Red flag raised over Nssa, ZB transaction

THE Monetary Policy Committee (MPC) is set to meet today to discuss the National Social Security Authority (Nssa)’s intention to sell its stake in ZB Bank.
There are indications that if one of the bidding investment vehicles — which already holds a controlling stake in a major financial institution — clinches the deal, the transaction would potentially violate banking regulations.

Tinashe Kairiza/Kudzai Kuwaza

Three as yet unnamed suitors are vying for Nssa’s 37,79% shareholding in ZB Bank, with sources indicating that one of them has vast business interests across the country’s economic spectrum and strong political connections. Questions have also been raised around the prudence of Nssa’s decision to dispose of its equity in ZB Bank in a hyperinflationary environment where inflation is galloping towards 800%.

The controversial transaction has sparked outrage among various stakeholders, with the Zimbabwe Congress of Trade Unions (ZCTU) writing to Nssa raising objections for not being consulted over the deal despite the labour movement being represented on the state-run pension fund’s board.Nssa’s 37,79% stake in ZB Bank is worth more than ZW$755 million (US$11,984 million).

MPC sources this week told the Zimbabwe Independent that members of the panel are closely watching one of the potential suitors, who already wields significant control in one of Zimbabwe’s largest commercial banks.

The transaction, sources added, would be discussed during a meeting of the MPC today, with members specifically deliberating on the implications of the deal to the country’s banking sector.

This week, a source told this newspaper: “The majority of MPC members are opposed to this transaction if the Nssa shares are acquired by an individual who already wields significant control in another commercial bank. We cannot allow a situation where someone who already holds 37% in some bank snaps up a stake of similar size in ZB. This is what will dominate our meeting on Friday (today).”

Reserve Bank of Zimbabwe (RBZ) governor John Mangudya, who chairs the MPC, could not be reached for comment. Nssa has 66 528 608 shares in ZB and is disposing of its entire stake in the financial institution.

The ZB share was trading at about ZW$11,35 on the bourse as at June 26 before the government abruptly ordered the closure of the Zimbabwe Stock Exchange to facilitate investigations into so-called illicit activities.

ZCTU president Peter Mutasa said as a member of Nssa’s tripartite board — which comprises labour, business and the government — they were not consulted on the transaction.

“Our member on the board, Thomas Masvingwe, who is our representative on the board, said the board was never consulted. Therefore, we have raised a red flag. There is no way such a stake can be sold without board approval,” Mutasa said.

“We have since written to Nssa on the issue and they have said they will consult with stakeholders.”In response to questions from the Zimbabwe Independent last week, Nssa’s acting general manager Arthur Manase said they are looking at disposing of the entire stake as part of an exercise to reconfigure the pension fund’s interests in the financial sector.

“Going forward, in line with our investment strategy, we want to consolidate some of the sector investments to reduce duplications, improve efficiency and minimise capital requirements, especially for regulated sectors such as insurance and banking,” Manase said.

“Three unknown players represented by their agents have expressed interest. For confidentiality purposes, we are unable to reveal the names of the agents as common law dictates non-disclosure of parties involved in such negotiations without their express consent. The winner can only be revealed once the evaluation process has been completed and all approvals obtained from the relevant authorities. Such transactions are covered by strict confidentiality requirements.”

The RBZ in its Monetary Policy Statement in February this year indexed minimum capital requirements of banks to US dollar equivalents, such that financial institutions classified as Tier-2 (commercial banks, merchant banks, building societies, development banks, finance and discount houses) are required to have capital equivalent to US$20 million. Tier-1 banks, which are large indigenous commercial institutions as well as all foreign banks, are required to have the equivalent of US$30 million by December 2020.

“Using the latest December 2019 capital positions and the current exchange rate, Nssa will be expected to provide additional capital of at least US$3,6 million or ZW$2,05 billion across the banking sector investee companies,” Manase pointed out.

“While some of the institutions may trade themselves into meeting the capital requirements, others may require additional support from shareholders. What is of greater concern is that these capital requirements are fluid as they are subject to exchange rates determined by the weekly auction system and therefore Nssa is not able to fund on these competing requirements.”