Timba set to lose control of Renaissance

May 11, 2011

Timba set to lose control of Renaissance

Government plans to bring in new inve-stors to prevent a potential crisis stemming from a loan the businessman failed to repay in time.
Mr Timba had received a US$5 million loan from business tycoon Mr Jayesh Shah to recapitalise Re-naissance Merchant Bank.

He however, failed to repay the loan within the agreed period.
The loan was extended at an interest rate of 42 percent per annum and Mr Timba’s failure to repay in time sparked a bitter struggle as Mr Shah threatened to muscle him out of the merchant bank.

This prompted a three-week investigation by the Reserve Bank of Zimbabwe which unearthed shareholding and corporate governance irregularities.
The investigation also revealed that Renaissance Merchant Bank was undercapitalised.

PATTERSON TIMBA

It was discovered that three main shareholders controlled 70 percent of the financial group, which is inconsistent with Section 26 of the Banking Act.
Banking laws prohibit individual and institutional shareholders from owning 10 percent and 25 percent stake in banking institutions, respectively.

It also emerged that there was no separation of responsibility between shareholders, management and directors of the embattled firm.
After the discovery of these irregularities, the Government identified an investor to inject US$17 million to avoid a crisis at the bank.

This will also result in significant changes to the board and management at Renaissance Financial Holdings and its banking arm.
The new appointments might include people appoi-nted by the Finance Ministry, the new investors or the RBZ.

Mr Timba will remain a significant shareholder in the firm.
Other shareholders will retain their interest in the group although they could be diluted.

Finance Minister Tendai Biti and Reserve Bank Governor Dr Gideon Gono yesterday said should the sacked senior management interfere with the restru-cturing, Renaissance Merchant Bank would be pla-ced under curatorship.

“It is self evident that things have not been okay at Renaissance and the RBZ has carried an investigation in the affairs of the bank,” said Minister Biti.
“Therefore we are acting on the basis of an infor-med report. It is, however, our firm belief that the bank is solid and will remain functional. We are not going to let any bank fail.”

Minister Biti said measures put in place would ensure stability at Renaissance and enable the bank to fully meet its financial obligations.
He said irregularities at the financial services group were due to lack of board oversight, which could have been avoided were the board prudent in carrying out its fiduciary duties.

Mr Timba last night said he welcomed the action taken by Minister Biti and Dr Gono.
“The actions taken by the Minister of Finance are in the best interest of all stakeholders, the regulatory authorities and shareholders.

“The recommendations of the Minister were received by Renaissance Financial Holdings in good spirits. The Minister acted to bring stability and clarity as to the way forward of the firm,” he said.
Minister Biti said the RBZ would extend investigations to other banks in the next few weeks to avoid a recurrence of events at Renaissance.

Due to the choking liquidity crisis pervading the entire economy, after a decade of economic instability that ended in 2009, local firms have been forced to borrow money at expensive interest rates.
Renaissance could be the first institution caught in the intricate web of the liquidity crisis after taking expensive money and failing to repay in time.

Market sources said Mr Timba failed to repay the capital and interest to Mr Shah after getting the expensive money at 42 percent interest per annum.
The loan was extended in 2009 when banks were required to have US dollar capital and was supposed to have been fully repaid by March 4, 2011.

Mr Timba is understood to have made six monthly interest payments of US$750 000 twice and was suppose to make the final interest and capital repayment of US$5,75 million by March 4, this year.
Mr Timba was only able to reimburse US$3,75 million and later made the final payment, plus late payment interest of US$5,8 million two weeks later.

Sources said Mr Shah then demanded an additional payment of US$12 million claiming the value of Renaissance had grown as a result of the loan advanced.
In the end, Mr Timba is said to have paid a total of US$7,2 million.

Mr Timba is said to have “strongly” resisted the additional payments.
Dr Gono said the corrective action taken to prevent a crisis at Renaissance should not be taken as personal attacks against any individuals or an onslaught against indigenisation and empowerment.