N170b Otedola debt to five banks puts future debtors at risk
By Kingsley Ighomwenghian, Finance Editor



• Laoye Jaiyeola, President, Chartered Institute of Bankers • Otedola



Several months after he is believed to have reached an amicable settlement with Access Bank over his $35,153,822.15 outstanding debt owed along with his companies, Femi Otedola, businessman and President, Zenon Oil & Gas, among others, may have returned to the trenches with his former friends- bank chief executives.

While Otedola’s celebrated faceoff with Access Bank in 2009 was over the exchange rate used in computing his indebtedness, the chairman of African Petroleum Plc, is now battling to save his prime assets particularly in Lagos, Abuja and Port-Harcourt from being taken over.

Going by the writ of summons in the Lagos Division of the Federal High Court (suit No. FHC/L/446/2011) between Zenon Petroleum & Gas and five banks- Access Bank, First City Monument, Guaranty Trust, United Bank for Africa and Zenith, the plaintiff accused the defendants of wrongfully computing its debt (principal and interest) to N169.953 billion or $1.133 billion as of December 31, 2010.

A breakdown of the sum puts his debt to Zenith Bank at N68.109 billion; UBA, N36.862 billion; GTBank, N30.732 billion; FCMB, N18.722 billion; and Access Bank, N15.526 billion in both principal and accrued interest over the period. The five-paged writ of April 12, 2011, is believed to have been triggered by the Mareva Injunction obtained by Access Bank.

Although it is not known for how long the debt has accumulated, the books of most of the banks are believed to have taken serious bashing as a result of heavy provisions arising from their exposure to debts like this, with significant impact on the profitability of some of them.

Central Bank of Nigeria (CBN) prudential guidelines stipulate that any debt that remains non-performing (with interest/ or principal outstanding) for a period of between 90 days and 180 days is classified substandard and requires 10 per cent provision. When the situation subsist for between 181 and 360 days, the loan becomes doubtful and the bank expected to provide for it 50 per cent. When there is no change in status beyond 360 days, the regulation requires the affected bank to consider the loan as lost and make full 100 per cent provision. The classification and datelines however varies for some specialized industries like agriculture, mortgage, margin, project finance, income producing real estate and SME loans, among others, which may not necessarily have short-term gestation periods.

According to one industry source at the weekend, although there is no dispute about whether Zenon obtained loans from all five banks, following which there is a dispute over the interest element, “there has been no concrete attempt to pay back the undisputed portion.”

Pledged primarily for the loans to the various banks are prime landed properties, while shares were used as secondary collaterals such as: 159.395 million units, 67.053 million units and 36.4 million shares of AP Plc to Zenith Bank, FCMB and UBA respectively. Zenon and Otedola also pledged 1.441 billion units of Zenith Bank shares to the bank, in addition to 24.813 million units of MRS Oil, and 14.163 million shares of Mobil Oil; 1.85 million units of Zenith also to UBA; and another 1.775 million units of MRS to FCMB.

Assets pledged for the loans are estimated at about N70 billion, out of which the shares listed above is worth about N30.963 billion, going by closing prices on the Nigerian Stock Exchange (NSE) at the close of trading on Friday, April 15, 2011.

According to the writ, “the Plaintiff states that its Statement of Account with the respective Defendants contains various illegal and wrongful deductions. The plaintiff shall at trial rely on a bundle of banks statements from the defendants’ banks, (arguing further) that all charges, debits and deductions to its accounts by defendants are not in line with CBN regulations.”

Zenon in the statement of claim noted that the indebtedness is that high because of illegal and excess bank charges inclusive of interest debited to its accounts by the banks.

The plaintiff therefore prayed the court to declare the said indebtedness “incorrect, inaccurate and not in accordance with the prevailing contract between the parties,” besides seeking a declaration that he is “entitled to a refund and full recovery of all excess charges and 100 per cent penalty from the defendants together with interest thereon arising from the management of the Plaintiff’s account by the Defendants in contravention of the Monetary Credit, Foreign Trade and Exchange Policy No. 37 of January, 2006 and all subsequent monetary Guidelines of CBN in that regards.”

