Kampala – Mr Sudhir Ruparelia is one elusive person at the moment, rarely giving interviews to the media. His last interaction with the media was at the time Crane Bank was seeking a strategic investor to buy a stake in the bank. That was about four months ago. During this time, he needed a buyer for a stake in the bank in order to raise capital to plug the erosion that was going on in the financial institution. The first signs of silence appeared after October 20, last year when Bank of Uganda (BoU) took over Crane Bank.
When he was not available, his son, the managing director, Crane Management Services (CMS), the flamboyant, Mr Rajiv Ruparelia, was always available to answer questions. Not anymore. There has been speculation that Uganda’s richest man – according to Forbes Magazine – is about to lose some of his properties to BoU after the sale of Crane Bank to dfcu Bank.
Mr Ruparelia started Crane Bank in 1995. This was a period when a number of Ugandans were establishing commercial banks. Slowly, these banks chipped away for failing to meet several BoU requirements on capital and governance. Crane Bank survived this as Sudhir complied with every BoU rule, including reducing his family stake from the highs of 60 per cent to 48.7 per cent by end of 2015. Now, he has lost a bank that was providing him liquidity to further his ambition of being Kampala’s biggest landlord.
Daily Monitor understands that Sudhir and other shareholders in the bank did not receive any proceeds from the sale to dfcu Bank. When BoU took over Crane Bank, the regulator started cleaning up the books of the bank. What BoU had found was that Crane Bank had been understating the bad loan portfolio and that meant making less provision for the bad debts.
With its capital of Shs210b at the end of 2016, these amounts continued to decrease as Crane Bank had to make provisions for the bad debts.
At some point, provisions for bad debts were about Shs300b, wiping out the entire capital of the bank.
When BoU came in, it created two separate entities.
They separated the toxic assets from about the top five borrowers and repackaged the bank to sell it to new investors.
Dfcu Bank acquired some of the assets and liabilities of Crane Bank for a consideration of about Shs80 billion and also committed to injecting capital of Shs180 billion.
This is much less than Sudhir had been valuing the bank when he was seeking a strategic investor for it. He wanted about $150m (Shs538.2b).
At the time, Atlas Mara, an investment firm had valued the bank at about $80m (Shs287.06b) only.
On top of not receiving any cash consideration from the Crane Bank sale – at least not yet -, Sudhir, with other directors and the management of Crane Bank, may now face criminal liability if the BoU forensic audit identifies whether fraud had a role to play in the collapse of the bank.
“There was a loss. So what do you do? Now you have to ascertain how this loss came up. In order to ascertain this, you carry out a forensic investigation because you want to know; why the loss, who caused the loss and what course of action should you take in case you find out whether there were people involved. The investigation will have numbers as well as legal implications,” said Ms Justine Bagyenda, the BoU executive director - supervision.
The audit is expected to be completed at the end of February 2017. One of the key areas where BoU is seeking to pin Sudhir is whether as a vice chairman of the bank he used his influence on the management to sanction some of the reckless lending to a handful of borrowers.
Several practices have also led BoU to question the practices of the directors, especially in collateral management were staked properties would be transferred from Crane Bank to CMS either at below market price or through several questionable circumstances.
Part of the reason BoU has not paid money to the directors is because loan recoveries are still ongoing.
Sources tell Daily Monitor that about Shs340b in bad debts is still out there. Until BoU makes all the recoveries or eventually writes off these loans, Crane Bank directors may get nothing.
Properties still intact There has been speculation that BoU has taken over some of the assets of Crane Bank in order to recover an exposure of Shs500b.
Daily Monitor, however, understands that BoU is first going for the assets of the top defaulting creditors. About seven companies have already had their properties attached by Crane Bank (in receivership), under BoU management in order to recover the debts due. If BoU is able to recover the Shs340b, then they may not need to go for properties of directors. In a market where Sudhir has been the “only” buyer of prime properties, BoU’s work is cut out as it may still be stuck with those assets because of the status of the market.
Without any buyers, the bank will be stuck with those properties, which are in part worthless to any banker because rental income from them is not enough to cover for the short term borrowings of the bank.
That means it all goes back to how Crane Bank was transacting with related companies. The Ruparelia Group is a conglomerate of companies in real estate, flower farms, and hotels, among others. BoU has established that some transactions were not at “arms-length.”
