Maravi

Chikolwa opposes $98m expenditure on Society House

Chikolwa opposes $98m expenditure on Society House
By Gift Chanda
Tue 29 Nov. 2011, 08:30 CAT

FORMER Stanbic Bank Zambia managing director Joseph Chikolwa says the investment of US $98 million into the refurbishment of Society House and Central Arcades was unjustifiable.

Appearing before the commission of inquiry on the operations of the Zambia Building Society (ZNBS) yesterday, Chikolwa opposed former ZNBS board chairperson Joyce Nonde-Simukoko who last week justified the US$98 million expenditure on Society House and Central Arcades refurbishment on grounds that ZNBS was losing enough revenues in rentals.

"It is my humble opinion that the investment of US$98 million in the refurbishment of Society House and Central Arcades was not justifiable," Chikolwa submitted.

"It is true that Society House after the unfortunate fire became a non-performing asset for ZNBS. But in normal circumstance this building should have been fully insured against risks including fire in which case the proceeds from the insurance claim should have been used to refurbish the building and bring it back into a performing asset."

Chikolwa wondered if all options were exhausted before the decision to spend US$98 million on the project was taken.

He said in the absence of funds to refurbish the building either from an insurance claim or internal resources, authority to sell the building at market value through an open tender should have been sought.

Chikolwa said the proceeds from the sale would have gone a long way to recapitalise ZNBS.

"Indeed this capital which is locked up in a non-performing asset would be released and utilised presumably in building the mortgage book," he said.

"In other words, the task of financing the refurbishment should have been left to the private sector using private funds. No doubt private investors would have done the refurbishment in line with the market needs. Sometimes you may have to sell the ‘family silver' in order to make a fresh start."

Chikolwa also questioned the financial returns on the investment.

"The market return on property investments of a financial nature similar to the one being undertaken by ZNBS is around 10 per cent annualised. This means that on an investment outlay of US$98 million, ZNBS and partners must expect an annual return of US $9.8 million or monthly revenue of around US $800,000," he said.

"The market rate for rentable commercial space is on average US$15 million per square metre. Therefore, to achieve a monthly income from rent of US $800,000 you need about 50,000 square metres of rentable space."

He explained that excluding the 30,000 square metres car park, the complex is expected to have a 10,000 square metre hotel, 7,000 square office space and 12,000 square metres of shops and restaurants, giving a total of only 29 square rentable space.

"One then wonders therefore how the facility will be able to generate a market return of 10 per cent annualised on a car park and 29,000 square metres," said Chikolwa.

Labels: CORRUPTION, JOSEPH CHIKOLWA, STANBIC

posted by MrK @ 7:02 PM