Sour grapes on MSB deal

• FDH demands K1.1bn refund from govt
• Buyer claims MSB was overvalued

FDH Holdings Limited is demanding back K1.1 billion from the amount it paid for Malawi Savings Bank (MSB) shares on grounds that the company was overvalued, Treasury documents show.

But Treasury has said it will not entertain the financial services group’s claims, saying the buyer had ample time for due diligence before signing the deal.

FDH’s refund demands come almost a year after buying a 75 percent stake in the hitherto wholly-owned State bank in a K9.5 billion package on July 2 2015.

The package comprised K5.4 billion for the three-quarters of the shares, K3.2 billion as capital subscription for Basel II requirements and K900 million in information communication technology (ICT) investments.

Of the remaining 25 percent of MSB shares, five percent is for the bank’s employees while government retained 20 percent, which could be floated to the public through an initial public offering (IPO) on the Malawi Stock Exchange if the bank can churn out profits over the next three years as listing requirements dictate.

Weekend Nation has not seen FDH’s demand letter, but we have been privy to internal communication of the Ministry of Finance, Economic Planning and Development discussing Treasury’s position on the matter.

In a loose minute to Secretary to the Treasury Ronald Mangani, director of debt and aid management Madalo Nyambose spells out the basis of government’s rejection for liability as claimed by FDH.

“Our view is that FDH was given ample time to conduct due diligence and assess the deal before deciding to buy the shares [in MSB]…government is rejecting to take liability of their claim,” reads in part Nyambose’s June 3 2016 loose minute to Mangani.

Treasury spokesperson Nations Msowoya confirmed on Thursday that Mangani has written FDH Holdings rejecting to take liability of their K1 133 950 000 claim.

He said FDH was yet to react to the Treasury position, which is that any prudence in business acquisition require that the buyer conducts due diligence and makes a decision to buy after thorough assessment.

During that time, the buyer should have been able to establish the fair price of the entity on sale as there was enough time to do so, reckons Treasury.

In a short response to our questionnaire this week, FDH Holdings Limited group chief executive officer Thom Mpinganjira said via

e-mail: “I have no comment to make on this matter.”

Parliament and independent commentators have since backed government’s posture.

Chairperson of the Budget and Finance Committee of Parliament Rhino Chiphiko said this week “the claim has come as a surprise”.

“Any sale of such a high value asset requires due diligence and in this case one would expect that FDH went through proper valuation of [MSB] before the contract was sealed,” he said.

Abel Mwanyungwe an economics lecturer at the Polytechnic—a constituent college of the University of Malawi-said yesterday that it was surprising that FDH is seeking a refund, a year after the deal was sealed.

“Was the sale agreement not binding? Did it have clauses to be changed? Did it provide for re-valuation? And what economic conditions have changed now that were not factored in the initial valuation? quizzed Mwanyungwe.

He said FDH’s request for a refund raises questions because due diligence was carried out before the MSB was sold.

Mwanyungwe said for FDH to claim the bank was overvalued today, is surprising as even using any pricing model, the K5.4 billion that was quoted for MSB was an under-valuation and it was of no value to the shareholder.

Professor James Kamwachale Khomba also of the Polytechnic, who is professor of finance and corporate strategy yesterday, said government

should throw away FDH’s warranty and indemnity claim.

“MSB was sold on as is basis, so there is no need for FDH to claim any refund. The deal is closed; government should not tolerate such a claim now,” said Khomba, adding there is no economic condition to justify such a claim.

In selling MSB, government had gone against recommendations of the Budget and Finance Committee of Parliament whose resolution, adopted during a session mid last year, was that government should recapitalize the bank to enable it meet regulatory requirements.

Chief among reasons that forced government to sell MSB was its serious capital and liquidity shortfalls that could have seen the Reserve Bank of Malawi (RBM), as regulator of financial institutions, closing the bank.

Bad loans to “people who are politically exposed”, politically driven government programmes and adventures dumped on it as well as regulators’ tolerance of risky practices are chief reasons MSB went on its knees as toxic assets tainted its balance sheet.

Before MSB was sold, government in April last year issued K6 billion promissory notes to clear toxic assets off the bank’s books prop up its value to attract buyers.

Government then established a Special Purpose Vehicle to recover the debts, but there has been little movement in that regard, according to people tasked with the debt collection.