Corporate governance issues in GEM Capital/Spring Bank deal
Category: Investors NewsBeat
Monday, 25 July 2011 / BusinessDay
The emergence of Global Emerging Markets (GEM) Capital, a $3.5 billion alternative investment group as the preferred bidder for the embattled Spring Bank is raising questions of corporate governance. Analysts said at the weekend that this is capable of undermining the efforts of the Central Bank of Nigeria (CBN) at bringing transparency and integrity into the banking sector, after the reforms.
Analysts further say that if the issue is not quickly tackled by the CBN, it could have negative consequences on the ongoing mergers and acquisitions in the sector which are being supervised by the CBN. This, they say could undermine the gains recorded so far.
Specifically, GEM Capital’s partnership with Dunn Loren Merrifield, a Lagos based full-service investment house, whose top officials are major actors in the merger deals by the CBN, as well as the listing of the N1.7 trillion by the Asset Management Corporation of Nigeria (AMCON) are raising some moral questions in the industry.
Market watchers are of the opinion that their privileged position based on their relationship with the regulatory bodies, may have influenced the selection of GEM as the preferred investor for the bank, a development, they regard as being at variance with global best practices on corporate governance.
BusinessDay investigations further revealed that Sonnie Babatunde Ayene, chief executive officer of Dun Loren Merrifield, acted as one of the joint issuing houses and book runners to the listing of the N1.7 trillion bonds by AMCON on the Nigerian Stock Exchange in April.
Curiously too, Konyin Ajayi, a Senior Advocate of Nigeria (SAN) and vice chairman of Dun Loren Merrifield, was the lead lawyer to CBN on merger and acquisition (M&A) deals.
An Issuing house is a financial institution that arranges for a company’s shares to be sold on the stock market. A book runner on the other hand, is the primary underwriter in debt and equity deals. The book runner works with other firms which take part in the deal, allowing for the sharing of the risk.
The implication, according to them is that they may have influenced the choice of the preferred investor, since they were in the body of officials that fashioned out the rules of the game. This action, it is thought in some quarters, amounts to insider trading.
For instance, the Securities and Exchange Commission (SEC) in its new code of corporate governance relating to ‘Insider Trading’ noted that “directors of public companies, their immediate families, that is spouse, son, daughter, mother or father, and other insiders as defined under Section 315 of the Investment and Securities Act (ISA) and Rule 110 (3) of the SEC Rules and Regulations, in possession of price sensitive information or other confidential information, shall not deal with the securities of the company where such would amount to insider trading as defined under the Investment and Securities Act 2007.”
Similarly, the CBN’s code of corporate governance, post consolidation, notes that “Industry Transparency, Due Process, Data Integrity and Disclosure Requirements: The above are core attributes of sound corporate governance practices that are essential to installing stakeholder confidence. Where board of directors and companies/entities/persons related to them are engaged as service providers or suppliers to the bank, full disclosure of such interests should be made to the CBN”.
A top industry operator asked, “Where is the much talked about corporate governance and integrity being canvassed by the apex bank? He that must approach equity must approach it with clean hands; Let us see how CBN will tackle the issue.”
Part of the information gathered from the website on Konyin Ajayi says that he “is the managing partner of Olaniwun Ajayi LP. Konyin has nearly 30 years of transaction and dispute resolution experience. He is presently at the cutting edge of revolutionary and unprecedented legal and legislative reforms in the financial sector advising the Central Bank of Nigeria (CBN) in preventing systemic risk and maintaining financial stability in the sector.
“He is the lead adviser to the CBN on legislative changes which led to the reversal of the Universal Banking regulations and the establishment of the ‘mopping agency’, Asset Management Corporation of Nigeria.
“He further advised on the largest single financial transaction in the history of the Nigerian financial market - the 1.3 trillion naira Debt Issuance Programme by the Asset Management Corporation of Nigeria (AMCON), under which AMCON issued Initial Consideration Bonds to 21 Nigerian banks in consideration of the Non-Performing Loans of the banks.
On the contentious side, Konyin prosecuted and defended ensuing suits on behalf of the CBN, and also led the team that advised the Securities and Exchange Commission (SEC) on revitalisation of the capital market and conducted on behalf of the SEC, a detailed investigation into the infractions committed in the capital market.”
According to another source, “The relationship between Sonnie Babatunde Ayere’s Dun Loren Merrifield was basically businesslike and it was on that basis that they were appointed and acted as one of the joint issuing houses and book runners and nothing else.”
NB: This is a follow up, it would seem, to a developing story published by Businessday last week on the bid governance concerns.