First Bank Dragged To Court

For First Bank of Nigeria plc, it was celebration galore when its last public offer, floated on 14 May last year, recorded a huge subscription level of 752.4 per cent. A hybrid, the Rights Issue recorded 147.16 per cent subscription. Of course, the bank needed to return some money to investors as the Securities and Exchange Commission, SEC, apex capital market regulatory body in Nigeria, will not permit it to absorb the entire N471.648 billion proceeds realised from the two issues. In fact, as the offer was on-going, SEC was perfecting its strategy to peg supplementary allotment to a maximum of 25 per cent where public offers were over-subscribed. But First Bank got an exemption since the offer had commenced before SEC’s pronouncement. To this end, the bank was allowed to absorb the sum of N250 billion. Then arose the issue of returned monies. Expectedly, investors would wish they got full allotment. However, some concerned investors have faulted the entire process adopted by the bank in the money returned. First Bank had, on 8 November 2007, given notice of its initial allotment in respect of the offer for subscription and the supplementary allotment as published in THISDAY newspaper. Also on 3 December last year, using the same medium, the bank gave notice of its initial allotment in respect of the Rights Issue. Except for applicants who made minimum applications of between 1 and 10,000 units, all applicants had varying percentages of their applications rejected. The applicants, whose applications were rejected, were allotted between 5.35 per cent and 74 per cent in respect of the Rights Issue. Applicants, whose applications were not allotted in full, were allotted between 2.18 per cent and 10 per cent of their total applications. While the bank received 966,440 application forms for 12,223,212,645 ordinary shares in respect of the public offer, a total of 151,285 application forms for 2,202,663,734 ordinary shares were received in respect of the Rights Issue. By this, the public offer attracted the sum of N403,366,017,285 and the Rights Issue N68,282,575,754, bringing the total to N471,648,5934,039. First Bank accessed the capital market to raise the sum of N100 billion, highest in the history of the capital market at the time. The public offer was sold for N33 per unit while the Rights Issue went for N31. Sequel to this, the aggrieved investors filed a suit at the Federal High Court in Abuja on 27 February this year but got an order of the court on 6 March to file it as a class action to allow other investors join in. While it is not mandatory for them to join the race, interested parties can join as part of the action. Where an investor or group of investors have a separate action, they are expected to seek the consent of the court that granted the order, that is the Federal High Court in Abuja. While Udobong Ntia, Staffords Limited, Seth Orjinta and Okeine are the leading plaintiffs, First Bank of Nigeria, Stanbic IBTC Bank (formerly IBTC Chartered Bank), FBN Capital Limited, Diamond Bank, Guaranty Trust Bank, Oceanic Bank International and the Securities and Exchange Commission are the co-defendants. By the order, plaintiffs are to maintain and prosecute this action for themselves and in representative capacity on behalf of all the other persons who applied for the First Bank’s offer and Rights Issue of 14 May 2007, and any unnamed persons falling within the class of persons on whose behalf the action has been brought in a representative capacity, among others. According to a Statement of Claim by the leading investors in the case, SEC’s involvement is not unconnected with its inability to “act in the public interest having regard to the protection of investors and the maintenance of fair and orderly markets to establish a nationwide trust scheme to compensate investors whose losses are not covered under the Investors Protection Fund administered by SEC and Capital Trade Points.” The claim also indicates that IBTC Chartered Bank and FBN Capital Limited, as Issuing houses to the offer, were involved in the issuing, marketing and allotment of shares on behalf of First Bank. Diamond Bank, GTBank and Oceanic Bank are the receiving banks in which accounts the application monies in respect of the securities were kept from the time of application until allotment. IBTC Chartered Bank was also recognised as a receiving bank to the offer. The aggrieved investors are seeking on behalf of all investors who subscribed to the offer some relief in the proportion of their respective losses. The investors argued that during the bank’s hybrid offer First Bank gave huge publicity through the electronic and print media and that towards the last days of the offer, the defendants caused such attractive and convincing advertisements which made investors go all length to be a part of the action. Some of the plaintiffs obtained credit facilities at varying interest rates of between 19.5 per cent and 22 per cent per annum to finance the purchase of the said shares. This credit or margin facilities given investors to trade on the stock market is a common practice by all licensed banks in Nigeria. In fact, IBTC Chartered Bank is believed to give out credit facilities to its customers to enable them acquire shares offered for subscriptions. Also claimed by the investors is that First Bank, IBTC Chartered and FBN Capital caused the offer to be extended for a period of two weeks after obtaining approval from SEC. To the investors, SEC did not carry out due diligence in ascertaining if, at the time of the application for extension, the offer had been over-subscribed or not. The investors believe that First Bank knew or ought reasonably to have known that long before the initial close of the offers the securities had been over-subscribed. In fact, in a welcome address by Alhaji Umaru A. Mutallab, Chairman of First Bank of Nigeria at the Investors Forum held on 18 May last year in Lagos, in respect of the hybrid offer, the chairman opined that First Bank has remained the toast of investors, and would continue to offer unprecedented returns on investment to shareholders. Mutallab expressed optimism that the offer would be well over-subscribed. And that it was. The investors are also of the view that the numerous advertisements led the general public to believe that the shares being advertised were still available for allotment when in actual sense the shares had been