The central bank has launched inquiries to assess whether there are risks to the commercial banking landscape from the high-profile debt war between Simba Group, a leading local group of companies owned by businessman Patrick Bitature, and Vantage, a South Africa-based lender.
Banking regulators took an interest in the matter last month after lawyers on behalf of Vantage published an advertisement announcing plans to auction three of the businessman’s prime properties within 30 days.
The Bank of Uganda’s Executive Director in charge of oversight, Dr. Tumubweine Twinemanzi, wrote to Vantage Advocates of Kirunda and Wasige Advocates following the publication of the auction notice. The letter was written on May 18, but this is the first time it has come to light.
“The potential market valuation of the listed properties for sale and their ownership commonality, together with our own market information, make it highly likely that the debtor concerned is a systemic borrower within the financial sector,” wrote Mr. Twinemanzi.
The central bank official asked for clarification on the background to the auction announcement as well as “other but related information that you believe should be brought to the attention of the Bank of Uganda, as the financial sector regulator.”
Bank of Uganda interest rates are the first sign of regulators concern over whether other local banks have lent money to the Simba Group and whether those loans are in good standing. There is no evidence that Simba Group has not honored any loan obligations to other lenders.
Following the publication of the auction notice, both parties have released details of the transactions. Vantage says it loaned Mr. Bitature and his various businesses $10 million in 2014, of which it “didn’t repay a dime” despite the loan’s term ending in 2019.
This publication exclusively reported that $8 million of that sum was used to settle a previous loan to Crane Bank. The Bank of Uganda later took over Crane Bank and liquidated it following insider credit allegations.
The lenders say the loan to Mr. Bitature’s companies has now increased to $32 million after accruing interest and compound interest and penalties.
Lawyers representing the borrower initially said Mr Bitature signed the loan agreements under duress. After High Court Judge Musa Ssekaana ruled in a separate but related application that Vantage was not properly registered in Uganda to sue or be sued, lawyers said Simba Group was unable to establish a non-existent company to pay.
Mr Bitature clarified the matter in a personal statement he released last month, in which he confirmed receipt of the loan but said difficulties due to delays in Uganda’s oil and gas sector had undermined his companies’ ability to repay the loan.
Mr. Bitature has interests in hotels, residential real estate, telecoms and energy. He was recently appointed CEO of Bollore Logistics Uganda, a French company that has been awarded the contract to carry out most of the logistics work on the oil fields and pipelines currently under development in western Uganda.
A response from Vantage’s attorneys to the central bank is available monitor calls on the regulator to carry out a more comprehensive scrutiny and to tighten the rules for borrowers from foreign lenders.
“Much of this (foreign) lending may be outside of the banking sector, but relates to securities shared with the banks. In these cases, you should consider conducting a more comprehensive sensitivity analysis for the sector,” they wrote.
“We believe you will agree that borrowers such as Simba and more recently Ham Enterprises trading in raising and avoiding debt obligations pose a major risk to Uganda’s financial sector. The publicity surrounding such defaults seems to indicate the entrenching of a culture (and ease) of debt evasion.”
The reference to Ham Enterprises relates to an ongoing legal battle between businessman Hamis Kiggundu’s company and Diamond Trust Bank, which operates in Uganda and Kenya.
The businessman has claimed that a loan he received from the bank’s Kenya branch through its Uganda branch violated local banking regulations and should not be recovered. Some Shs 120 billion is at stake and the matter remains pending before the courts.
Comment was sought from Mr Twinemanzi and central bank officials. Mr. Robert Kirunda, Vantage’s lead counsel in Uganda, declined to comment on what he described as “confidential communications” with the Bank of Uganda.