NEWS
POSTED 19/10/2016
BRT company ‘broke’ over Sh6.4 billion debt
Buses operated by Udart ply one of the bus rapid transit routes in Dar es Salaam when BRT services were launched in the city earlier this year. PHOTO | FILE
By Alawi Masare @AMasare malawi@tz.nationmedia.com
IN SUMMARY
- Simon Group of companies was thrown into a corporate crisis following the shock decision to declare it “bankrupt” with the appointment of a receiver manager to take over its assets and oversee operations.
Dar es Salaam. The company with a controlling stake in Dar es Salaam’s bus rapid transit (BRT) has been put on receivership for reportedly failing to repay over Sh6.4 billion owed to TIB Development Bank Limited, formerly Tanzania Investment Bank (TIB).
Simon Group of companies was thrown into a corporate crisis following the shock decision to declare it “bankrupt” with the appointment of a receiver manager to take over its assets and oversee operations.
Simon Group chairman and CEO Robert Kisena last night told The Citizen the company will fight back the bankruptcy order as he sought to calm worried business partners and the market.
“We are willing to pay our debt and will enter into discussions over the same with TIB,” he said in a telephone interview. He detailed reasons why the company has found itself in what could be a costly financial dispute with the public lender.
News of the move against Simon Group was revealed in a media notice yesterday announcing that NexLaw Advocates would take over the administrative functions of the company to try to recover the huge debt. The mandate allows the receiver manager to collect income and dispose of any assets of Simon Group to recover the money accruing from a 2011 loan to develop a ginnery in Mwanza Region.
Simon Group is the company that controversially bought the city’s public transport company, UDA, through which it became the main shareholder of UDART, currently operating the Bus Rapid Transit (BRT) that have revolutionalised Dar’s congested transport system.
It was not immediately clear how the decision to take over Simon Group will impact on the BRT operations but Mr Kisena was quick to assure that the dispute will not disrupt UDART business which has also recently encountered turbulence over reported losses.
Sources familiar with the dispute told The Citizen that NexLaw Advocates was currently doing due diligence on Simon Group with a view to establishing what part of its business and assets, both fixed and non-fixed, come under the order. The law firm is expected to assume all directorship of Simon Group in several companies. It will also take up shares owned by the company.
Receivership is a type of corporate bankruptcy in which a receiver is appointed by bankruptcy courts or creditors to run a defaulting company.
“By virtue of the company being under receivership, the powers of the directors in terms of dealing with the assets of the company ceased,” read the notice released by Mr Ayoub Mtafya and Nuhu Mkumbukwa, who are the joint administrative receivers.
Some of the already identified Simon Group assets that could go under the hammer are five plots at Igogo Industrial Area in Mwanza. The firm’s shareholding in UDA stands at about 80 per cent.
The receiver managers warned that no one other than NexLaw Advocates would henceforth receive any payments due to Simon Group. “Anyone who receives, uses or attempts to buy, transfer or sell assets of the company or otherwise deal without the prior written approval of the receivers will be acting in contravention of the law and will be exposed to legal action,” they warned through the public notice.
Simon Group is involved in several ventures and is said to have borrowed up to Sh80 billion from commercial banks to buy a fleet of UDA buses as well as the modern BRT buses that started operations in 2016.
Trouble over the TIB Development Bank loan started in December 2015 when the Commercial Court Division ruled against Simon Group in a case it had challenged the bank over the recovery of the debt. TIB won a counterclaim and Simon Group was asked to pay a sum of Sh5.9 billion plus other accruing charges from 2011.
The bank has moved to appoint a receiver manager after default to implement the court order. It relied also on a debenture and mortgage agreement it entered with the private company should it fail to recover the loan.
But Mr Kisena yesterday linked the move against them to an apparent government crackdown on formerly privatized state corporations. He said they were ready to pay a debt of Sh4 billion, the value he believed to be correct.
In 2008, Simon Group bought Nyanza Cotton Oil Ltd at Sh3.1 billion while Sh2.8 billion of it was a loan from TIB Bank.
The debt is now estimated at Sh4 billion including the interest cost.
Following the world economic crisis the same year, the cotton sector was heavily affected and the government announced to bail out the sector.
According to Mr Kisena, their factory applied for the bailout but could not secure the credit facility from the central bank.
In 2010, the factory was grounded following the fall of Nyanza Cooperative Union.