Maravi

NAPSA’s $98m deal raises more questions

COMMENT - Situmbeko Musokotwane is corrupt. He was corrupt when he was as non-executive director of ZCCM-IH and never demanded dividend payments for the shareholders, and he is corrupt as Finance Minister when shielded the foreign miners from paying the windfall tax, and he is corrupt today. The MMD is bringing the Zambian government into disrepute through it's corruption.

NAPSA’s $98m deal raises more questions
By George Chellah
Thu 12 May 2011, 04:01 CAT

ZAMBIA National Building Society (ZNBS) has no capacity to repay the US $98 million loan to the National Pensions Scheme Authority (NAPSA), it has been revealed.

Well-placed government sources yesterday said the scam at NAPSA is frightening and that it was clear that undue influence was being used as a means to access NAPSA’s money, ostensibly to finance real-estate projects but in reality raising money for political and personal ends.

“Even a casual analysis of this project shows that it cannot meet even basic criteria for a project worth financing by NAPSA. All those who may in the next few days be defending this project must answer the following questions:

firstly, how did NAPSA convince itself that the US $98million was okay for it to lend to the Zambia National Building Society? Putting aside the ‘niceties’ of tenders and other issues surrounding this project, this is the heart of the matter,” the source said.

“If, as NAPSA board chairman Mr Dominic Mbangu was quoted to have said on ZNBC, the project was evaluated purely on a commercial basis, it would be very interesting to find out what he knows about ZNBS and the so-called Zambezi Consortium and why the Zambezi Consortium would require the services of ZNBS to approach NAPSA to borrow K500 billion for this project.

It is a fact of lending practice that the lender must be satisfied that the amount being lent will meet the need at hand, not too much and not too little, and that the borrower has capacity to repay the money.

“Is ZNBS truly capable of servicing a loan US $98million in its current state? What is the size of this loan in relation to the balance sheet of ZNBS? If it is being argued that the money will be lent to a 'special purpose vehicle' off-balance sheet, in what ways will this vehicle be different from the sponsor or sponsors?

For all we know, ZNBS has been on the brink of liquidation for a number of years, failing even to pay taxes to ZRA and contributions to NAPSA until perhaps, very recently.”

The source said the ZNBS has been insolvent and the government has failed to recapitalise it, leaving the existence of the institution to the mercy of the Bank of Zambia (BoZ) who have tried over the years to rein on the institution but were yet to carry out their threats.

“Is the ZNBS capable of creating an entity greater than itself? Is this not the same way as saying that the Nitrogen Chemicals of Zambia can create a vehicle to do something which itself is incapable of doing? Moreover, who is behind the special vehicle? Who are the shareholders of this entity? If the entity can stand on its own, why did it take the managing director of the ZNBS to write requesting for this loan?

Why was the Consortium not announced in the first place? When people are planning to do something that big, should their intention not be made public well in advance?” the source asked. “The amount of $98million (or K500billion) is bigger than most of the small banks in Zambia and is almost 50 per cent of the size of some of the biggest banks in Zambia.

Surely we should have heard first that the ZNBS was creating a vehicle to refurbish the gutted Society House and the names of the promoters should have been known and their track record fully scrutinised before US $98million of people’s sweat could be lent to them. How much these promoters were putting on the table should have been announced as a matter of good governance, since NAPSA belongs to the people.”

The sources wondered about other institutions that were approached by ZNBS to finance the project.

“If ZNBS has been planning to refurbish Society House, it must have made some attempts to raise money elsewhere before it thought of NAPSA. Which institutions were courted and what were their responses? Is it not rather odd that the Society House was gutted in 1997, that is 14 years ago and ZNBS has been waiting for NAPSA to finance the project!” the source said.

“The fact of the matter is that no sane bank would have accepted the risk of lending to the ZNBS over the years, given that the poor financial status of the institution has been well-known, including the fact that the IMF and the World Bank have raised serious concerns about it.”

The source said although the government has been prodded over the years to do something about the solvency of ZNBS, it either did not have the money or lacked the willingness to help the building society.

