We’re investing in Zimbabwe for the long haul: FMB

Source: We’re investing in Zimbabwe for the long haul: FMB | The Financial Gazette June 8, 2017

BARCLAYS Plc last week announced the sale of its stake in Barclays Bank Zimbabwe to First Merchant Bank (FMB) of Malawi, stunning a market that had been intrigued by a lawsuit the previous week by 63 workers seeking to block the transaction.
The Financial Gazette’s Online Editor, Paul Nyakazeya (PN), this week spoke to FMB group managing director, Dheeraj Dikshit (DD), and chairman, Hitesh Anadkat (HA), about the deal and plans for their new asset.

PN: Can you summarise what just happened?

DD: A binding agreement was signed between Barclays Plc and FMB in London on Tuesday (30 May) while an application for regulatory approval was made to the Reserve Ban
en Barclays Plc exits, that is subject to approval with the Reserve Bank (of Zimbabwe). Barclays Plc will maintain a residual investment of 10 percent which will be held for three years. During this period, the bank would be branded Barclays & FMB. In essence, the transaction is compliant with Zimbabwe’s indigenous regulations. An employee share ownership trust (ESOT) would get the remaining 15 percent. The ESOT shares will be held in a trust in perpetuity. The bank would remain listed on the Zimbabwe Stock Exchange. The process to obtain regulatory approvals is expected to take about 90 days or less. The other 33 percent free-float would remain as free-float

PN: What is the value of the shares you have acquired?

DD: My apologies, we are unable to disclose these details.
PN: What did you see in Barclays Zimbabwe that made you make an offer and move to buy into the bank?
DD: Barclays Zimbabwe has a strong and stable business platform as evidenced by their extensive branch, ATM (automated teller machine), point of sale network, product and service offering and talented resources pool. Their business strategy, customer mix and products suite has many parallels with that of FMB group and therefore makes a good strategic fit. The collaborative approach of Barclays Plc in making this successful and smooth transition further emboldened us to look at this opportunity closely

FMB group’s long term strategic intent has been to expand its banking franchise in the southern African region and has progressively expanded from Malawi to Botswana, Mozambique and Zambia. An entry into Zimbabwe through the proposed acquisition of Barclays Zimbabwe would give it a presence in another crucial market in the southern African region with strong long term economic potential.

PN: Would Barclays Zimbabwe remain listed on the ZSE? Some reports suggest that you many have a secondary listing in Malawi?

DD: Barclays Zimbabwe would remain listed on the ZSE and there is no intention of it being dual listed in Malawi.

PN: How true is it that the signing of this acquisition was pushed forward by a week to ward off several objections and interdicts?

DD: The signing of the agreement between FMB and Barclays was dependent on a host of milestones being achieved as regards due diligence and terms of contractual agreements. As soon as these milestones were satisfactorily met, the agreement was signed.

PN: There are also allegations of corporate governance shortcomings within FMB.
HA: I do not know why at times the press writes stories without verifying. That story about governance was planted by people who did not want us to be part of Barclays. Do you think if we had corporate governance issues we would even be allowed to be here today? Do you think Barclays Plc would allow us to take their brand? Regulators from Zimbabwe, Malawi and London would not have entertained our bid. Even the lawyers and Barclays Bank chairman (Anthony Mandiwanza), would they be with us or even allowed us to be in Zimbabwe if they had questions about our integrity? All these (regulators and individuals) carry out significant amount of due diligence before doing any business with anyone. A red flag could have been raised if there was something amiss. Other regulators watching us include central banks of Botswana and Zambia.

PN: What’s your comment on reports that your guarantees are not accepted in Zambia?
HA: That is not true. There might have been one or two international firms that needed guarantees from an international bank, but I can tell you that 99 percent of the business has been accepted. There are guys who want us to fail because they have their own agenda and they would fabricate anything.
DD: I would not want to give figures since it is a listed bank but we have a pretty substantial guarantee portfolio.

PN: There has been resistance to this deal by some Barclays Zimbabwe workers.
DD: We recognise that any transition would make employees nervous but we look forward to engaging them to address their apprehensions.

PN: Concerns have also been raised over the size of FMB when compared to Barclays Zimbabwe.
HA: FMB is much bigger considering its asset base in the countries we operate in. If you look at the whole group, FMB already has excess capital and its assets are much bigger than Barclays Zimbabwe. In fact, we are using our funds to finance this acquisition. You see, wherever you are getting that information or whoever is giving you this information is picking and choosing what suits their agendas without looking at the truth. Even if you go on our website, you can see that we are bigger than Barclays Bank Zimbabwe. The bank (FMB) has a good reputation and if it was going against good corporate governance, the regulators in the markets in which it operates would not have allowed us to see this transaction through.

