The Asset Management Corporation of Nigeria (AMCON) that was established to provide succour for ailing companies has fallen a victim of its very purpose for existence. Its debts have overtaken its assets, says the Managing Director, Ahmed Kuru, in this interview with Group Business Editor SIMEON EBULU..
What is the worth of AMCON’s assets?
You know valuation is a moving target. Our asset if you value them today, are generally worth less than N2 trillion. Let me explain to you what has happened because sometimes we need to give clarity to what is happening. You know when AMCON was established, we purchased non-performing loans from the banks. The non performing loans that we purchased were worth N3.3 trillion and we paid N1.7 trillion for the loans. Then, we had what we call, financial accommodation. Financial accommodation is the money that AMCON paid to bring the net asset, value of some of the challenged financial institutions to zero, for that we paid N2.2 trillion. The N1.7 trillion that we paid for the assets of N3.3 trillion are part of our assets, different kinds of assets, while the N2.2 trillion is not backed by any asset.
So, the assumption is that with the passage of time, the value of the assets will grow because already there is a discount from N1.7 – N3.3. So it is assumed also that the value of assets will grow and then it will now cushion the effect of the N2.2 trillion, because the whole money that was raised was real money, it was debt that was used to pay for the assets. So it was assumed that the valuation and the value of assets will go up over a period of time whether it is five or six years.
So there is that assumption that the value will go up and we’ll be able to take care of the N2.2 trillion financial accommodation. But you see the economy in the last five-six years didn’t respond quickly despite what must have been said about the largest economy in Africa, and all that. The economy that we know didn’t grow that fast and the operation of AMCON is heavily dependent on the state of the economy, because it is the constituent of what we do have as the business, and the business depends on what happens in the economy.
So if the economy doesn’t respond, the operation of AMCON is also challenged both in terms of the economy, valuation and also in terms of resolution.
With what you have enumerated, how comfortable are you relative to the inception of this organisation.
We should always look at things in the right perspective. AMCON was set up primarily to bring financial stability as a result of the global economic crisis and I think by and large, that has been achieved. If AMCON hadn’t been set up, may be nothing less than N10 billion would have been lost and not less than N9 trillion in form of assets. We would have lost almost N4 trillion in form of deposits, people would have lost their employments and by implication, it would have also weakened some of the other financial institutions.
So we are now going into the second phase. The first phase was to provide that financial stability and provide liquidity to some of these banks so that they would be able to lend and then jumpstart the economy, and you can see since that time, the economy, the banking industry has been able to stabilise. You know we came out of the financial crises successfully. At least Nigeria is a success story when you look at it globally and the response to the financial crises.
Now we are in the second phase and the second phase is how AMCON will now meets its obligation, how does AMCON now redeem its fund because we’ve addressed the financial situation. Now it’s how do we meet our obligation.! So they are totally slightly different scenarios.
I would need a clarification here on your last point. The assets at a time had been written off as bad loans until AMCON came and acquired them. Who reactivated the issue of interests on them, the banks, or?
No, no you see AMCON, the structure of AMCON is that we are not going to use taxpayers’ money, which means we are going to borrow, so any funds you borrow have interests, somebody must carry that interest, and it’s as simple as that.
Do you think it’s right because the way you explained it, for five years some of the loans they’ve stopped charging interests. If AMCON is coming to pay the debt and you are using another debt to pay for debt with interest, will those businesses not collapse entirely?
Yes, you see like I told you, there were certain assumptions, part of the assumptions is that the underlining assets will continue to appreciate, AMCON would have the cause on a worst case scenario to sell those assets. So it is believed that it will compensate for the growth in terms of interest addition on the facility so the template is that even with the incremental interest charges going on, the incremental increase in terms of the valuation of the assets will be more than the incremental in terms of the interest.
So that means AMCON is actually designed to sell those assets then?
Basically yes.
And not to allow the owners to go back to them?
No, that was not… If it was to allow the owners to go back, that should have been done at the bank level, but you see AMCON has primary responsibility to see how to help the business first. I have this business, what can I do to help it come back. What structure do I need to put in place, if I give them support will they come back? So the first call on AMCON, is any facility, any transaction, any account that they want to talk about, once they bring the account on the table, the first thing that goes through their mind is how can I help this business first. It is when they look at the businesses, because some of the businesses, some of the facilities they’ve locked them up for more than 10-15 years. So the idea is that if from all analysis we may not be able, or we could not bring back those businesses, then we have to put the cost with asset on sale because I do, or we do believe that any business, if it has the right capital and right skill and management, corporate governance, it will come back, because it’s not rocket science, people are doing them because there are times you do have problems with corporate governance, you have problem of indiscipline, you have problem with diversion, you have problem with lifestyle and all those situations contributed. And also the economic situation didn’t help matters much but all those other side consideration also affected the viability of some those businesses.
