PRESS RELEASE: MALICIOUS PUBLICATIONS ABOUT DATABANK
We refer to recent disparaging publications in the print media, notably; The Ghanaian Chronicle, The Gye Nyame National Concord and The Crusading Guide newspapers, in connection with the Obotan project involving SSNIT, and Databank Financial Services Limited.
Copious references to a forensic audit and a purported Serious Fraud Office investigative report have been made and used as the basis for these malicious publications. In consequence of those publications, several media and social commentators on broadcast talk shows, (in particular, Good Morning Ghana on Metro TV) have also made equally scurrilous, malicious and unkind remarks about Databank and our two senior executives, Ken Ofori-Atta and Keli Gadzekpo.
We are aware of and are sympathetic to the public interest in matters involving SSNIT. However, we have not made any public comment in respect of the allegations made in the said publications because the institutions involved are engaged in deliberations relating to corporate matters regarding the project.
Nevertheless, it appears that our silence has caused and is contributing to anxiety among our numerous clients and the public. We therefore wish to take this opportunity to assure our valued clients and the public of the following:
We wish to assure our valued shareholders that there is no truth to the malicious allegations contained in such publications. We are currently in discussions with SSNIT to resolve corporate issues relating to the Obotan Project and hope for a speedy resolution to all outstanding issues.
1.1. The Obotan Project was a commercial transaction whereby a company acquires property and arranges for a development company to be set up to develop it by means of Project financing. Unfortunately, SFO and others have misconceived this Project as a sale of the underlying property to SSNIT.
1.2. The contribution of SSNIT represented 55% of the equity portion of the Project financing of $4 million. The loan portion was $3 million. Thus, the transaction was definitely not a sale transaction.
1.3. The misconception of the nature of the Project has misled SFO to infer and make certain adverse findings and conclusions, which cannot be supported by the facts stated hereunder and the provisions of the relevant laws.
1.4. The Project is a lawful and legitimate commercial transaction and not intended for an unlawful purpose. There was no intention or agreement between or among the participants or any of them at any stage of the transaction to defraud SSNIT or any of the proposed investors or at all. It is a lawful flotation and legitimate financing of a development company.
2. FACTS OF THE TRANSACTION
2.1. The facts of the transaction, supported by documentary proof, are as follow:
(1) In the middle of 1998, Databank became aware of the potential sale of the property of CFAO Ghana Limited (“CFAO”) on Independence Avenue, Accra, opposite CAL Merchant Bank, and informed Enterprise Insurance Company Limited (“EIC”) about the opportunity.
(2) The selling price was negotiated with CFAO and settled at a final price of US$1,650,000 in early December 1998. EIC applied for a loan of US$1,650,000 from SSB Bank Limited to finance the acquisition of the property on 15th December 1998, for the purpose of floating a real estate development Company.
(3) EIC engaged the services of Databank to incorporate the development company, negotiate preliminary agreements and arrange the floating off of the required capital for the Project.
(4) Databank developed a concept to transform the CFAO property into a gated-residential community similar to the Taysec Gardens across the property. After thorough discussions with contractors, including Taysec, and inspection of the Taysec Gardens, it was decided that a similar concept called “Eden-in-the-Heart-of-the-City” would be a viable Project (“Project”).
(5) In November 1998, Databank approached Sutherland and Sutherland, Architects and Consultants (“Architects”), to prepare conceptual architectural designs as prime residential property in Accra with its own exclusive Club House targeted at the high end of the market.
(6) Databank concluded the financial analysis for the proposed Project at a valuation of US$4 million based on the proforma cash flows. The returns were favourable, returning an internal rate of return of 15% to 18%. In addition, the investments were yielding 9% to 12% in dollar terms each year and an anticipated sale value of US$7.4 million in the tenth year, if the properties were sold off then.
(7) Based on these analyses and the conceptual architectural designs, Databank prepared an Investor Participation Memorandum (“Memorandum”), and circulated it to only the proposed or potential investors, namely, SSNIT, SSB, and HFC in the second week of December 1998. This was to attract these major investors in the construction industry to participate with EIC as shareholders in the Project. EIC had bridged financed the acquisition and was thus deemed to have taken the risk and therefore had residual interest in the balance of shares not taken up by the new investors. A photocopy of the Memorandum is enclosed herewith and marked as Exhibit “A”.
