The call-back comes as the financial group was thrown in turmoil after Norman Mataruka’s bank licensing and supervision department said on May 12 that its merchant banking arm had a US$16,7 million capital deficit.
The inspection was prompted by a debt wrangle between self-styled financier Jayesh Shah and group founder Patterson Timba over a US$5 million loan.
In a May 30 letter, RFHL not only asked Finance minister Tendai Biti and Bank governor Gideon Gono to help it reclaim the funds to offset a core capital gap, but also argues that the hole – as reflected in the RBZ draft report – is overstated.
The money was given as US$4 million for gold bonds, US$2,3 million for a 2005 Diaspora paper and US$2,2 million in statutory reserves, and the troubled banking group wants a return of the funds to ease “liquidity pressure” at its merchant banking arm.
“We feel that the position of our core capital position is exaggerated by at least US$10,9 million, the figure in our view should rightly be reflected as a negative US$5,7 million on a worst case basis,” said Timba in another letter written three days earlier and forming part of a huge dossier to government this week.
Crucially, the banking group says the RBZ knew months ago about its recapitalisation strategies, including borrowings from Shah, but it was surprised by the bank supervision department’s omission of that crucial information and moves to discount the bonds-cash off its capitalisation table.
The two-week siege on RFHL’s Borrowdale headquarters – by up to 38 staffers from the main bank’s inspectorate division – and subsequent hype refreshed memories of the tumultuous 2003-2005 period where up to seven major institutions fell under Mataruka’s watch.
In his plea to Biti and Gono, Timba calls on the authorities to pursue the US$20 million National Social Security Authority rescue package as it would stabilise the stricken bank, but a return of the US$8,5 million could also overturn ReNaissance Merchant Bank (RMB)’s US$6 million core capital deficit – an issue Mataruka confirms in a May 12, 2010.
Although Mataruka and his chief bank examiner Gift Chirozva allege the bank was capitalised with borrowed funds, hence their disqualification, the shareholders contend that the view was erroneous as it was individual investors who had sourced money from Shah.
Under the arrangement, which has gone sour, Timba’s Bethel Trust obtained US$5 million loans from the Indian businessman’s companies, including Al Shams Global Limited (Al Shams), Iris Trading and Investments BVI Limited (Iris), and Lord Shanidev Investments Corporation (Lord Shanidev).
Besides RMB, RFHL also owns a securities division and 31 percent of listed Afre Corporation.
While RFHL sought approvals for the Al Shams, Iris and Lord Shanidev loans, the claims are fully backed up by a September 03 letter from Charity Kadungure’s exchange control division.
“We advise that in line with current exchange control guidelines, these loans which are within the USS5 million threshold would ordinarily be processed by the authorised dealer without referral to exchange control,” she said.
“This approval is granted on the condition that, in the event that RFHL fails to honour these loans when they become due and the security is called upon, RFHL would be required to submit a specific application to exchange control for the regularisation of the share swap, which is a capital account transaction…,” Kadungure added.
The bank holding company also says the main bank’s insistence on core capital was debatable, as the said capitalisation rating or measure was “transactional” and RMB had long met its paid up equity capital to the tune of US$12,4 million as at April 30, 2011.
Besides a letter from Chirozva confirming RMB’s capitalisation status, Gono also wrote to RFHL on July 09 last year restating the same issues.
“We believe the absence of this material information creates the impression that the current April 2011 investigation was designed to arrive at a particular conclusion and, therefore, any information that would point to a different conclusion was conveniently left out,” Timba said in the May 27 letter to Biti.