Bad Deal: Why DFCU Bank Is Backing Off Sudhir Properties

Bad Deal: Why DFCU Bank Is Backing Off Sudhir Properties

When news broke that dfcu Bank was planning to return 22 buildings that they got from Bank of Uganda when they dubiously bought Crane Bank, the commercial bank called the news fake and encouraged the public to ignore it.

But it looks like dfcu was caught off guard and was watering down the news that would send their customers into the panicky mood and damage their business.

It has emerged that on 12th September 2019, Mathias Katamba, the managing director of dfcu Bank, in a two paged letter wrote to the central bank seeking the attention of the governor Emmanuel Tumusiime Mutebile and his deputy Louis Kasekende informing them of the inevitable decision they had made.

This decision was that they intended to rescind their decision to purchase the 48 buildings (not just 22 buildings) that used to house Crane Bank – these buildings are owned by businessman Dr. Sudhir Ruparelia through his real estate investment company Meera Investments Limited.

Under the title ‘Reversionary Interest in Properties Acquired by Dfcu Bank Limited under the Purchase of Assets and Assumption of Liabilities Agreement of 25, January 2017’ dfcu gives reasons why they are changing their mind not to proceed with the deal of purchasing the buildings.

Below we reproduce the said letter which was duly signed by Katamba and Agnes Mayanja, the chief risk officer. The leaked letter, which was widely circulated on social media, is also marked confidential.

We refer to the Purchase of Assets and Assumption of Liabilities Agreement dated 25 January 2017 (the “Agreement”) pursuant to which dfcu Bank Limited (the Bank) acquired certain assets and assumed certain liabilities of Crane Bank Limited (in Receivership) (CBL).

Further reference is made to our correspondences on the subject matter, letters dated 30th August 2018 and 18th January 2019 from Bank of Uganda (BOU) and letters dated 26″) September 2018 and 13th August 2019 from the Bank under the AgreementBank of Uganda as the Receiver of Crane Bank Limited (In Receivership) undertook to recover the reversionary interest (the reversion) relating to 48 leasehold properties (MIL Properties) acquired by the Bank pursuant to the Agreement.

The reversion was to be recovered from Meera Investments Limited (MIL) within 24 months from the date of the Agreement. The Agreement gave the Bank the option to acquire the reversion once recovered by BOU or to rescind the purchase of the MIL Properties in the event that BOU was not able to recover the reversion within the said 24 months from the date of the Agreement (i.e. 25 January 2019).

BOU filed HCCS No. 493 of 2017 against Sudhir Ruparelia and MIL seeking among other things the return of the reversion.

Having realized that it was unlikely that the reversion would be recovered within the 24 months. BOU requested the Bank for an extension of the contract timelines which the Bank was amenable to. albeit subject to certain conditions which are reflected in the Bank’s letters dated 26” September 2018 and 13″, August 2019. To date BOU and the Bank have not reached any agreement on the extension. Following Court’s dismissal of HCCS No 493 of 2017 on 26th August 2019. it is unclear how long it will take BOU to recover the reversion from MIL. This state of affairs creates uncertainty for the Bank which is prejudicial to its business interests. In line with its strategic interests and risk management framework. the Board has resolved that it is in the best interest of the Bank to exercise the option to rescind the purchase of the MIL Properties.

The Bank hereby rescinds the purchase of the MIL Properties pursuant to clause 8.7 of the Agreement. Accordingly, in line with clause 8.8 of the Agreement, the Bank will:

(a) return to BOU the certificates of title for the MIL Properties duly re-transferred into the name of Crane Bank Limited: and

(b) deliver up vacant possession of the MIL Properties (i) Listed in Appendix A, immediately: and (ii) Listed in Appendix B by 24- January 2020.

Upon receipt of vacant possession of the MIL Properties, BOU will pay to the Bank the net book value of the MIL Properties included in Note 2.3.11 of the PwC Assets and Inventory compilation (as at 20’n October 2016. under “Land and Buildings”) subject to: (i) depreciation in relation to the period from 20 October 2016 to the date of delivery of vacant possession as specified herein: and (ii) the ground rent that the Bonk would have paid for the MIL Properties from the Completion Date (25 January 2017) up to the rescission date.

The Bank acknowledges that the rescission process and the payment associated therewith may entail certain other modalities.

We therefore consider a meeting to agree these modalities and the associated timelines important.