So, how many of such businesses have you sold in the last six years?
Let me tell you how we operate. See, there is what they call collateral audit, I mean collateral assets and there is what they call proprietary assets. Collateral assets are very difficult to deal with. Now before you can sell any business, first of all you must have the legal charge, that the business now belongs to you because quite a lot of the businesses that you see do not belong to AMCON because they are collateral assets, but they are assets that are supporting their credit.
You’ve gone to your bank, they have given you a house and they gave you money now you haven’t paid and they’ve decided to transfer the facility to AMCON. Now AMCON must go through the legal process to convert those assets before they can sell it. So generally, we have not sold our proprietary assets in terms of percentage -less than 20 per cent. Quite a lot of things are happening now. If you want to sell today, you are definitely going to sell far below market because you are holding an asset for N100 million, today the valuation is N60 million.
Now you have two options, either you sell it N60 million and you take a hit of N40 million, or you have to explain to Nigerians where the gap is coming from or you hold on to those assets and continue to work together with government on the economy so that when the economy picks up, then you can dispose.
Let me give an example. This house today (AMCON Lagos office), maybe you want value. This house may be they’ll tell you it’s around N1billion. Ask the same valuer to sell the house for you, he’ll come and tell you he can’t get more than N600 million because the market is bad now, there is no cash because there is a very wide gap which we all know between actual valuation of assets and real market situation which is driving or being driven by liquidity and current economic situation. So in this kind of situation, what you normally do is to hold on to the assets and wait until such a time that the economy improves and you can get better value for them, because if you dispose them today, you won’t get the value that you need to compensate for the money that you have paid to the financial institutions.
Would you then say that the banks, given what you said about discipline, lifestyle, poor corporate governance, would you say the banks were rather reckless for want of a better word, in their approval processes.
No. You see, credit approval process is a very difficult situation. Sometimes you can comment with benefit of hindsight, but I can tell you in the credit situation, you look at so many issues which will guide your approval process. Now there is not any template anywhere in the world where if you say if I do A, B, C and D it will be performing to the end because there are so many other factors, external factors that come into play like what happened in 2007 – 2008, the situation at that time, things moved swiftly against for example all the guys that are playing in the oil and gas industry.
Now maybe at the time that the credit officer approved that credit, there were certain assumptions the industry will grow at five per cent, or it will grow at 10 per cent or it will grow at 20 per cent, A will happen, B will happen. Suddenly he woke up and there is a global economic crisis, automatically the credit will go bad. Look at what happened in power and what is still happening in the power sector. There was an assumption, there was a reform and based on that assumption, you know there was a divestment, government sold some of those assets and because of the economic situation and certain miscalculations which may not necessarily mean recklessness. They are now is deep problem, because of wrong assumption, because of certain things that have happened that haven’t been anticipated. Nobody anticipated that for example that crude would sell for $30 or $35 per barrel. Now if somebody is doing credit two-years ago and he is running his cash flow, he will assume that crude is selling at $100 per barrel today, worst case scenario it’ll do $90. So on the basis of $90 this is my cash flow and this is how they’re going to pay me. Now it is selling for $40 automatically it has thrown off that credit. So it’s a combination of so many things. I don’t, and I would not believe that we can say it’s their recklessness.
Of course there are certain cases that you’ll do better but like I said, credit will continue to remain a subjective process. But it’s not as simple as 2+2 is 6, its in the mind of the analysts, the same credit if you give it to Mr. A and you give it to Mr. B and he’ll analyze it differently from what this is, his skills, his experience, his composure, his temperament all come to play when you are told to have credits and you are analysing your risks and what you believe are your mitigate.
I want to know if you are caught in any quagmire between selling to make money and minimise the pressure on you from the rising interest, or the accumulating debts of your corporation right now. I’m talking with respect to what you said you know the assets were valued at a particular rate now they have dropped you are holding some money on which interest is being charged. So between these two extremes what are you going to do?
It’s a very difficult balance, I can tell you and its difficult, balancing situation because you know you are dealing with public trust and also you are dealing with an environment that assumes that everybody is guilty until proven otherwise and in that kind of situation and in a political environment like ours, you have to be extremely careful how you deal with some of your assets. If you are holding an asset worth, based on the valuation of the assets, N100 million in your books and because of the current economic situation it has gone down to N40 million and in your own estimation if you hold on to this asset a little longer the economy picks up and you get a better returns on what it is today, it will be a political suicide for you to sell it today because when the story is going to be told, nobody will remember what the current situation is today, they will only tell you that there was an asset of N100 million and they sold it N40 million, its as simple as that.
