AFRASIA Kingdom Zimbabwe Ltd (AKZL) could fork out more than US$100 million in capital just to comply with statutory requirements as it emerged this week that the US$20 million the financial services group plans to raise could go into covering a hole on its books of US$21 million, court documents seen by business digest show.
This comes after the banking group announced recently that it intended to raise US$20 million through a rights issue expected to close end of December. AKZL is also planning a placement and issuing preferential shares to investors in the banking group.
Documents lodged by Kingdom in a matter pitting the bank against Spiritage, a company owned by businessman Zachary Wazara, show that the institution claims to be exposed to Valley Technologies, a mobile phone operator, to the tune of US$21 million.
In light of this disclosure in legal documents, the US$20 million AKZL intends to raise could just be going into an existing hole given that a court application filed a few weeks ago says the bank and Lalela, a special purpose vehicle that took over Valley Technologies when the loan failed to perform, represents them.
The group released a circular recently seeking shareholders’ approval to repurchase 289 133 648 of its issued shares indirectly held by Crustmoon through AKHL for a total consideration of US$12,5 million in terms of the Binding Memorandum of Agreement between KBL, AKZL, Crustmoon, AKHL, Nigel Chanakira, AHL and Charles Wawn dated September 5 2013.
Under the deal, the total consideration payable by the company comprises US$2,5 million cash, and the balance through an indirect cession of certain claims against loan debtors and related security assets held by Kingdom Bank Ltd as well as transfer of the Kingdom trademark. Sources close to the deal speculated that resolution nine on the circular relates to the sale of Valley Technology assets sold to Lalela. Strangely, this is around the value of the Valley Tech telecoms equipment. The equipment was valued at around US$12 million.
This has raised speculation Chanakira could be looking at entering the telecoms sector.
A source said: “If the equipment belonged to Lalela, why is the bank giving it to Chanakira, unless there is a relationship between Lalela and the bank? And would Chanakira’s shares be bought in exchange for claims from debtors/equipment in the first place if the disposal of his shares represented a straight forward exit?”
Kingdom Bank this week sent a letter to its customers advising of its capital raising programme.
The group released a circular and notice of an EGM set for November 29 whose purpose is to furnish shareholders with information relating to the programme involving the rights offer and private placement to be undertaken by the company to raise up to US$100 million.
Resolution two reads: “That, subject to the passing of Special Resolution Number 4 and Ordinary Resolutions Number 3 and 4, the ownership of AKZL be restructured by repurchasing 289 133 648 (Two hundred and eighty nine million one hundred and thirty three thousand six hundred and forty eight) of its issued shares indirectly held by Crustmoon through AKHL for a total consideration of US$12 500 000 (Twelve million five hundred thousand United States dollars) in terms of the Binding Memorandum of Agreement between KBL, AKZL, Crustmoon, AKHL, Nigel Chanakira, AHL and Charles Wawn dated September 5 2013.
“The total consideration payable by the Company comprises US$2 500 000.00 (Two million five hundred thousand United States dollars) cash, and the balance through an indirect cession of certain claims against loan debtors and related security assets held by KBL and transfer of the Kingdom Trademark,” the circular reads.
Reliable sources say the “indirect cession of certain claims against loan debtors and related security assets held by KBL and transfer of the Kingdom Trademark” is a reference to the network equipment owned by Valley Technologies which is at the centre of a legal dispute between Spiritage and Kingdom Bank.
Last month, in an escalation of the legal battle, Spiritage filed a supplementary affidavit at the High Court in which Wazara told the Court that “this suit HC2977/13 was filed by Applicant on April 17 2013, five months after its directors and other servants took control of the board and management of third respondent, pursuant to the Sale of Shares Agreement, and exactly the same period after 1st, 2nd and 5th respondents had ceased to have any shareholding, board or management responsibilities in third respondent.
On April 25 2013, the directors and management appointed by applicant purported to resign from the company because applicant had “withdrawn its consent to the operationalisation” of the sale of shares.
Spiritage says the resignation of the directors was not before the directors had fraudulently issued a resolution permitting the bank to sell the assets of the company by way of auction.
The assets of the company, valued at over US$12 million, were allegedly bought by Lalela for US$78 000 where the bank claimed to be seeking to recover US$21 million from the Spiritage.
The financial troubles of the bank came to the fore when a dispute between Kingdom Bank and Spiritage spilled into the media earlier in the year, triggered by a scathing letter of complaint against Kingdom Bank written to Reserve Bank of Zimbabwe by Zachary Wazara. Media reports led to a run on the bank which eased off somewhat when the Reserve Bank stepped in to assure depositors that the bank was sound.
The bank claimed that it was seeking to recover a US$21 million non-performing loan which it lent to Valley Technologies.
Spiritage, on the other hand argued that it had entered into a debt for equity swap deal with Kingdom Bank, resulting in the bank taking control of Valley technologies.
Spiritage further argues that the debt for equity swap had been agreed to by the parties as a settlement for what Spiritage argued was significant damage to its business case caused when Kingdom Bank allegedly diverted US$3,2 million secured by Spiritage from abroad.
The telecommunications firm failed to raise working capital needed for its business because the bank allegedly charged the company interest and bank charges of over US$5,3 million effectively translating to interest rates of over 54% when the agreed interest was between 10,5 and 14%.
In an interview with businessdigest in July, Chanakira said the decision to lend to Wazara’s company was above board and the creation of the Lalela Structure which saw the bank converting debt to equity was not his initiative.
He said: “The Lalela structure was created as part of an attempt by a sub-committtee of the Kingdom Bank board, and not me, to find a solution to a non-performing loan. . . . . My involvement on and in the structure was at the request of the KBL board who were ultimately the final authority in endorsing the structure.”
The financial problems of the bank appear not to have relented as evidenced by a letter from the bank’s CEO Lynn Mukonoweshuro last week to customers.
Mukonoweshuro said that “the group intends to raise US$100 million and this initial phase aims at raising US$20 million by way of a rights issue, private placement and issue of preference shares”
In her letter, she said: “I am aware that the service from our group – especially the bank – has been less than satisfactory. I can only begin to imagine the damage to our relationship, your reputation and your trust in our bank. I am exceptionally sorry for all this and sincerely wish it had been avoidable. It is my hope and prayer that you will allow me the opportunity to express my apology again in person at an appropriate time.”
Last month, Spiritage raised the stakes in its legal battles with Kingdom when it filed supplementary affidavits requesting the courts to dismiss an application by the bank in April 2013, on the basis that the bank was bound by its debt for equity agreement with Spiritage.
“The concern which is likely to occupy the minds of potential investors and depositors alike is that should the courts determine that Wazara is correct in his argument, then the bank will have to assume the full USD21 million on its books, which will virtually wipe out the impact of the proposed rights issue.”