Market Watch

Another looming financial crisis in Africa!

One of Africa’s largest banking institutions seems to be on a downward spiral as investors seek to pull out and banking deposits may never end up being accounted for. 

Atlas Mara, one of the leading financial institutions in Africa is currently facing liquidity crisis as difficulties to pay creditors is evident. 

The London Stock Exchange listed company demonstrates losses of more than 90% over the past year, and the quick disposal of assets demonstrates financial constraints. 

UK-based TLG and Norway’s Norsad, both seem to have taken legal action against the company and its subsidaries in Botswana and Nigeria, claiming it is owned $10 million. 

The inability, or refusal to pay could be an indicator that the Atlas Mara is insolvent. This then raises questions if the company is fit and the proper entity to run holding banks in Africa responsible for millions of depositors and customers assets in various countries across the region. 

While Atlas Mara is disposing off assets in Africa, the creditors are still complaining about their outstanding debts.

Operating across various African countries such as Mozambique, Tanzania and Botswana, the 2019 and 2020 fiscal year results showthat Atlas Mara’s total assets declined by 6.3 per cent to US$2.6bn in comparison to US$2.8bn in 2018.

Among the contributors to these losses include the high operating costs of the business which is run from New York, Toronto and Dubai.

A case in point is the 2019 pay for the management committee which was paid a combined bonus of US$ 1,450,000, on top of a combined salary of US$ 2,260,000. Each person took home US$ 744,000 per person.

The Atlas Mara has consistently failed to address these exorbitant costs and as a result, the entity recorded US$141m and US$57m in loses in 2019 and 2020respectively.

On prioritising creditors, the company is suffering from a conflict of shareholders where the end game may be the company being at the mercy of New York based hedge funds like UBS O’Connor.

To address its liquidity issues, the Atlas Mara entered into a US$26m new money financing arrangement with UBS O’Connor in December 2020. In this arrangement, 40 per cent of the new monies was used to repurchase shares in Atlas Mara held by UBS O’Connor.

No other shareholder was afforded the same privilege as UBS O’Connor which caused raised eyebrows among investors. 

Atlas Mara could have used the new monies to settle creditors like TLG and Norsad who were unwilling to enter a standstill and restructuring agreement but the board of Atlas Mara utilised the funds to repurchase shares from UBS O’Connor even as the company could not meet its interest payments. 

This is and could be illegal under BVI law, where Atlas Mara is registered. 

Moreover, at the same time as the share buyback for UBS O’Connor in Dec 2020, Atlas Mara requested all creditors to enter into a standstill agreement and pause all their rights on interest and principal repayment. Had the treatment been fair for all the shareholders, maybe such anarrangement would have worked but with the likes of UBS O’Connor having an advantage, the standstill was not feasible.

Again, while Atlas Mara was requesting all creditors to enter the standstill agreement, the most significant shareholder of the business, Helios Fairfax, sold its entire 42.3% stake in Atlas Mara to Fairfax Financial for US$40m in December 2020. Ironically, Fairfax Financial has not put any capital into the businesssince acquiring the company.

The whole situation is highly concerning for the depositors and banking regimes in Africa. If there is a bank run, where will Atlas Mara find the liquidity to support the depositors in Africa? 

It seems that key Atlas Mara shareholders and debt holders are only concerned about architecting a strong exit for their own pockets. Atlas Mara management, board and stakeholders have a duty to shareholders, regulators, depositors, and creditors to ensure that Atlas Mara is capitalised properly, settles its outstanding obligations, and ensure proper governance is applied to all transactions, particularly those that allow certain players like UBS O’Connor to benefit at the expense of others.