“These facts are strewn all over the corridors of the Ministry of Finance. How come then did Dr Musokotwane ignore this information and agree to put people’s money at risk? Besides, Dr Musokotwane worked for the Bank of Zambia and, as minister, has access to the prudential reports that have been published on the poor state of the ZNBS balance sheet. How can he pass a project of this size as viable, if not for undue influence on him?

In any case, when and why did Dr Musokotwane think of “approving” the project? What letter was he responding to? Who initiated the correspondence and when? Does ZNBS write to the minister over every project? What was special about this one except to start the process of intimidating the board of NAPSA?” the source asked.

“The question of timing is important. When ZNBS was putting out the invitations as claimed by the acting MD of ZNBS Mr Besa, had it secured financing for this project? It is a matter of policy that a public institution cannot go to tender without satisfying the ZPPA that financing is available for the project. When did ZNBS secure financing for this project?

Surely does it make sense to tender something in August 2010 and then secure financing in April 2011, if what is being said is correct? As we understand, the tenants of Society House were given notices to vacate the property for re-development and some, if not all notices, are ending this month.

By law, commercial tenants are supposed to be given 6 months notice to vacate. Did ZNBS have the financing arrangements in place by November 2010? Or was this like the case of marking the boundaries of new constituencies before the NCC passes the new constitution?”

The source said NAPSA has or should have guidelines on how much can be invested in real estate.

“As a rule of thumb, well managed pension funds all over the world restrict lending to the real estate sector to about 10 per cent of the investment portfolio. At the beginning of NAPSA this rule was followed. One would like to ask, how much is NAPSA’s exposures to real-estate now, before the K500 billion is disbursed, if it has not gone already? What will be the fraction after? And when did it become conventional wisdom for NAPSA to exceed the initial limits? Now there is a simple reason why this rule is important,” the source said.

“Real estate is illiquid and its value closely mirrors the ups and downs of economic cycles. As NAPSA’s predecessor the ZNPF proved, real estate values are very difficult to realise when you want to sell, especially for properties held by public institutions.

But the benefits that have to be paid to members are current. Therefore, a well managed pension fund keeps money in long term bonds and shares in good companies. Stock markets collapse but they rebound faster than real estate and the instruments are tradable, which means that a pension fund can get its money at short notice.

“In the boom years, NPF and Zambia State Insurance Corporation invested very heavily in real estate. Most of these buildings are now under-performing, and cannot even be sold.

It is even possible that former managers of ZNBS may have considered disposing of Society House and failed. How can we be so blind to these realities, except for undue influence in the decision-making process?”

The source wondered whether BoZ had given ZNBS a ‘clean bill of health’ to start engaging in transactions of this nature and magnitude.

“This question is not as simple as it sounds at face value. The BoZ is the custodian of the financial system in Zambia and has played its role reasonable well over the years.

The BoZ approves those who must play in the market and weeds out those who are flouting the rules and posing a danger to the financial system. It is well known fact that the ZNBS in its current state poses a risk to the financial system,” the source said.

“Has the BoZ approved the adventurism being perpetrated by this transaction? The core business of ZNBS is mortgage lending. Has ZNBS recovered enough and assumed its rightful position in this area? Why is the refurbishment of Society House at such a high cost such a priority at this time? Would it not make more sense for ZNBS to borrow for onward mortgage lending?”

The source also said there was need for an explanation on why, contrary to the initial set-up, NAPSA could now lend directly to another parastatal.

“The original investment guidelines forbade direct lending to parastatals except that done through the Bank of Zambia. This was in order to avoid undue influence by ministers and other government officials such as the case in point.

If NAPSA funds government projects through securities issued by the Bank of Zambia, the exit mechanisms are clear and the scheme would have an instrument it can easily liquidate without political influence. When and why was this good rule changed?” the source asked.

“What part did Mr Mbangu play, if any, in changing this rule? It is clear that this transaction is not above board. No doubt in the coming days we shall hear of denial upon denial. It would be refreshing to hear Mr Mbangu publicly acknowledge that his hands were twisted because the transaction is clearly a useless one for which the nation will pay dearly in the coming years.”

posted by MrK @ 10:11 AM