And they call you and tell you to start explaining to the extent that you may not be able to explain because maybe at that time, the same asset will be worth, may by N120 million, meanwhile you sold it N40 million which was the earning rate at that time you know. So public trust is something that is a very easy thing to do, but it’s also very complicated particularly in an environment that we see what is happening.
So we are always caught in between these two very extreme difficult situations, so what we try to do is, we look at what is in the national interest. You know I have a principle when I look at these things generally speaking, the first thing that comes to my mind, everything in my life I ask, will this sit very well with my God, between me and the contract I have with God, can I explain it when I wake up in heaven because I know I’m going to heaven when I wake up in heaven, will I be able to explain my action! Is it godly that’s principle number one. Number two and most fundamental, is it in the national interest, I also ask myself that question. Then Number three, I say okay, does it follow the rule of law! in that order because public trust is something that goes beyond your service period when you’re dealing with assets.
Now rich people don’t like to pay debts, poor people also don’t like to pay debts but for poor the man, it’s understandable because he doesn’t have the money but today lend money to your neighbor and come back in the evening, he’ll start telling you that his mother in-law that came in yesterday and this and that and by the end of the month, when I receive my salary he is going to pay you. By the end of the month, go to his house and knock, the first thing he’ll tell you is why did you come here, is it because you gave me money last month that is why you’re knocking my door early in the morning? It become an issue because people generally don’t want to pay debt.
And Nigerians?
And Nigerians specifically, rich Nigerians very specifically (laughs) you know somebody has taken —— because they’ve allowed the debt to accumulate so much, that it is becoming a challenge for them, N30 billion, N40 billion, N50 billion, N100 billion. So, what do they do! it’s to rush to the court and continue to get all manner of injunctions against AMCON. You move this side, they block you, move that side, they block you and because we’re operating under the rule of law, we have to see it through, otherwise I can tell you, our recovery rate would have been much faster because out of 14,000 —figures that I have in my books, less than 10 per cent of that accounts for more than 70 per cent of my debts, less than 10 per cent. So even if I can get 40 per cent of that 10 per cent, that means I can be able to recover more than 50 per cent of my debts. So it’s a complicated issue, let me tell you the truth, even today if I sell all my assets, I would not be able to pay my debts because my debt is around N5.2 trillion and you asked me a question at the beginning and I said the valuation by 2006 is less than N2 trillion, so there is a gap.
You know we are in an environment right now where government is interested in recovering all monies. Are you comfortable; are you able to withstand the pressures from official quarters insisting that the debts must be recovered now because the debtors are known?
Based on the recession you know that the government is in need of money.
For us in AMCON our job is not complicated, we must recover our money. What is a bit complicated is the state of the economy because there must be a balance between efforts to recover the money and ability to pay. The government is very serious about this recovery business, we are very serious and we are determined. The only challenge that we do have now has to do with the legal process.
Now let me tell you what they’ve done (overseas) which is different from ours. At the beginning, ab initio, all the assets that are being sold to the asset management companies are given to the asset management companies; they adjusted the law and the constitution to reflect that any distressed asset, that they are taken away from the financial institutions to the asset management companies, you are transferring it with ownership. So, what it tells you is that if any of the original owners of the business want to deal with those assets, they come to you to acquire the assets back from you. Our own is different.
In our own, they transfer the assets in the same type right that the banks were having. If it’s a legal mortgage, you have to go through the process to dispose the property, if its equitable mortgage, you have to go through the court to get an order of the court to dispose, if it’s a company or whatever it is, you have to appoint receiver.
The court must give you that order, and because of the ability of our people to hide behind the legal process, they rush to the court and get an injunction. Meanwhile the asset has been transferred to you, it’s your asset, then they go to the court and get an injunction that you cannot touch the asset. Now that process can take you up to the Supreme Court, that process can take you up to 10 years. While in other climes it’s not so, from day one the assets belong to you. Look they can’t go anywhere, it’s your asset. You’ve taken N10 million from the bank, you are not able to pay so we have given the assets and we are taking N10 million from AMCON and the law protects that the asset belongs to that asset management company.
So, you don’t have any challenge, so from day one, I can decide to sell all the assets because they’re my assets. But there is a difference in our case . For me to sell, I have to go through a process and because of our legal process, sometimes that process can take years. They know it and I know it, they know they are just buying time and for them that time is important for them because they’ll continue to live their lifestyles, they’ll continue to fly their private jets, they’ll continue to live in their mansions, they’ll continue to just spend and waste money on the streets and pretend that they’re what they’re not and to them, that is more important than meeting their obligations.
