Republic Bank has broken market rules – SEC

The Securities and Exchange Commission (SEC) has “strongly advised” Republic Bank of Trinidad & Tobago to follow set rules and regulations in making its mandatory offer proposals to shareholders of HFC Bank as it attempts to takeover the Ghanaian-founded bank.

SEC has found Republic Bank’s revision of its mandatory offer price to be “irregular” to the takeover and mergers processes of the country.

Over the last one month, the Trinidadian bank has made two mandatory offers to shareholders of HFC Bank, revising its initial offer of GH?1.30 to GH?1.60, a move the Ghanaian securities market regulator has found contrary to the rules and regulations of the market.

SEC in a letter dated May 2, 2014 to NewWorld Securities -- the stock brokers of Republic Bank -- said the Caribbean-based bank broke some of the rules governing takeovers and mergers in the country in the Offeror Statement issued to shareholders of HFC Bank recently.

“Please be advised that the revision of the Tender Offer price attached to your letter…and placed in the Offeror Statement from republic Bank Limited to HFC Bank Limited dated April 29, 2014 is contrary to Rule 5.5 of the SEC Code on Takeover & Mergers, and therefore irregular.”

The said Rule states that: “Where an announcement of an intention to make a Takeover offer under Rule 5.1 or an Offeror’s statement under Rule 5.4 have been submitted to the Offeree, the proposed Offeror shall not amend or withdraw the intention or the statement without the prior written consent of the SEC.

“On 16th April, 2014, your client (Republic Bank) issued a press release proposing to offer all shareholders an indicative price of GH?1.30 per share (Offer price) for the takeover offer.

“However, in the publication and Offeror Statement under reference, Republic Bank Limited did not only revise the offer price from GH?1.30 to GH?1.60 per share but added a further description of the said price being “at a premium of 65% over the mandatory price and 28% above the current trading price.

“The said revision made amounted to an amendment of the notice announcing your intention to make the mandatory offer, and was made without the written consent of the SEC as required under the Rule 5.5.

“We reiterate that the publication of the price revision as well as its inclusion in the Offeror Statement made by the Republic Bank…are in contravention of the SEC Code on Takeovers & Mergers.

“Consequently, the Republic Bank Limited is strongly advised to ensure that it follows the prescribed Rules under the SEC Code on takeovers & Mergers in handling the mandatory offer to shareholders of HFC Bank Limited, ” the Commission said in a letter signed by its Director-General, Adu Anane Antwi.

It is believed Republic Bank, which has attempted to take over HFC Bank, revised its offer price to entice shareholders to tender in their shares and enable the Trinidadian bank to increase its 40% stake in HFC to its takeover target of 51%.

As of Tuesday, HFC shares were trading at GH?1.29 per share on the Ghana Stock Exchange, a price which stock market analysts noted would have made it difficult for shareholders to sell their shares as the initial takeover price of GH?1.30 would also have signalled the willingness of Republic Bank to maintain its current stake in HFC.

A Research Analyst of NDK Asset Management Limited, Yaw Adu-Koranteng, explained: “If Republic Bank had maintained its offer of GH¢1.3 per share, then we would think they don’t want to acquire the bank since that is about equal to the current share price. But when they announced they’d be offering GH¢1.6 per share, we realised they seriously wanted to take over. At GH¢1.6 they put a premium on the current share price.

“Investors will look at the gains they will make if they trade-off their shares now. Some may want to cash-in or some may feel the bank has more potential in future and want to keep their holdings. In that case, the bid will not be successful.”

The HFC Bank takeover process by Republic Bank has been characterised by controversy as the posture of some of the biggest individual shareholders of HFC Bank and the board show resistance to the takeover process -- as they find Republic Bank’s approach too hostile.

The board of directors of HFC Bank earlier this week questioned moves by Republic Bank, its largest shareholder, to take over HFC -- accusing the Trinidadian bank of breaching a “collaborative theme” agreed between the two parties following Republic Bank’s announcement of a mandatory offer to acquire the remaining shares of the bank from the other shareholders.

According to the HFC board, it will endeavour to ensure that Republic Bank follows the country’s takeover and mergers processes in order to protect shareholders’ interest, saying: “The board of directors of HFC Bank has received legal advice on the steps being taken by Republic Bank, and in due course HFC Bank and its advisors will take the appropriate steps to ensure that Republic Bank complies with the applicable legal and regulatory requirements under Ghanaian law”.

The Group General Counsel of Republic Bank, Jacqueline Quamina, recently told the B&FT that Republic Bank has followed all the rules and regulations in doing business in Ghana, and will buy any shares that will be offered to it.