Investopedia defines an arms-length transaction as that which “allows the market to ensure that both parties in the deal are acting in their own self-interest and are not subject to any pressure or duress from the other party. It also assures third parties that there is no collusion between the buyer and seller.”
This was specifically sighted in the selling of properties from Crane Bank to CMS. CMS was acquiring some of the “collateral” that Crane Bank had foreclosed at below market price. When BoU came into audit, it is understood that the bank was being forced to write-off some debts because properties were being undervalued. This meant the bank was losing money because of property undervaluation.
That explains why BoU has already approached Sudhir to either pay back the money in excess of about Shs200b. The regulator prefers cash instead of properties that will remain on their books.
Mr Ruparelia and family have refused to comment on anything related to Crane Bank. And BoU is not making any comments on this issue at the moment.
Down but not out
As BoU closed in on finding a buyer for Crane Bank, Sudhir made several attempts to “save” the bank. Our sources indicate that frantic attempts went up to President Museveni. Sudhir said he was ready to recapitalise. However, the ministry of Finance and BoU had already briefed President Museveni on the reputational risk the bank faced if it was returned to Sudhir. When the blessing of the “godfather” was not forthcoming, the sale of Crane Bank went ahead.
In 2015 Forbes Magazine had valued Sudhir at about $1.2b (Shs 4.3 trillion). In 2016, his valuation fell to about $800m (Shs2.9 trillion), in part, because of the depletion in asset quality as the property market was declining. Forbes values Meera Investments at $600m (Shs2.1 trillion), Speke Hotels Group at $240m (Shs856.8 billion), Rosebud at $10m (Shs35.7 billion) and other investments such as schools, among others, at $30m (Shs107 billion). Forbes had valued Crane Bank at $250m (Shs892.5 billion).
The valuation of these assets was mostly based on estimates provided by Sudhir and some of them may have been over or understated. The loss of Crane Bank means his valuation on the Forbes list tumbles further. Three business people who have interacted with him tell Daily Monitor that the Crane Bank loss has hit him hard that it is a discussion he doesn’t like to have.
This has meant that work on a flagship project at the former Shimoni land may have to stall because of the limited availability of money. Crane Bank offered an opportunity for related companies in the Ruparelia Group to borrow money during specific years. For instance, in 2015, related companies got advances of up to Shs52b. Loans to directors also stood at Shs49b. That means in total related companies secured loans of more than Shs1 trillion from Crane Bank. Because they were companies related to the bank, loans were being charged an interest of 16 per cent.
For Sudhir, that means the end of cheap money for his real-estate ambitions. It also means working capital for his other businesses has been troubled. For instance, the bank would advance money to related companies as it awaits deposits during the year. One of the projects that was expected to be worked on was a large shopping arcade, Kingdom Kampala, along with the former Shimoni land.
Mr Ruparelia is not entirely out of the banking business. He holds a 0.65 per cent stake in Stanbic Bank and 2.5 per cent in Bank of Baroda. Going by the current share prices, the value of his shares in Stanbic Bank is about Shs10b whereas the 2.5 per cent Baroda stake value is Shs7.5b. He also owns 7 per cent of NIC Holdings where his stake is valued at Shs1.2b. In 2015, Sudhir was the single largest individual investor on the stock market to earn more than any other. He earned about Shs800m in dividends alone.
However, none of these are a replacement to the bank where he earned dividends, had access to properties and “cheap” money all the time.
Bank of Uganda (BoU) has already indicated that there is suspected fraud that may have contributed to Crane Bank’s large non-performing loans exposure. According to the Financial Institutions Act (FIA), it is possible to bring shareholders and directors to book in that regard. Importantly, the FIA also states that once the forensic audit holds one liable, the person is immediately considered not to be fit and proper to be part of management or as a director of any institution supervised by BoU.
Section … (6) of the FIA states that “…Any person who, following the forensic investigation, is found to have contravened this Act and the institution’s policies and regulations or significantly contributed to the failure of the institution shall cease to be a fit and proper person for the purposes of this Act.” That means they can never be more than 10 per cent of financial institution.
Additionally, when the liquidation process is going on, shareholders can be held individually liable.
“The liquidator may; enforce the individual liability of the shareholders and directors of the financial institution,” the Act, reads in part.
Previous bank directors such as the late Suleiman Kuggundu of the defunct Greenland Bank and Thomas Katto (RIP) of International Credit Bank (ICB) were held liable for their roles in the failures of the two banks in the 1990’s.