massively over-subscribed. Though First Bank volunteered to pay a 5 per cent interest on all returned monies, the investors argued that the bank was not in a position to impose a rate that is not reasonably good on them. The investors hinge their argument on the fact that the issuer (First Bank) stated in its offer prospectus that “all application monies will be retained in separate interest-yielding bank accounts by the Receiving Bankers, pending allotment. If any application is not accepted, or is accepted for fewer shares than the balance applied for, a crossed cheque for the full amount or the amount paid (as the case may be) will be returned by registered post within five working days of allotment. A share certificate will be sent by registered post not later than 15 working days from the date of allotment.” As it turned out to be, the bank could not deliver on these promises. As at 3 March when this claim was filed, a lot of investors were yet to receive their returned monies and share certificates. The claim also reads that it was in part reliance on this representation that application monies would be retained in interest yielding accounts that the plaintiffs applied for the allotment of the shares to them. The investors aver that First Bank, IBTC Chartered Bank and FBN Capital were under a fiduciary duty to the investors to ensure that the monies were retained in accounts where interests at the prevailing market rate were obtainable in respect of the application monies. The investors also reckon that the average interest rate for the placing of funds in banks in Nigeria for between 60 and 90 days is about 12 per cent per annum. Citing sections 135 and 136 of the Companies and Allied Matters Act, Cap C20 Laws of the Federation of Nigeria 2004, the investors observe that they were only obliged to pay for the shares at the point of the agreement to issue the shares, that is, when the notice of the allotment of the shares was given or subsequent thereto. Based on this, the investors reason that from the respective times when the application monies were received by the receiving banks on behalf of First Bank to the time of the notice of allotment, all the application monies belonged to the respective applicants for allotment of the shares of the bank. The investors aver that they are entitled to interest in respect of their respective total application monies at the rate of 12 per cent per annum from the respective times when investors’ money was received by First Bank, IBTC Chartered Bank and FBN Capital till 8 November last year when the allotment result was published, representing a minimum period of four months in respect of the offer for subscription. In the case of the Rights issue, the investors insist that they are entitled to interest at the same rate of 12 per cent per annum from the respective times when the investors’ monies were received by First Bank either directly or through its agents up till 3 December last year when the Notice of Allotment was published, that is, a minimum of five months. The investors are also pressing for more interest from the time allotment was announced until the time returned monies for shares not allotted were received. A source at First Bank told this magazine that there is no law in Nigeria which prescribed the payment of interest on monies received in respect of public offers and Rights Issue. The source claimed that the bank only used its wisdom of corporate responsibility to pay 5 per cent interest in returned monies. But Mr. Oladele Ogunshote, a lawyer with Streamowners and Kohn, reasoned otherwise. The lawyer told TheNEWS that First Bank tried to be too fast with investors as the bank was negligent in its return of rejected application monies. He said the bank delayed payment of returned monies beyond the period stated in the prospectus. He argued that investors have suffered a great loss and thus need a redress. The lawyer said the 5 per cent offered investors by the bank is not fair, just and equitable. Ogunshote said the quantum of their respective damages should be the rate at which they would have been able to borrow equivalent amounts of money. He put this rate at 19.5 per cent. He referred to First Bank’s action as abuse of capital market operations. According to him, First Bank ought not to have received further applications and monies immediately they had raised the total amount on which the securities were issued. Funke Adejobi, a small-scale investor who subscribed to 1000 units of the offer, told this magazine that though she secured full allotment, those whose monies were returned deserve a minimum of 10 per cent interest because the monies were tied down for about six months. Within this period, she asserted, First Bank could have invested the monies lucratively. The investors allege that SEC contravened sections 68 and 73 of the Investments and Securities Act, ISA, 1999, as it failed to prescribe the maximum period within which the two Issuing houses were to return surplus monies due to subscribers and to prescribe a rate of interest for late return of such surplus monies. ISA 1999, which repealed the SEC Act of 1988, and which has been confirmed by Mr. Edosa Aigbekaen, Director in charge of Legal Services at SEC, as an imperfect document, is silent on the issue of interest rates to be paid to investors when the need to return some monies, as in the case of over-subscription for public offers, arises. That explains why certain powers that the Commission exercises which are not clearly stated in the Act resulted in some entities challenging the legality and propriety of the its actions. An example is the case of Beta Consortium vs SEC which is already in the Appeal Court. An analyst posited that the capital market has witnessed considerable growth and development in the last 10 years. He stressed that it has become imperative that standards of professionalism and market integrity are maintained. The analyst argued that the objectives of regulating the capital market are to protect investors and ensure a fair, stable and efficient market that is free of malpractices and other unethical conduct in order to avoid systemic risk. This magazine learnt that the leading investors in this struggle have received support from other interested investors to press home their demand for higher interest rates on their returned monies. The court will determine who takes the day – the investors or First Bank of Nigeria.