British multinational bank Standard Chartered (StanChart) and the African Banking Corporation (ABC) will have to pay an SA investor about R1bn after the South Gauteng High Court found the two lenders colluded to breach a debt-restructuring agreement that spelt the death of then JSE-listed Blue Financial Services in 2013.
StanChart and ABC were ordered to pay Mapula Solutions R704m plus interest calculated from 2016 after the court found they breached recapitalisation agreements intended to save the now defunct microfinance institution.
Blue Financial Services, which had operations in SA, Botswana Zambia, Uganda, Tanzania, Malawi, Mauritius and Nigeria, was at one stage valued at about R3.7bn on the JSE. However, it incurred a record loss of R1bn in 2010, rendering it insolvent and the company’s market value plummeted to R56m.
Mayibuye Group, which specialised in turning around distressed businesses, invested R163m in the lender. Before ceding its rights to Mapula, Mayibuye proceeded to separate Blue Financial Services’ insolvent and underperforming business from what was planned to become a new, restructured and recapitalised business — referred to as Good Bank.
StanChart and ABC were involved in the recapitalisation that would see Mayibuye buying shares worth R163m in Good Bank, and creditors including StanChart and ABC converting as much as R1.2bn of debt into equity.
However, the agreement encountered problems in late 2013 when StanChart and ABC called in their loans.
ABC Zambia in November wrote to Blue Financial Services demanding the company pay it $3.9m. A few days later it sent another letter of demand, and a further letter was sent by ABC to Blue demanding $4.3m.
ABC Botswana followed suit, demanding 42.8m pula (R59.8m), and said the entire loan it had advanced to Blue Financial Services had become due.
StanChart embarked on a similar course in November 2013, demanding R151m from Blue Financial Services within five days.
Mapula argued in court that on November 1 2013 Mayibuye’s financial benefit of R704m would have flowed from its investment had StanChart and ABC not breached the terms of the debt-restructuring agreement.
The two banks contended there had been no breach and that they were entitled to demand their money back because the agreement had become inoperable.
Judge Margaret Victor found last month that ABC and StanChart breached the debt-restructuring agreement, and that led to losses for Mayibuye.
“It is clear from the litigation which was initiated by the defendants [ABC and StanChart] and also the letters of demand and calling up their indebtedness were objective facts which could not be ignored,” she said in her the judgment. “There was a clear pattern of them [ABC and StanChart] acting in unison and from that one can infer that there was a common purpose.
“It is clear that Mayibuye’s investment was destroyed and was valueless, certainly at the time of the breach by November 1 2013. It is also clear that there was an orchestrated disregard by the defendants of the noncontagion principle, and this led to the investment becoming valueless.”
The court relied on expert testimony that extrapolated what Mayibuye’s initial R163m investment would have been worth on June 26 2013, when trading in Blue Financial Services shares was suspended on the JSE.
Based on the share price on the day before trading was halted — 13c a share — the witness calculated that Mayibuye’s stake was worth R577m.
StanChart and ABC did not respond to requests for comment.
London-based StanChart, which is also listed on the Botswana Stock Exchange, is withdrawing from several sub-Saharan African markets, a move it said was part of plans to reduce costs by more than £802m by 2024.
In July the London-based lender said it would sell its stake in subsidiaries in Angola, Cameroon, Gambia and Sierra Leone as well as its consumer, private and business bank in Tanzania to Nigerian-based Access Bank. It also exited Zimbabwe earlier this year.
Besides the assets from StanChart, Access Bank has also bought ABC Zambia after receiving approval from the Zambian authorities in March.
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