PN: What is FMB’s current market capitalisation?

DD: FMB’s market capitalisation is currently approximately US$ 55 million.
PN: Did you at any time think twice about investing in Zimbabwe, which frequently courts negative publicity? You have said your brand was also suffering due to bad press.
HA: We are Africans, we understand Africa. Europeans think of Zimbabwe as an unlawful land, but we often come to Zimbabwe and have seen the environment first hand. We know economies go up and down but we are making a long term investment. This economy will surely rise. We are seeing the bigger picture.

DD: Some people are of the view that with banking, you invest your money and after five years you make your profit and leave. If you have such a mentality, do not go into banking, or into Zimbabwe. In banking, you have to take a long term view. If you become a cowboy in banking you will collapse very quickly. We are taking a very long term view especially in this country than any other country we are operating in. We have a lot of customers we do business with who have businesses in Zimbabwe. So it makes a lot of sense for these customers to deal with a common bank.

HA: Even today, we have Zimbabwean corporates with our bank in Malawi.

PN I know you have Dairibord, (Barclays chairman is group managing director of Dairibord) how big are the other corporates?

DD: You know, we cannot tell you their identities but there are significant companies from Zimbabwe.
PN: Who were your point men on this deal in Zimbabwe?

DD: Our discussions were principally with Barclays Plc, but we had appointed local firms for assisting in the financial, accounting and legal due diligence.

PN: Are you alone in this bid or there are other companies behind you?

HA: Right now we have so much going on and are focussed on closing this transaction alone. In the future, we could invite reputable multilateral institutions, but right now we are focussing on concluding this deal. DFI’s (development finance institutions) have approached us and want to do business with us but not until this deal is complete. I had an email last week from a DFI saying can we please come into your holding company level, but we said not now. A reputable DFI for that matter

PN: Have you met the current Barclays Zimbabwe board and how were you received?
DD: Yes, we have and our discussions with the board of Barclays Zimbabwe have been cordial and interactive.

PN: So after the deal is complete, when can we expect management changes and restructuring, including on your board?

DD: We will add a couple of board members from our group, but on the rest of the board and management, we have not taken a position yet.
HA: We signed a bidding contract, and can only talk about that after 90 days. Such changes need regulatory approval.
PN: What is your perception of Zimbabwe and the economic environment?

DD: We are confident of Zimbabwe’s long term economic potential and look forward to harnessing its talent pool across our group.

PN: What can the market and the bank’s depositors expect from FMB? Will there be a change of culture that Barclays Zimbabwe has been known for, that of being very conservative?

DD: FMB group has a conservative banking philosophy with safeguarding of depositor funds being at its core. This is evidenced by its high level of liquidity, strong capital adequacy and conservative lending policy. For instance, the group’s liquidity position and capital adequacy have consistently remained above 55 percent and 20 percent for the past five years and its non-performing loans were 2,7 percent as at December 31 2016, despite the adverse market conditions. FMB has consistently been given a long term credit rating of A+ and short term credit rating of A1 by Global Credit Ratings Company, South Africa for the past 10 years. The group would continue to pursue its conservative approach to banking with Barclays Zimbabwe but would also seek to enhance the product and service offering by leveraging in Barclays Zimbabwe’s existing infrastructure, skills as well as FMB group’s regional expertise.

PN: Who is First Merchant Bank?

DD: FMB is a public limited liability company incorporated in Malawi under the Malawi Companies Act, 1984. It is listed on the Malawi Stock Exchange and is registered as a commercial bank under the Banking Act 2010. It was listed on the Malawi Stock Exchange in June, 2006. It has two wholly owned subsidiaries incorporated in Malawi – The Leasing and Finance Company of Malawi Limited, a licensed financial institution engaged in deposit taking and asset finance, and FMB Capital Markets Limited, a licenced portfolio manager.

FMB also holds a 70 percent shareholding in Capital Bank Limited, a licensed commercial bank incorporated in Mozambique, a 38,60 percent shareholding in Capital Bank Limited, a licensed commercial bank incorporated in Botswana and 49 percent in First Capital Bank Limited, a licensed commercial bank incorporated in Zambia.