Otedola also wants the court to order the appointment of a firm of accountants/auditor to work on the accounts to determine the true level of indebtedness to the various banks.

This is in addition to seeking “an Order of perpetual injunction restraining the defendants, their privies, agents, servants, assigns or whosoever from dealing with, disposing of, selling and/or transferring any of the plaintiff’s physical assets or stocks pledged, mortgaged, issued and/or deposited by the plaintiff to the defendants as security for the facilities granted.”


CBN’s worry

Reacting to the growing spate of bank/customer dispute over indebtedness, some weeks ago, the CBN expressed deep concerns over the media war between banks and their estranged customers, especially as it relates to failure to meet maturing obligations and other contract terms.

Kingsley Moghalu, Deputy Governor, Financial System Stability of the CBN, assured journalists in Lagos some weeks ago that the apex bank will take steps, working in concert with the security agencies to check the menace of borrowers who go about harassing creditor-banks.

He was reacting to media reports earlier in the week that bank chiefs are lamenting the fast returning trend of debtors who rather than negotiate their facilities, resort to smear campaigns to blackmail bank managements.

“The CBN is not folding its hands about these types of things. Going forward we are going to be taking every steps together with the law enforcement authority to help protect banks from the menace of harassing borrowers. It is a very appalling situation, but we are doing something about it together with the law enforcement agents,” Moghalu assured.

In a chat recently, a top industry source who crave anonymity lamented that “the impact of the actions of debtors presents real challenges not only to the perception of the banking industry but the economy at large. Under the new dispensation with AMCON, we may have to simply transfer these debts to AMCON (Asset Management Corporation of Nigeria) and have them handle the cases as intended by the CBN. What the bad debtor then achieves is that a bank loan which ordinarily should be a short-term facility then becomes a medium to long-term instrument when it is sold to AMCON. As you know, AMCON would be interested in ensuring that the bad loan is restructured thereby elongating its lifespan and giving the debtor more time to pay up.”


Conclusion

The unwillingness to pay is seen as a major problem as seen in the failure to the unpaid principal, which is the undisputed portion of the debt, with serious implications for the industry. At risk are the huge depositors’ funds from which the loans were made, and the income that would have been earned from the loans, that the banks would made a profit for the benefit of stakeholders like taxes to government, payments to contractors, consultants and then dividend to shareholders.

This, according to industry watchers, is indeed dangerous for the nation’s financial system, which urgently needs to break away from the past. The problem, the argument goes, for example, is that banks could become discouraged and begin to deny some other genuine entrepreneurs and critical sectors the much needed lifeline to remain in business.

“When this happens, economic growth can become stifled, destroying entrepreneurial spirit that is now being unleashed on the country today,” another source explained.

In its rejoinder to the publication by Access Bank in national dailies, Zenon Petroleum accused the bank of festering the dispute, due to its recalcitrant and unprofessional attitude, as a result of which attempts to agree on a true and realistic account balance to enable it redeem the obligations, had been futile.

“Zenon Petroleum and Gas Limited, as a responsible corporate organisation, remain committed to its financial obligations.”

Our correspondent learnt however that, on the contrary, the plaintiff exhausted various means to avoid payments – delayed responses, scuttled agreements, disputed charges and the resort to deploying the ‘mischievous tactic of using the media to embarrass and impugn the reputation of banks and their principals; some debtors are not letting up.

Our correspondent could not ascertain as at press time whether any former report on the issue has been made to the Chartered Institute of Bankers of Nigeria (CIBN), but already, a pip into the financials so far published by various banks reveal their reluctance to grant new credits, a fundamental element of the business. While Skye Bank has so far reported the highest growth of 20 per cent in loans and advances in 2010, compared to previous year, Access Bank followed with 12 per cent. They were trailed from afar by First Bank with 5.5 per cent; Zenith, 2.0 per cent; and UBA, 1.3 per cent.

There is a consensus on the critical need to encourage banks to continue playing their roles of deposit mobilisation, credit creation and extension. But first, the system, and indeed, stakeholders must encourage them to do so. This is besides the need to ensure that all structures like credit bureaux are in place and strengthened to ensure that recalcitrant debtors do not continue to feast on the inadequacies of the society and its laws.