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Govt ignored advice on ZNCB sale - LuSE

Govt ignored advice on ZNCB sale - LuSE
By Kingsley Kaswende
Wednesday April 11, 2007 [04:00]

THE government ignored advice from the Lusaka Stock Exchange (LuSE) against selling 49 per cent shares in the Zambia National Commercial Bank (ZNCB), The Post has established. LuSE had advised the government via a November 2004 confidential report entitled "Proposed Alternative to the Privatisation of ZNCB" not to sell the shares, but pursue other viable options. The document, seen by The Post over the weekend, noted that the sale of the shares raised several concerns, including that the approach would lead into near if not total takeover of the bank after privatisation. It stated that after the strategic equity partner bought their 49 per cent stake, they would understandably argue that ZNCB needs a capital injection.

"They will issue new shares to existing shareholders to raise the required money to recapitalise the bank. As a result of GRZ/Zambians not having money to inject into the company by subscribing for the new additional shares issued under the rights issue, the (buyers) will take up their 49 per cent share rights and in addition all those rights not taken up by GRZ and Zambian shareholders effectively holding a majority stake in (ZNCB) in one single step," it stated.

LuSE also argued that the sale would neither recapitalise the bank nor strengthen the bank's balance sheet, as the money that the buyers of the bank would pay to acquire its 49 per cent would not end up with the bank, but would be given to the Ministry of Finance and National Planning.

LuSE further argued that the sale would not extract maximum value for government because the position of the government was weakened by other considerations such as timing and the contingent liabilities, which the IMF attached to the sale.

"Consequently, the amount of money eventually paid by the strategic equity partner bears no relation to the fundamentals of valuation - and in particular the earning capacity or expected future earnings of the enterprise or the asset base being sold," the document states.

LuSE advised the government to pursue alternative methods for privatising the bank.

The stock exchange advised that instead of selling 49 per cent of the bank's shares directly to a strategic equity partner, it would have been better for the Zambia Privatisation Agency to allot new shares in the bank. These new shares would then be "sold" to recapitalise ZNCB and simultaneously dilute the government shareholding hence privatising the bank.

However, for a trade in these newly issued shares to take place there must have been an agreed "price" and once these shares were quoted in the primary market they would then need to be listed on LuSE in order to get a true market price for them.

LuSE stated that in order to meet the listing requirements of LuSE, the ZNCB balance sheet would need to have been cleaned up to make the offer attractive to would-be investors.

This would have been done by either doing a debt - equity swap between government and the local institutional investors, which government owes over K250 billion, or forming Collective Investment Schemes (CIS) such as the Share Save Unit Trusts and the Employee Share Ownership Scheme.

Collective Investment Schemes operate on the principle of bringing together individuals and institutions so that a pool of funds is formed and LuSE felt that the net result would be the creation of a larger pool of money which could in turn be invested in designated financial investment assets such as equities, bonds, real estate, bank deposits on behalf of the scheme members.

The other option would have been to auction off non-performing loans, removing them from the banks balance sheet into a special purpose vehicle (SPV).

LuSE advised that if this alternative approach were followed, it would not only have guaranteed good corporate and fiscal discipline through the compliance with listing rules and regulations in line with IMF conditionality, but it would also have provided a very clear "modus operandi" and future direction of the bank in order to allay anxieties and fears within the bank and amongst the various stakeholders.

The LuSE approach would also have achieved a broad ownership of ZNCB including non-bank institutional investors and the general public and in such a manner that control remains in Zambian hands.

"It (provided) for the creation of CISs that afford an opportunity for the key stakeholders of ZNCB such as employees and account holders, a chance to own part of the bank with positive spin-offs.

It (would) introduce a ready and transparent mechanism through which the shares of ZNCB are valued and hence a true market value for its shares is obtained. It would recapitalise the bank with the injection of fresh funds into the bank for it to remain a viable player in the financial sector in Zambia," stated LuSE.

Labels: IMF, LUSE, ZNCB

posted by MrK @ 5:01 AM