Facts - Merchant Bank vs Fortiz Equit y Fund

In acquisition of Merchant Bank 

Rand Bank

FORTIZ Equity Fund Limited

1.       Who is the company acquiring MBG?

( As part of the conditions, Bank of Ghana requested for the Strength as in balance sheet  and capacity of acquiring institution)

1.       FirstRand Bank was established in 1998 from a business that started in 1970 as an investment bank

2.       The group has its headquarters in Johannesburg with five subsidiaries in five South African countries namely Botswana, Lesotho, Mozambique, Namibia and Zambia. FirstRand is also in Nigeria through its investment bank Rand Merchant Bank. It has operations in Australia and India as well.

FirstRand is the second largest Bank in South Africa with assets in excess of USD 103 Billion recording profits of over 2.8 billion USD as at the end of 2011(Annual report of FirstRand). To put this in perspective, the total assets of the Banking industry in Ghana according to the Bank of Ghana (MPC report for June) was GH¢ 23 billion as at April 2012(about 13 billion USD).

3.       FirstRand through its Investment Bank Rand Merchant Bank has over USD600 million invested in Ghanaian infrastructure projects. In Nigeria they have invested over USD1.6 billion within a year.

4.       The group has over one hundred years of banking history in South Africa.

5.       FirstRand offers a portfolio of leading franchises providing banking and insurance products and services to retail, commercial, corporate and public customers in South Africa and several African countries.  They have world class technology for banking and product solutions.  The Bank offers products such as loans, Mortgage Investments, Debit cards, Credit Cards, Insurance, leasing and Asset financing  Investment Banking.

1.       Fortiz Equity Fund Limited incorporated in Ghana in June 2013 with its registered office same as First Banc.

2.       The Holding company is Fortiz Investment Holdings also incorporated in June 2013 with a stated capital of GHS1.0 million. Shareholding structure-

-          MAWULI HEDO – (Ghanaian  51%)

-          ANGELA HEDO – (Ghanaian 29%)

-          DORIS BENUEME (Togolese 20%)

3.       The initial Directors of the company are Emmanuel Botchway  and Mrs. Lokko.

4.       Capacity is unknown as this is their first transaction since registration in June when the Rand deal was abrogated.

5.       Initial Capital per the Registrar General is GHS5.0 million.

2.       What percentage is the company acquiring and for how much?

Original  Shareholding Structure –

Prior to the FirstRand transaction Merchant Bank had a shareholding as follows;

SSNIT – 55%

SIC Life – 15%

Staff Provident Fund – 10%

Treasury Shares – 20%

On the understanding of Rand Bank acquiring Staff shares were sold to SSNIT.

SSNIT –  91 %

SIC Life – 9%

First Rand Bank has proposed to acquire  75% shares in Merchant Bank

After the consummation of the FirstRand transaction, the new shareholding structure will have been;

FirstRand        – 75%

SSNIT              –  23%

       SIC Life            – 2%

75%   for      GHS199.3 million

(USD 91 million @2.19)

SSNIT & SIC were to contribute some amounts to the capital in addition to the FirstRand funds

A domiciled MBG account opened to receive funds from mother Bank

Fortiz Equity Fund Limited is acquiring 90% shares in Merchant Bank.

After the consummation of the Fortiz transaction the new shareholding structure will be;

Fortiz               – 90%

SSNIT               –  8%

       SIC Life             – 2%

90%  for  GHS90.0 million 

(USD41.09 million @2.19)

One is not too sure where funds will emanate from. Whether its going to be a loan  from another Bank or shareholders own funds.

3.       What is the source of funds

·         FirstRand is financing the acquisition from its cash flows.

·         FirstRand  sought and received approval from the REGULATOR in South Africa to transfer funds to Ghana for the transaction

·         FirstRand has a strong balance sheet (USD2.8 billion as at 2011) to support this transaction and future planned expansion

·         Source of funding is NOT known

·         The company is newly registered (June 2013) and  has no balance sheet

·         The stated capital of Fortiz is GHS5.0 million.

·         MBG currently has a stated capital of GHS68.8 million. How can a company with a 5.0 million capital takeover a GHS68.8million company? What is the source of funds?

4.       How was this figure arrived at?

After 18 months of due diligence and assessment of the books of the Bank and various negotiations with all stakeholders a formula was agreed for the Net Asset Value of the Bank. 

Valuation was done based on the qualitative and quantitative qualities of the Bank.

No due diligence was effected. GHS90.0 million is an agreed sum between the majority shareholder and  Fortiz and a shareholders’Agreement and a share purchase agreement has be executed to pass this deal through to the BOG for approval

5.              Is company engaged in   other ventures in Ghana?

Rand Merchant Bank, the investment Banking subsidiary of FirstRand Group has a portfolio of investments around the world including Ghana.

FirstRand has invested over USD 600 Million in various development projects in Ghana across various sectors of the economy including the recent Ghana Cocoa Board syndication, Gridco, Tullow Oil, Vodafone Ghana, Ghana Ports & Harbours, and MTN Ghana.