(8) In January 1999, HFC wrote to indicate that although it found the Project attractive, it could not participate in equity as it had three other residential Projects to which it had commitments. HFC would, however, consider debt funding for the Project. A photocopy of the letter dated 22nd January 1999 is attached hereto and marked as Exhibit “B”. Obotan was accordingly incorporated in February 1999 without HFC.
(9) On 19th February 1999, SSNIT confirmed its acceptance to participate in the Project based on the Project concept, the location of the property, and the Projected attractive financial returns. Even though SSNIT had been approached for 40% participation, it however demanded 55% equity in Obotan, obviously to have control of the company. A photocopy of the letter dated 19th February 1999 is attached hereto and marked as Exhibit “C”.
(10) After SSNIT’s Board approval, a Shareholders’ Agreement (“Agreement”) was concluded with SSNIT, EIC and SSBI on 24th February 1999 whereby the parties agreed to subscribe to the number of shares stated in the Agreement. A photocopy of the Agreement is enclosed herewith and marked Exhibit “D”. SSNIT accordingly paid ?5.4 billion to secure its 55% shareholding on 26th February 1999.
(11) From March through June 1999, Databank and SSNIT worked with the Architects, Quantity Surveyors (Ampofo and Partners), Mechanical and Electrical Engineers (Multi-Group Consultants) and structural Engineers (GridConsult) to consolidate the design work.
(12) The Project Consultants were, however, informed by the Office of Town Planning that any structure on the Independence Avenue Corridor had to be at least six stories high. This resulted in a number of re-designs of the original concept to a hotel/residential scheme, a multi-purpose commercial complex. In April through June 1999 the foundational construction design drawings were initiated for presentation to Town Planning.
(13) On June 2nd 1999, the first shareholders’ meeting was held at which assignment of property to Obotan was confirmed to have been done, and Obotan properly incorporated, allocation of number of directors to each institutional shareholder, discussions on new architectural drawings, appointment of Project consultants (Sutherland and Sutherland), financial advisors (Databank), appointment of legal advisors and company secretary, appointment of three directors from SSNIT, two from EIC and one from SSBI. In addition, a sub-committee was set up to facilitate the execution of all these assignments.
(14) The Project Consultants continued work in 1999, negotiating with Town Planning and conducting soil-sampling, tree marking, redesigning to potentially annex adjoining property belonging to Ministry of Foreign Affairs. Ongoing discussions with Taysec continued while various financial analyses were done.
(15) In September 1999, CFAO finally vacated the property, leaving a skeleton staff to maintain the property. Databank was asked to assume the administrative duties in order to secure and maintain the value of the property. At this juncture, Databank discussed with the sub-committee the need to rent the property on short-term basis to avoid deterioration and loss of income.
(16) The plan was to cut sod in December 1999/January 2000. In the year 2000, there were numerous obstacles. SSNIT was besieged and distracted. It was the subject of intense media scrutiny and subsequently a CHRAJ investigation. In addition, with the pending general elections and deterioration in the economy and the currency’s free fall, it would have been very difficult and inadvisable to initiate construction.
(17) Thus, in November 2000, EIC offered to buy SSNIT out so that the Project could be revitalized. SSNIT did not and has not, to date, responded to the offer.
(18) Databank has subsequently had discussions with SSNIT and made an offer in April 2002, which offer sought to ensure the security of SSNIT’s investment. A photocopy of the letter dated 22nd April 2002 is attached hereto and marked as Exhibit “E”. SSNIT is yet to respond officially.
3. FINDINGS AND CONCLUSIONS OF SERIOUS FRAUD OFFICE (“SFO”)
3.1. Investor Participation Memorandum: SFO noted that the Memorandum was not dated and that the identities of the authors are not stated. In its opinion the document must state who the promoters are; what their relationship is to the enterprise being promoted; and what they themselves stood to gain in the Project.
3.2. From the above facts and opinion, SFO concluded that the absence of those facts is an indication of an intention on the part of the promoters not to fully disclose their aims in the Project.
