It was a deal that was meant to save Fidelity Commercial Bank from liquidity problems it was facing in early 2016.
The transaction was finally sealed on March 28, 2017, but the bank’s largest shareholder Sultan Khimji claims in court papers, that the shareholders of the bank were under duress and undue influence.
In the talks, Mr Khimji says the Mauritius-based banking group SBM Holdings, allegedly promised to pay him Sh600 million and goodwill of a similar amount.
Days have since turned into months and months into years and no payment is forthcoming, raising concerns among the shareholders of the bank.
Mr Khimji decided to move to court in October last year seeking among others, compensation of Sh2.5 billion, alleging the Central Bank of Kenya (CBK) bullied the investors at night to sell the troubled lender for Sh100.
The suit was set down for hearing only for SBM to file an application before the High Court seeking to suspend the case, and refer the matter to arbitration as per the Share purchase agreement, dated March 28, 2017.
The Central Bank of Kenya (CBK) has equally filed another application, seeking to be removed from the case, arguing that its role in the deal was solely in its capacity as the banking sector hence the claims against it had no basis.
“The governor or the 2nd defendant(CBK) were not substantive parties to the agreement but signed off by way of sharing with Central Bank of Kenya to keep it appraised during the transaction as a regulator,” CBK says in court filings.
Abuse of court process
The two applications are due for a hearing next week signaling another lengthy wait for the shareholders, who are anxiously waiting for a payout.
CBK further says the case is vexatious and an abuse of the court process and claims by Mr Khimji that he was under duress or undue is false because he willfully entered into the share purchase agreement.
“It remains unclear how the plaintiff holds the defendants jointly and severally liable for compensation of KShs2.5 billion as well as other claims without a scintilla of evidence. Consequently and in light of the foregoing, we submit that the Plaintiff’s suit against the 2nd defendant ought to be struck out with costs,” CBK states.
The banks’ regulator further says that the share purchase agreement between Fidelity Commercial Bank and SBM Holdings did not constitute a transfer of assets and liabilities, as alleged.
Mr Khimji recalls CBK Governor Patrick Njoroge announcing the buyout after the issuance of the requisite regulatory approvals. “CBK has also approved the change of name from Fidelity Commercial Bank Limited to SBM Bank (Kenya) Limited, under Section 3 of the Banking Act,” the regulator said in a statement in 2017.
Dr Njoroge welcomed the entry of the Port Louis-based lender into the Kenyan market, saying it would stimulate a sector rocked by the failure of three banks.
“SBM will bring its experience and expertise from Mauritius and other markets, to enhance the competitiveness and resilience of Kenya’s banking sector,” said Dr Njoroge.
But it has been an anxious wait for the investors until Mr Khimji moved to court last October, seeking compensation and for the court to declare the buyout null and void.
He argues that the CBK forced the directors to dispose of the bank for a song, under threats of criminal charges, regulatory sanctions, and closure.
The shareholders say CBK forced them to accept a negative valuation of Fidelity Bank, alleging that SBM inflated operational costs and provisions for bad loans.
SBM said the deal was valued at Sh100 and indicated it would inject Sh1.45 billion to turn around Fidelity Bank, which risked being the fourth lender to collapse in months.
“The plaintiff (Mr Khimji) prays for judgment against the defendants (CBK and SBM), for a declaration that the share purchase agreement between the plaintiff and first defendant dated March 28, 2017, is invalid, null, and void and of no legal effect and that the shareholders of the former Fidelity Bank are entitled to compensation for the full value of the said bank,” the suit papers say.
The shareholders pray for Sh2.5 billion compensation, being the full market value of Fidelity Bank as of December 2016.
Alternatively, the shareholders want the court should compel SBM to comply with the share purchase agreement that set out Sh1 initial consideration, Sh600 million deferred payment, an additional Sh1.3 billion for undervaluation of the lender plus Sh600 million goodwill.
Mr Khimji has also asked for restitution of profits earned from the sale as well as damages compounded at an annual interest of 12 percent from January 2017.
The Indian Ocean Island banker has dismissed claims of coercion saying there is no evidence to support the claims.
The lender says on the contrary, Mr Khimji is a sophisticated investor with over 20 years of experience in the banking industry as the managing director and major shareholder of the bank.
SBM further says each of the 44 former shareholders of the bank had an ample opportunity to receive independent legal advice and each of the acknowledged in writing that they were advised.
“At least 39 of the 44 shareholders signed the agreement in the presence of an advocate,” SBM says in reply to the suit.
Case suspended
SBM wants the case suspended pending the arbitration hearing, as per the terms of the agreement signed by the parties in 2017.
The bank has also denied claims that it intends to leave the Kenyan market saying there is no such intention or plan to dispose of its shares in SBM Bank (Kenya) Limited, in any way.
“The Plaintiff has presented no evidence whatsoever that the 1st Defendant intends to exit the Kenyan market. Any apprehension that the 1st Defendant is likely to dispose of its shares in the Bank is false and entirely unsubstantiated and is not demonstrable from the Plaintiff’s pleadings,” the lender says through the law firm of Anjarwalla & Khanna LLP.
The lender reveals that since it acquired the bank, it has invested approximately USD 72.6 million in SBM Bank (Kenya) Limited and is yet to take any dividends.
SBM says its shareholder is a publicly listed company on the Mauritius Stock Exchange and will be in a position to meet any judgment that the arbitrator, or the High Court, may impose.
“The 1st Defendant also has a substantial shareholding from the Government of Mauritius, it is a reputable bank with an investment grade credit rating from Moody’s rating agency of Baa3 (higher than any homegrown Kenyan bank), is the second largest bank in Mauritius and has been in existence since 1973 with an extensive branch network and with subsidiaries in four countries,” SBM says. BY DAILY NATION