THE National Discount House (HDH) has begun a process to transmute its discount house operation into a merchant bank following a rights issue that put sha
reholder capital beyond $750 million prescribed for merchant banks.
Businessdigest understands that NDH shareholders, who include a consortium of investors who took up shareholding in the group when it resumed operations in February after its forced closure by the central bank in 2004 due to severe liquidity problems, had already agreed to the transformation of the discount house into a merchant bank.
Sources indicated to businessdigest that management had already submitted documents to the central bank detailing the discount houses’ plans to change into a merchant bank.
The central bank, the sources said, was assessing the shareholders’ proposals before granting the financial institution a licence to operate as a merchant bank.
An official at NDH confirmed to businessdigest that plans to transmute the discount house into a merchant bank were advanced, indicating that the financial institution had surpassed the capital requirements for the merchant banking operation.
“Due to the prevailing situation, the board does not see scope in us continuing as a discount house and so they definitely want a merchant banking license,” a top executive at NDH said yesterday.
“We’re now awaiting approvals from the central bank to start operating as a merchant bank. We have submitted required information and they are conducting their assessments,” the executive said.
NDH closed in 2004 after extensive exposure to the now-liquidated ENG Financial Services. The exposure precipitated a run on the financial institution’s deposits, but an outright liquidation was avoided after creditors in the discount house and asset management subsidiaries agreed to a scheme of arrangement under which they took up equity in NDH Holdings.
The RBZ had also acknowledged the group’s efforts to find a viable solution to its insolvency woes.
A consortium of new investors was brought in to inject fresh capital into the institution. The consortium, which comprised of Tower of Nanking, Greencase Investments, Deepdock Investments and G Chizema, held 34,29% of NDH’s shareholding when the institution resumed operations in February. The consortium of investors had also underwritten last month’s rights issue which had a subscription rate of 81,9%.
The majority of investors who had not followed up their rights consisted of former creditors and depositors who took up shares when the financial institution was reopened. The consortium of investors who had underwritten the rights issue will take up the shares not taken up by their respective shareholders during the rights issue. This will see the investors increasing their shareholding in the institution.