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Why Innoson can’t takeover GT Bank

The founder and Chairman of the Innoson Vehicle Manufacturing Limited (IVM), Mr. Innocent Chukwuma, has said he will takeover GT Bank. He made this remark in a chat with a selection of media and financial reporters at his home in Nnewi during the week.

Nairametrics attended the interview where the charismatic vehicle manufacturer responded to a cross-section of questions. However, one of the most remarkable statements made by Mr. Chukwuma was his envisaged (from his point of view) takeover of one of Nigeria’s largest banks, GT Bank.

According to him, he will fund the takeover of the bank from the money owed to him by GTB (which is now GT HoldCo) inclusive of accrued interest. Recall, Innoson has been in a legal battle with GTB in recent years over claims and counterclaims of loans between his company and the bank.

The statement, while off the cuff in response to the question he was asked, made a splash in the media and has also sparked concerns for shareholders of the bank. While we do not wish to prejudice the outcome of the court or assuage his claims (of which Mr Innocent has a right to make), it is important that we also address it from our perspective and also as part of our investor advocacy objective.

We will attempt to explain why is implausible to take over the bank on the basis of a judgement debt. But first, what he said.

Reporters: “For some years now, you have been having a running issue with Guaranty Trust Bank. What is the current situation right now?”

“You know I’m one of their best customers in the entire Southeast, especially when the former MD, Olutayo Aderinokun was alive. Because of me, they opened a branch in Nnewi. But after the demise of Aderinokun, the new MD took over. I do not know him but only met him for the first time last year. I’m not sure exactly why he is fighting me but I think it has to do with tribe.

But finally, I have proved him wrong in everything he is doing. I have defeated him in all the courts he went to. It remains for him to pay me what he owes me because he can’t just go to my account and take money anyhow, which I discovered, took him to court over and won. Up till this moment, he has not paid and we had gone up to the Supreme Court. Maybe he wants Nigeria to change its law because of him.

But the beauty of it all is that the money has been attracting the interest of 22% for 11 years now. I’m waiting for the interest to grow beyond their capacity, and then I would takeover the bank. I’m not disturbing them anymore, but I’m assuring all the customers of the bank that if I take over, I will still run it well. Let them not have any fear. I haven’t done any business that has failed. I will run it better than them. If the interest on my money is above the capacity of the bank, I’d have no choice but to take over the management,” – Innocent Chukuwma

Is this even possible?

Assuming Mr. Chukwuma’s claims that GTB does owe him money (that is if he does win at the Supreme court) and that the interest of 22% per annum does accumulate to such an astronomical proportion that it is more than the market capitalization or the net assets of GTB, it will still not mean that he takes over the bank that easily, if at all he could.

Here is why;

GTB factor

  • Also to add that GTB (as with other public companies) does disclose the cases they have in court and the financial implications. As part of its disclosure, they also make provisions in their books for these cases in the event that they lose. Here is how GTB reported it in its 2020 audited report under “Claims and litigation”.
  • “The Bank, in its ordinary course of business, is presently involved in 507 cases as a defendant (31 December 2019: 512) and 415 cases as a plaintiff (31 December 2019: 436). The total amount claimed in the 507 cases against the Bank is estimated at N440.83 Billion and $32.60 Million (31 December 2019: N462.09 Billion and $39.03 Million) while the total amount claimed in the 415 cases instituted by the Bank is N180.48 Billion (31 December 2019: N109.30 Billion). However, the solicitors of the Bank are of the view that the probable
    liability which may arise from the cases pending against the Bank is not likely to exceed N190.20 Million (31 December 2019: N189.87 Million). This probable liability has been fully provided for by the Bank (please refer to Note 38)”
  • This means GTB has court cases amounting to N440 billion against it but does not expect to incur more than N190 million liability assuming they lose the case.
  • Assuming the claims as depicted by Innocent Chukwuma does crystallize, all GTB will need to do is enter a payment plan for the loan which will allow it to repay its profits over a protracted period.
  • It could also call on its existing shareholders to embark on a rights issue or public offer or even seek external funding to raise money to repay the loan.

Other factors

  • Judgment debts are also carried out with the interest of the public at the center of decision-making. GTB is a quoted company with over 327k shareholders of the bank. We don’t see how investments of thousands of people will be eroded on the back of a judgment debt.
  • The Central Bank will as expected have the ultimate say who owns the bank. CBN approves ownership of banks especially for takeovers and it is unlikely that the apex bank will allow judgment debts to determine who owns a bank or not. Worst case, the CBN will bail out the bank and retain shareholdings rather than hand it over to Mr. Innoson if it doesn’t want to.
  • There are also political connotations that can also affect how the judgment will be interpreted and treated assuming it goes in the favour of Innoson.
  • Thus, we do not see how this is possible.

Finally, the claims by Mr. Innoson at least keeps him on the headlines and piles pressure on GT Holdco to put out a response in this ongoing court and media battle over a banking giant and vehicle manufacturing giant. It appears Mr. Chukwuma has the media vibes at the moment.

ADAPTED FROM NAIRAMETRICS

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