TETRAD Investment Bank creditors have opted for a debt-to-equity swap in a last-minute attempt to breathe life into the troubled financial institution after the bank’s judicial manager proposed the do-or-die arrangement.
Tetrad, the last merchant bank in the country’s financial services sector which went under due to toxic loans and poor governance, was declared insolvent in August last year with its capital standing at US$51,7 million as of August 31.
The bank’s provisional judicial management (PJM), now being done by the Deposit Protection Corporation (DPC), yesterday roped its creditors into a scheme of arrangement which involves a conversion of debt to equity after it emerged last week that there were no takers to bail out the bank despite several calls by the PJM.
The DPC took over as provisional judicial manager from Winsley Militala who has since stepped down after several clashes with management and shareholders. He resigned after compiling a damning report outlining poor corporate governance that had writ large in the bank.
DPC told a creditors’ and members’ meeting yesterday in the capital that the bank had not secured any suitors despite earlier reports that Russian investors Horizon Capital consortium were angling to acquire a significant stake in the defunct financial institution.
Although creditors were initially reluctant to agree to the terms of the debt-to-equity swap arrangement, DPC convinced them the option was the only prudential way to clean the bank’s weak balance sheet before courting new investors.
“The debt-to-equity swap will make the balance sheet more attractive to any investors interested in injecting capital into the bank and it would also mean that depositors are responsible on how the bank will be run as they would now be shareholders,” DPC chief executive John Chikura told the creditors.
The debt-to-equity swap means all depositors who enter into the arrangement will no longer be owed by the bank instead they will become shareholders at certain percentages depending on how much they were owed.
Before agreeing in principle to the proposal, depositors at the meeting yesterday expressed fear of being taken for a ride by the bank that has in the past promised that it would get investors.
“Some of us tend to be ignorant which is why we foolishly trusted Tetrad and invested our money there but the truth is that by entering into this debt-to-equity swap deal we risk ending up with nothing if the bank is run the same way as it was before,” said one angry depositor.
The PJM’s report to the second creditors and members meeting proposed two resolutions — debt-to-equity swap and provisional liquidation — for the now defunct institution.