The secrets behind the Sudhir saga

Questions about BoU

The case has raised questions regarding remedies BoU has to protect or recover money in case a commercial bank comes under duress. If BoU has resorted to grabbing almost all of Sudhir’s properties in Uganda, what would it have done if Sudhir did not have such property?  According to observers, most commercial banks in Uganda control huge deposits but have only the computers and desks in their offices. Most operate in rented offices. So what would BoU attach if they fail?

Sudhir is being punished because he is a Ugandan, who made money in Uganda and invested it in Uganda, a critic of the BoU actions told The Independent. He added that BoU is only able to do this “because it has a lot of power which it is abusing to intimidate and bully Sudhir”.

As an example, one observer pointed out; in the March 20 agreement the central bank agreed that Sudhir should pay US$60 million to close the case. But in the July 03 suit before court, that figure has jumped to US$90 million. By the stroke of a pen, it appears, Mutebile has imposed aUS$30 million penalty on Sudhir.

It should be noted that at the time BoU intervened in Crane Bank, it claimed the bank had a cash flow problem that required just US$30 million to be resolved. At the time, Crane Bank was one of several companies under distress and needing a so-called bail-out.

According to information available to The Independent, it was understood that Crane Bank’s distress was caused by hitches in the operations of about six important customers whom it had lent big money. Sudhir explained that on the basis of Know Your Customer, he understood that the hitches were temporary.  But BoU insisted that Sudhir recapitalises the Bank even after he explained that he needed time to raise the money. In turn, Sudhir requested BoU to exercise its mandate as the lender of last resort and advance him that money. But BoU refused. Sudhir offered to secure the loan from BoU with any of his properties of their choice. But BoU still refused.

Instead of assisting the bank to overcome the challenge, BoU imposed further restrictions on the bank’s ability to do business. Crane Bank was stopped from doing all things that a bank does to make money. It was blocked from issuing letters of credit, bank guarantees, and other instruments from which it raised cash. As a result, Crane started losing about Shs600 million a month. And because the bank could no longer issue these instruments, businesspeople started moving their money to other banks who could issue them with these instruments. In effect, BoU’s intervention had made a bad cash flow problem turn into a worse liquidity crisis.  This was followed by a run on the bank by anxious customers.

At the time, two international investors expressed interest in buying the bank because, despite its woes, it remained an attractive investment. Only a couple of years ago, it had been one of the top five most profitable banks in Uganda and was still the fourth largest bank by assets – up to Shs1.8 trillion in 2015. To crown it all, because it had posted losses the previous year, Crane Bank had a tax credit of $40 million meaning if an investor bought it, they would not pay taxes worth up to $40 million even if it made profits.

Instead of courting these investors, the Central Bank opened a bidding process of one week which included the 2016 Christmas holidays. The investors failed to bid and BoU proceeded to vend Crane Bank – first to Stanbic Bank and later DFCU. It reached a deal with DFCU.

But it didn’t sell the bank as a business as had been proposed by some of those involved. Instead, DFCU offered to buy only some of the good loans at US$50 million, which it would pay over a period of 30 months. Then the Central Bank asked it to collect from the bad loans and take a commission of 20 percent.

Sudhir was kept out of all this although at the time of takeover his share capital in Crane Bank was Shs320 billion. In fact, BoU cancelled the funds to zero because, it claimed the bank had bad loans of Shs736 billion according to an audit by PriceWaterHouseCoopers, although when DFCU came in, it said bad loans were Shs536 billion. It is on that basis that BoU asked Sudhir to cough US$60 million on top of his Shs320 billion, to cover for the NPAs.

The Central Bank – sources says- was also forced to inject over Shs450 billion (Approx.US$125 million)  into the bank which is about four-times the US$30 million Sudhir was asking. According to sources, the cost of running Crane Bank under BoU jumped to Shs125 billion in three months from the Shs96 billion Sudhir spent to run it for the whole year 2015.

In a twist of events, BoU now wants some of the very properties that it rejected before the wound became a sore. Even some of the major clients that had temporarily failed to pay Crane Bank are now servicing the same loans following takeover of the bank. DFCU reportedly inherited good loans worth Shs800 billion from Crane Bank and is earning Shs200 billion from them in one year. In effect Sudhir is being forced to pay for a problem that has already been resolved.

But the pressure from BoU just keeps piling. In another case, under the confidential settlement of March 20, Sudhir was supposed to give BoU a list of properties whose value was US$42 million. On April 04, Sudhir gave BoU 24 titles including those in prime areas of Nakasero, Kololo, Lumuba Avenue etc. The value of the properties was supposed to be evaluated in a Joint Valuation Process. Instead BoU threw out some titles prompting a meeting on the issue on April 07. At the meeting, it was agreed that BoU should not unilaterally determine the value of properties and that professional valuers should do that instead.  At the time, Sudhir added another eight new properties to the list making the total 32 titles.  But, Sudhir’s side says, even before the valuation is completed, BoU lawyers are piling pressure, claiming he is not complying. It is a deliberate effort to get BOU out of its contractual obligation. Sudhir had agreed to the terms of the secret agreement to avoid prosecution. Now that the case is before court, nothing is clear anymore.

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