3.3. The covering letter to the Memorandum was dated. The proposed investors knew that the document was prepared by Databank, which has the expertise to prepare such a document. The promoter was Databank and Enterprise Insurance Company Limited (“EIC”) was the sponsoring company and lead investor.
3.4. The Memorandum was not intended for laymen. It is significant that it was called “Investor Participation Memorandum” and not a private placement document. All the proposed investors had experts to evaluate the Project. In such a case, the salient features of the Memorandum are the description of the property, financing terms and cash flows and earnings to enable the investors make a decision.
3.5. The aims of the Project are clearly stated in the Memorandum. Among others, it is stated at page 1 of the Memorandum that the “vision is to create a serene, exclusive and unique residential oasis in this new business and financial district of Accra” that will “ensure top rental income attractiveness and high occupancy”. The Recitals to the Shareholders’ Agreement also state the aims of the Project.
3.6. SFO states that the fact that EIC acquired the property for ?300 million should have been stated in the Memorandum and in the invitation letter to SSNIT to invest in the Project. It is surprising that SFO is relying on an incomplete and unsigned document rather than evidence from the vendor or the purchaser as to the purchase price.
3.7. The forensic audit report, which was passed on to SFO, stated that their independent investigations had revealed that the property was sold by CFAO for US$1,650,000, which confirms the statement of EIC.
3.8. There was no intention whatsoever or agreement between or among the participants or any of them at any stage of the transaction to defraud SSNIT or any of the proposed Investors. As a matter of fact, there is a valuable property at Independence Avenue assigned to Obotan, which company has SSNIT as its 55% shareholder.
4. RELATIONSHIP BETWEEN THE COMPANIES
4.1. SFO states that the names of the directors and shareholders of the companies involved in the Obotan Project indicate very close business relationships among the companies, the directors and the shareholders. Ken Ofori-Atta and Keli Gadzekpo are shareholders and directors in all the companies, i.e. Databank, Enterprise Insurance, Ventures and Acquisition Limited, and that acts of the companies in the Obotan Project were effectively the acts of these two persons.
4.2. It is permissible under the Companies Code, 1963 (Act 179) (“Code”) for one person to act in various capacities. Under the Code, it is permitted and lawful for a director to act by himself or his firm in a professional capacity for the company, and he or his firm shall be entitled to proper remuneration for professional services as if he were not a director. Furthermore, SSNIT, SSB, HFC, and EIC were well aware of the directorships of Ken Ofori-Atta and Keli Gadzekpo in the various companies before and during the period of the transaction.
4.3. Ken Ofori-Atta and Ekow Awoonor as Directors of SSBI acted on the basis of the Shareholders’ Agreement executed for and on behalf of SSBI by its Company Secretary, Mrs. Marian Bannor. See Exhibit “D” referred to above.
4.4. The evidence to the contrary by Mrs. Bannor, who is also a General Manager of the Bank, that SSBI or the Bank did not know about the transaction is not true. SSBI, although a subsidiary of SSB Bank, operates independently and its investment decisions are not subject to the approval of the shareholder, namely, SSB Bank.
4.5. The Memorandum showed quite clearly that the proposed investor was SSB Investment Limited and not SSB Bank. The fact that EIC letter of 1st March 1999 to the Head of Investment at SSNIT was copied to Managing Director/SSB Bank should not change the position and be taken as deliberately creating an impression that SSB Bank Limited was an investor in Obotan. SSNIT was in possession of a copy of the Memorandum and knew or ought to have known of the proposed investors as clearly stated at the cover of the Memorandum.
5. ELEMENTS OF ALLEGED FRAUD
5.1. Purchase price of property: SFO states that EIC bought the property at ?300 million and the valuation of the property at eight and a half billion without any improvements or additions and without any independent valuation at the time of transfer to Obotan is an act of fraud. As explained earlier, this assertion is not true. The purchase price was $1,650,000.
5.2. Fraudulent misrepresentation: SFO states that the statement in the Memorandum and the letter from EIC to SSNIT that “the debt financing for the Project has already been arranged …” is a fraudulent misrepresentation intended to be relied on by SSNIT to part with the share price.