Despite the fact that you said the legal process is a challenge, the impression out there is that AMCON is out to kill businesses!
AMCON cannot be and will never be an agency to kill businesses, because if you kill business, how do you recover your money. It is only a propaganda because you can’t, if you want value in something, if you destroy that thing, you’re destroying that value. But what people want is for you to continue to live with the lies that at the end of a tunnel that seems endless, that there’ll be light and this is an organisation that has a sunset period, and like I said, its common sense if in the last five years despite all the money that we put inside, I’ve not seen any change in behavior, or any performance indications coming from you. So what is the recourse? The recourse is very simple and it is covered by the AMCON Act.
You have to forfeit the asset over to AMCON. Now the issue is that whatever asset I take from you, I have to sell it to somebody for value to get my money because if I kill it, I can’t get my money. So, if you have a business and you say the business is not doing well, you cannot pay me and I say okay, give me the business so I can sell that to somebody who is interested and will bring new money and he’ll bring management and he’ll run the business and take the risk and he’ll pay me my money. To my mind, we are even helping the economy because some of the guys are holding the business and the business is not doing well, and they are not doing anything and also they are not paying AMCON. So from all sides, we are losing. So, up till now we are telling people that and if you say look at our mantra, what is our mantra? Please come and talk to us. And the whole idea about AMCON is that we help you to revive your business, but where it is very clear it is not possible, you have to forfeit the assets to us because the assets belong to AMCON and AMCON cannot take an asset and kill that asset because it is from that asset that we’ll be able get money and pay up our debts. So it’s a partnership whichever way, we have to work very hard for those businesses to continue to survive. I can tell you its just propaganda.
If you say your business is doing well, because for you to kill something, something must be doing well, so come and talk to us. Nobody can put N10 or N5 billion today on the table, but come and talk to us, so that we have a structure. We want to have a structure but this money you have to pay. Either you pay in cash or you pay in asset because that is loan, it has nothing to do with AMCON. If you are not able to pay in cash then you have to pay in asset, you have to because the business that you are holding belongs to AMCON. Now most of these people that are making these allegations are people that have refused to come and pay, their facilities are in excess of N50 billion, N60 billion, N70 billion they are not paying one dime and they are pretending they have business and then they are not coming to AMCON.
What is the percentage of those who are unwilling to pay?
Well quite a lot of those big guys, and I’m sure you have been reading about them because people have allowed things to accumulate more than 50 billion, 60 billion even 70 billion and some of them are coming out with some frivolous kind of requests. Your debt is 90 billion, you say you want to pay N40 billion, that AMCON should write off N50 billion so that your business will grow. Now that N50 billion where is it coming from. It doesn’t help Ahmed if you pay N2 billion out of N90 billion because the balance of the N82 billion is not coming into my pocket but this is public trust. Your book value is 90 billion. You say because your business is like this and you can only pay N40 billion and even this N40 billion you want to pay it in three years, or four years. So what happens to the N40 billion? I mean your lifestyle does not even support your request.
Are there some exceptions, some companies you can really hold up to say these ones have performed according to the law and they are doing well?
You know, there are some of them, the (Name withheld) is a very good case, they are doing very well, they have accepted the situation and AMCON has intervened and they are doing very well, we are very happy with them. You know what we are trying to do in AMCON is not to join issues with people on the pages of newspapers because that is what they want to drag us into.
You keep talking about some of the debtors fighting back, and then you talked about the rigours of our court processes. Are you saying that the court have rendered AMCON more or less a toothless bull dog?
No, the courts are doing their work, they work on the basis of the facts presented to them. Once you go to them and seek for some reliefs, they’ll look at it and if they believe that if you need to have that relief, they’ll give you because everybody has’t right of hearing and that right of hearing causes time causes some delay but it’s legal. I want to carry your assets, you know that asset belongs to me then you rush to the court and ask for injunction because you have some other rights that you want to claim, court must hear you. Legally, they must hear you. But that to me causes delay but they must hear you but that is also legal. So nobody has rendered anybody toothless only that they take advantage, its just a question of taking advantage of the process , otherwise the courts are doing their work the way they are supposed to do.
Are you in favour of special courts?
You see even if you have special court, let me tell you, the special court can only be an enactment of the National Assembly – which is secondary to the constitution. The constitution only recognises fundamental right to seek relief in court, isn’t it?
Even if you have special court, it will only accelerate it which is good, they’ll accelerate the process you know but that’ll not stop you from doing what you want to do regarding y our fundamental right because that is why you are protected by the constitution.
