead accept his.

"What is motivating him?" Timba questions.

Timba also attacked Saruchera's recommendations, saying they displayed a "serious lack of financial engineering/structuring capacity and a good understanding of our businesses."

He said Saruchera's recommendations can only be excused if "his motivations are other than business rationale."

Saruchera recommended that the restructured bank required US$24 million, split into conversion of existing deposit (US$9 million), funds to follow Afre Rights (US$9 million) and funds to remain in the bank (US$6 million).

"It is apparent that in his opinion as Curator, the bank only requires US$6 million in new money. It also means that in the absence of the Afre Corporation's proposed rights issue, the Curator should in reality be seeking US$15million," Timba said.

"Now that the Afre Corporation rights issue is no longer imminent, and by the Curator's own admission NSSA are willing to provide the US$15 million to Afre as 10% Debentures, we have independent confirmation of that NSSA position. Therefore US$9 million for the rights issue is no longer needed and should be deducted from our requirements."

The US$9 million conversion does not bring new money and should rather remain a deposit but with a longer tenure, Timba said.

"NSSA should be indifferent because it is already sunk and a secured deposit will ensure that these funds will be available at some stage for NSSA to support other companies," added Timba.

"The balance that should constitute the new money is clearly available if the Curator is to do his work impartially with no fear or favour."

Timba says had the curator done his job diligently, he would have obtained US$6 million RMB is owed by the central bank that a "a Curator focused on depositors and creditors should have demanded."

According to Timba, the RBZ is the "restructured bank's single biggest borrower," adding "it baffles the mind why the curator has not spent significant energy in collecting these amounts owed by the RBZ, which incidentally is his employer and supervisor."

Timba says this highlights the invidious position the RBZ finds itself in "as both a referee and a player" or a curious case of a "delinquent debtor appointing a liquidator for his creditor".

"The above clearly demonstrates that there is absolutely no need for RFHL to lose control of its businesses," he said. "We think it is immoral that such a situation should be allowed to happen where a private institution is basically nationalised by a state institution because a fellow state institution has failed or refuses to honour its obligations to the private entity."

Timba questions whether the RMB scenario is a case of a curator trying to protect his principals RBZ by coming up with a solution that seemingly justifies the "unjust and malicious" curatorship in the first instance.

"By the way, we are quite prepared to repeat this statement publicly," he said.

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