5.3. SSNIT was not induced by any fraudulent misrepresentation of an existing fact to participate in the Project. In Project financing, when it is stated that debt financing has been arranged, it means that a financial institution has indicated an interest to finance the Project. It does not mean that all the processes of obtaining a loan, including submission of a bankable feasibility report, execution of loan agreement and mortgage over the asset, have been completed and the loan obtained.
5.4. At the initial stage a lender looks at the cash flows and earnings of the Project as the source of funds from which a loan will be repaid and to the assets of the company as collateral for the loan and indicate interest in principle and the terms on which it will lend.
5.5. Hence the statement in the Memorandum that “Debt financing has been arranged in principle for 10 years. The debt will attract an interest of 10% with the principal repaid over ten (10) years starting from the first year of the Project with two year grace period”.
5.6. In addition to the financing mentioned in the Memorandum, HFC wrote in January 1999 that it would consider debt funding for the Project. See Exhibit “B” referred to above.
5.7. The financing arrangement submitted to SSNIT was a “pro forma financing profile”, an indication of the future position, if SSNIT participated.
5.8. SSNIT’s participation in the Project was based on its evaluation of the cash flows and earnings of the Project and on the Shareholders’ Agreement. The Shareholders’ Agreement provides in Clause 9.12 that it “contains the entire understanding and agreement of the Shareholders with respect to the subject matter covered hereby, and supersedes all prior oral and written understandings and agreements relating thereto”.
5.9. The statements in the invitation by Databank to HFC that “HFC’s entry into the Project should complete the financing equipment to ensure a successful completion of the Project”, and that “HFC in participating in this transaction could also be joining other well-heeled financial institutions to participate in the real estate development of this all important Independence Avenue business financial services corridor” are not representations of existing facts but a future situation based on reasonable assessment of the Project if HFC enters into the Project.
5.10. Furthermore and most significantly, the portion of the letter from Databank to HFC, as quoted in paragraph 4 of the SFO Report, was preceded with the following sentence which for some reason has been omitted by SFO: “Enterprise Insurance Company, the lead investor, is in discussions, for partnership with SSNIT and SSB Investment Limited”.
5.11. HFC, EIC, SSBI and SSNIT were not represented to any person as investors in the Obotan development scheme. The Memorandum was not an invitation to the public as Obotan is a private company limited by shares. It was a private document to the proposed investors named in the document. It was not intended to induce any other persons or to be relied on by any other persons or institutions for the purpose of investing in Obotan. As a matter of fact, nobody other than the targeted investors relied on the document and agreed to invest in Obotan as per the Shareholders’ Agreement.
6. CONCLUSION
6.1. In the interim, Databank has ensured that the property is maintained with the appropriate security, caretaker, tenants, servicing of air-conditioners, renovation of swimming pool, repair of motors and pumps and payments of utilities, etc. in order to maintain and enhance the value of the property.
6.2. The location of the Project remains attractive and in an emerging financial corridor. The multi-purpose commercial complex proposed will be suitable for EIC’s relocation plans, and as such, EIC will be an anchor tenant. The original schedule, if it had been allowed to proceed, would have resulted in the work being near completion.
6.3. Databank remains keen to secure the required construction financing for the Project, as stated in the Memorandum, if SSNIT would make up its mind. We would like to reiterate that SSNIT’s investment has never been in jeopardy. SSNIT has known since November 2000 that it could sell its shares. EIC has confirmed its interest in purchasing SSNIT’s shares and we are confident that other investors can be identified for this uniquely prime location in the heart of the City.
6.4. The numerous delays, due firstly to redesigning to meet Town Planning requirements and secondly due to the political and economic environment at the time, have stalled an otherwise excellent Project. 6.5. We remain steadfast in our belief that this is a viable Project, and that SSNIT has not lost money by this investment.
6.6. More importantly, there is a property at Independence Avenue assigned to Obotan, which Company has SSNIT as its 55% shareholder. The Board of SSNIT independently approved its participation in the Project based on an Investor Participation Memorandum and Shareholders’ Agreement, which indicated attractive returns of an income level of 9% to 12% on an annual basis and a potential capital gain of US$7.4 million in the tenth year and not otherwise.
NB: Please note that Exhibits and attachments are not enclosed in this particular document but are available.
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