SUNDAY, 18 JULY 2010 00:00       

 BY MARCEL MBAMALU BUSINESS SERVICES – BUSINESS NEWS 

Selling Them to Foreigners Is Not in Nigeria’s Interest — Unegbu

THE idea originally muted, but now reconsidered, by the Central Bank of Nigeria (CBN) to sell the ‘bailed-out’ banks to a blend of foreign and local investors generated a lot of heat, during the week, with the chairmen of the Senate and House of Reps Committees on Banking and other financial institutions — Senator Nkechi Nwogu and Mr. Ogbuefi Ozomgbachi — disagreeing sharply on the matter.

In separate telephone interviews, at the weekend, both lawmakers held parallel opinions regarding whether, or not, the apex bank would have been justified in unilaterally inviting foreign or local investors to recapitalise the affected banks. Their positions were premised on recent calls on the CBN to carry shareholders along in its plan to sell the troubled banks by giving them the right of first refusal.

Stating that selling the banks, as originally proposed, would not have been in the interest of the country, Senator Nwogu disclosed that the Senate Committee on Banking had, during the week, written Sanusi on the need to retrace his steps and follow due process by officially informing the lawmakers of the details of his proposed actions and at the same time give the shareholders of the affected bank the right of first refusal before considering selling the financial institutions to foreign or local investors.

She said: “Actually, we have just written a letter to Sanusi. That is because we have not been briefed about the proposed sale; I am only reading about it in the newspapers. And we think it is wrong. I believe that the owners of the banks must be given first option of refusal. If they cannot recapitalise, you can make them state banks, or regional banks. You cannot force them to grow more than they can.

“And I think it is right to carry the shareholders along in the recapitalisation process, because the banks created themselves; government didn’t create them.     These are people’s efforts over the years. Yes, the previous CEOs did not do well, in terms of transparency, good governance and prudent management in particular; yet, that is not enough reason, because they are not the owners; the shareholders are,” Nwogu insisted.

According to her, the apex bank’s injection of funds in the banks does not confer ownership right on government, much less give the CBN the right to sell them.

“No, it does not. I don’t think the apex bank has the right to sell the banks. They should give them conditions, stating the time frame they should recapitalise the banks. It is only when they have failed that the CBN can act. Even if they fail, selling the banks should not be the main option. Let me give you an example; if a national bank is supposed to raise N400 billion and it raises N40 billion, it is sufficient for the bank to be classified as regional bank, “ concluded Nwogu.

HOWEVER, the senator’s counterpart at the House of Representatives, Ogbuefi Ozomgbachi, in his intervention, sharply disagreed with Nwogu’s position, insisting that the banks, having been declared ‘troubled’ by the CBN should not be allowed to continue wallowing in liquidity crisis. He, however, advised that any move to sell the banks should be preceded by a transparent bidding process that would

“ I don’t believe that the banks should be allowed to die or to be liquidated. Every effort should be made, within the existing laws, to rescue them. Selling these banks should be done through open and transparent bidding process. Local and international investors should be given the same level-playing ground.”

On cases still pending in the courts against the CBN, Ozomgbachi said he would rather not subscribe to “anything that is against the Rule of Law. But I still believe that CBN’s action is based on the need to save these banks by way of recapitalising them. But this should be done within the law.

He said existing shareholders are at liberty to recapitalise these banks, with a proviso that the apex bank should ensure that the country does not experience the mistakes of the past.

“We have to be careful while recapitalising these banks, so that we would not get into a situation where we have bubble capital; that is, non-existing capital. That was the problem that we had. Despite the fact that the capital base of the banks were eroded, their owners kept creating the impression that the banks were still standing on solid capital base.

On whether giving the banks to foreign investors would guarantee corporate governance and profitability, the lawmaker said:

“Just as I have said, if we are going to consider foreign investors, they should be investors with verifiable capital to invest in the banks not the ones that invested on papers.

“For the fact that the government injected some money into the banks and that the banks accepted it means that the government has equity shareholding in them. Even if we are denying it, that is the fact. If the government has invested in the banks, it is in position to make sure that the banks are not liquidated. So, it should make sure that well-meaning investors are given the opportunity to come and invest in the banks and that the investments should be verifiable capital.