The total portfolio size could rise to over USD 1 billion in the next few months in view of the approved facilities yet to be disbursed by FirstRand.

Even though Ghanaian incorporated, this company has no history of engaging in any such transactions in the Country.

Mainly because Fortiz was incorporated purposefully for the Merchant Bank transaction.

6.       Will this strategic partnership arrangement benefit existing shareholders

·          It is better to hold 23% of GH¢199 million than to have 8% of GHS90.0 million.

·         The balance sheet of MBG would have been freed on the consummation of this transaction to breathe. The heavy burden of taking the provisions on MART (The bad loan book) will be freed from our balance sheet and P&L

·         The good MBG will almost immediately begin to make profit- no more provision against MART

·         FirstRand will bring all the expertise and efficiency in their processes into MBG which make us much more efficient.

·         FirstRand will bring in technology, systems, procedures and processes which have been tried and proven to deliver efficiency and profitability

·         FirstRand will also help MBG leverage its very strong base of customers who will not do business with MBG because it is a local and small bank. This bank could be twice or thrice its size in a few years.

In this arrangement SSNIT will hold 8% of GHS90.0 million which is far less than what they will have received under the Rand transaction.

Fortiz has no expertise in managing or running a Bank.  Merchant Bank will have to rely solely on its systems applications to support.

Fortiz acquisition is purely an equity investment. Merchant bank needs more than just equity investment at this stage

Further provisions for the MART Book would have to be made by the Bank.

7.       What is the strategy for MART (Merchant Bank bad loan Book)

Bad book stands at GHS175 million today from GHS240 million when it was structured for full recovery (creation of MART)

-          Top Five accounts include;

Engineers and Planners (owned by the President’s brother)- GHS58.0 million

Myroc , Western Steel etc

First Rand and Merchant Bank had entered into an arrangement- based on advice from the BOG- with a local recovery company (UT Recovery) to manage the recovery.

Any amount recovered will be paid to SSNIT, meanwhile the salaries and the administrative cost will be handled by First Rand. SSNIT therefore  under this arrangement has the opportunity to recoup bad loans not by itself and  at cheaper cost

Fortiz has indicated it will manage to collect  30% of the Bad Book which will go to its shareholders and pass 70%  of same and any uncollected loans to SSNIT.

What this means is that the pensioners will carry the entire 70%. Knowing the capability of SSNIT those debts are going to be written off.

The question is which of the debts will be written off? And why?

8.       Will workers be laid off?

First Rand was made to sign a warranty as part of the Sale and Purchase Agreement that no staff was to be laid –off.

Under FirstRand’s  expansion plans the new MBG will require additional personnel  as it plans to add a number of branches and expand its operations.

What was expected was restructuring to align the various departments and subsidiaries to the objective of the majority shareholder.

Fortiz were not made to commit to this arrangement and are on record to have said that the staff strength was too high for the operation of a 23 branch Bank like MBG.

They have indicated that, they intend to run lean operations by reducing the staff strength by 50% over time. However they do not have a redundancy package for staff that are even willing to leave.

9.       How will this deal benefit the workers of Merchant Bank?

In many ways

·         Staff will receive more training and development through transfer of skills, training programmes attachments to other businesses etc.

·         When the business starts making profits, staff could then start earning bonuses or other performance related compensation scheme  put in place based on whatever performance management process is in place

·         Very good staff could have the opportunity of working in other countries where FirstRand has businesses

The profile of our staff will be highly elevated

·         No track record in bank operations

·         Equity investment is capital injection and no one can  pre-guess what the end will look like.

·         No knowledge of the systems, processes, procedures, products etc that will be deployed by Fortiz

·         The profile of staff cannot be elevated given the competition in the industry.

10.   How will this deal benefit existing customers?

·         FirstRand will bring along new products backed by new systems that will provide our customers more convenience and efficiency.

·         FirstRand will make Investments e- Channels as well and that will mean MBG will have presence in many more places thereby bringing the Bank’s services closer to our cherished customer.

·         International recognition to facilitate import and export business. Presently only few Banks are willing to confirm Ghanaian Bank Letters of Credit.

·         FirstRand will attract other local and international customers to the bank. Eg FirstRand finances Tullow Oil which can become a customer of the Bank with its huge foreign currency transactions

·         Branch expansion is NOT on the table

·         No new technology (MBG to use the existing platform in the face of modern competition and the weak efficacy of our system.

·         No proven systems and processes to help transform MBG. The cost of acquiring a market efficient systems is high and not completed in a day; but over many years.

Facts provided by:

NPP Communications Directorate
NPP Headquarters, Asylum Down. Accra.

AG. Director Communications: Curtis Perry K. Okudzeto
Mobile: +233-24-9679008
Telephone: +233-302-264329/Fax +233-302-229048
Email: nppdcom@gmail.com
Website: www.newpatrioticparty.org