British multinational lender Standard Chartered (StanChart) and African Banking Corporation (ABC) have scored a major legal victory over a South African investor looking to get about R1bn from the lenders over the collapse of then JSE-listed Blue Financial Services more than a decade ago.
The Supreme Court of Appeal (SCA) overturned the high court ruling that StanChart and ABC had breached a debt-restructuring agreement that sank Blue Financial Services more than 10 years ago.
The high court in Johannesburg had ordered the lenders to pay an entity called Mapula Solutions R704m plus interest calculated from 2016 for allegedly breaching the recapitalisation agreements intended to save the now defunct microfinance institution.
Mayibuye Group, which specialises in turning around distressed businesses, invested in Blue Financial Services before ceding its rights to Mapula.
• Leading business news as it happens: Subscribe to Business Day's WhatsApp channel.
Mapula contends that the debt-restructuring agreement required the banks to limit their claims to amounts recovered from business generated before Mayibuye ceded its rights to the Mapula investment in Blue and, in the event of a shortfall, to either write it off or take shares in Blue instead of payment.
Blue Financial Services, which had operations in South Africa, 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.
In stepped Mayibuye, which invested R163m proceeded to separate Blue Financial Services’ insolvent and underperforming business from a planned new, restructured and recapitalised business — referred to as Good Bank.
Mapula owns Mayibuye, which was Blue’s controlling shareholder. Mapula directors include former Blue CEO Johan Meiring.
StanChart and ABC were involved in the recapitalisation in which Mayibuye would buy shares worth R163m in Good Bank, and creditors including StanChart and ABC, convert 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.
Mapula argued that the banks had breached the agreement by demanding payment and that the breach destroyed Blue’s value, resulting in the loss of Mayibuye’s investment.
The SCA ruled that the high court’s findings that StanChart and ABC had orchestrated the breach of the debt-restructuring agreement could not be sustained.
“Beyond assumptions, Mapula could not provide any evidence of collusion among the banks. The only commonality among the banks is their participation in the debt-restructuring agreement. Therefore, the claim of collusion remains unsubstantiated and the decision to hold the banks jointly and severally liable is unjustified,” the SCA found.
“Mapula’s attempt to support the high court’s finding on the joint and several liability of the banks has no foundation in the pleadings nor the evidence. Its attempt to support that finding is purely opportunistic.”
Standard Chartered welcomed the judgment. Its Botswana business, which it up for sale, would have had to pay Mapula had the SCA ruled against it.
The multinational lender in January reversed its decision to offload only its wealth and retail business in Botswana, and put the entire subsidiary up for sale — a move most likely to draw the attention of South African banking majors looking to grow earnings outside their home market.
The sale will now include the corporate and investment banking unit, a money spinner for many banks. The backtrack was prompted by indications from potential suitors that they wanted the business in its entirety and not the partial sums of it.
The entire process is expected to take as long as 15 months. South African lenders Absa and FirstRand have already reached agreements to buy Standard Chartered’s Uganda and Zambia businesses, respectively.
Absa, FirstRand, Standard Bank and Nedbank all have a presence in Botswana
The British banking major in 2024 laid out plans to exit wealth and retail operations in Botswana, Uganda and Zambia to free up capital amid a broad shake-up. It has already exited from or scaled back in Zimbabwe, Angola, Cameroon, Gambia and Sierra Leone.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.