“The government’s invested funds in the banks cannot be there forever. If the banks are making profits, the capital still belongs to the government. Would you say that the profits they are making would be enough to solve the problem? That is the question. They are using government funds to do business. It is not done. The banks should use owners’ funds to do business.

“It depends on the extent of their shareholding. The Central Bank’s position was that the shareholders’ funds have already been eroded because the management were just using the funds for trading.”

VENTRAN banker and former President of the Chartered Institute of Bankers of Nigeria (CIBN), Mazi Okechukwu Unegbu, also in a telephone chat at the weekend, said ‘obstinate’ moves on the part of the CBN to sell the banks to foreigners would be counter-productive for the country, especially as they (the banks) were said to be returning to the path of profitability.

He expressed reservations about the integrity of the decision, insisting that the controversy and avalanche of court cases trailing it would stall the proposed recapitalisation model.  

‘They cannot sell it in the first place,” Unegbu said.

“You know there is a case already filed by the shareholders of Bank PHB, warning that anybody who attempts to buy shares of the bank is doing that at his own risk. There was also a case instituted by shareholders of Union Bank. So, it is not going to be possible.

“I think there is a major mistake being made, as if the bank already belongs to government. But if you go to the Corporate Affairs Commission, there are shareholders that own them.

“What they want to do is not in the interest of Nigeria to give the banks to foreigners. But it will be in the interest of the country if the Authorities — that is, the Central Bank of Nigeria — to give the shareholders first right of refusal to recapitalise the banks. If they cannot, then there will be other options. But you cannot just call in foreign investors, while you are telling us, on one hand, that they are making profit. Do you sell a profitable venture like that, except there is a comfortable merger arrangement? So, it is a double talk, and I don’t think it is going to be of benefit to anybody.”

THE Guardian, during the week, reported that some aggrieved shareholders of the Union Bank Plc had sued the CBN over plan to sell the bank. Praying the court of appeal sitting in Lagos to prevent the Governor, Lamido Sanusi, from going ahead with the plan to sell the bank by the middle of August, the shareholders, led by the President of the Progressive Shareholders Association (PSA), Borniface Okezie, sought that Sanusi be barred from entering into discussions with some ‘unnamed interest’ groups as regards acquisition of the bank, pending the determination of an appeal before the court.

They are specifically seeking an injunction restraining Sanusi and the incumbent management of Union Bank under the leadership of Funke Osibodu, from “entering into any person, institution, or authority, including themselves and the Federal Government, to dispose any share of the bank or however to transfer its control, management and assets to any person or authority” pending the determination of an appeal against the ruling of Justice Binta Murtala-Nyako of the Federal High Court in Lagos.

Proposing guidelines for smooth recapitalisation of the affected banks, Lagos Chamber of Commerce and Industry (LCCI), through its President, Otunba Femi Deru, during the week, posited that the “proposed recapitalisation of the rescued banks and the decision of the CBN to invite foreign investors has generated intense concerns among stakeholders in the banking industry.

“Our position is that the process should be done in line with the relevant laws and within the statutory framework prescribed under the Companies and Allied Matters Act (CAMA) and the Banks and Other Financial Institutions Act (BOFIA).

“According to the LCCI, the CBN should invite existing shareholders to recapitalise their banks failing which new investors will be called upon to take up any outstanding shares. This will also ensure that the Board of Directors of the affected banks in consultation with the CBN calls a board meeting to fix the amount of fresh capital required and articulate the modalities for rights offer.

“It further suggested that an Extraordinary General Meeting should be held by the Boards of the affected banks to approve the scheme, subject to approval by the CBN.

“Deadlines should be fixed for payment of the rights offer. Only offers not paid up by the set deadlines will be available to new investors. After conclusion of all the payments, a final Extraordinary General Meeting should be called to elect new directors.”

But in a strange change of plan, the apex bank at the weekend announced that it would now allow shareholders recapitalise their banks. Inside sources at the Abuja meeting with stakeholders, where the decision was taken, said the shareholders were given only two months to conclude the process, a development one of the leaders, Mr. Suny Nwosu, at the weekend, said was tantamount to setting booby traps for those opposing an outright sale of their banks.

(Source:Guardian)