The first inkling that we mere mortals had that local businessman Patrick Bitature maybe in trouble, was with the publication of an advertisement on 18th May announcing the auctioning of his prime properties – two hotels and a block of apartments, for money he owed.
On the same day Bitature responded to the advert, dismissing
it as having no legal basis and we thought that was that.
But before we had caught our breath, on 23rd May,
Vantage Capital on whose behalf the above mentioned advert was published, took
out a full page ad to explain the genesis of the saga and how, while the high
court had ruled they were not a legal entity in Uganda and therefore could not move
on Simba Group’s assets, they were determined to collect their pound of flesh.
At issue is a $10m (sh37bn) loan lent to Simba Group in 2014
which Vantage says has gone bad and they want to collect on.
In their ad they claimed that the loan agreed to with
Bitature was supposed to be serviced on a quarterly basis, but that Bitature
had not paid a cent. This claim was refuted by Bitature a week later in a full
page ad, claiming on his part that the terms of the loan were such that repayment
was due in 2017 and after negotiation for an extension, again in 2019.
These were not your normal commercial bankers, hence the
mezzanine financing. Mezzanine financing is by definition more flexible than
the usual commercial bank loans and cheaper than paying using equity.
It was curious of course that having required payment every
quarter, Vantage waited till 2017 to move on Bitature and his Simba Group, wouldn’t
we all love lenders like that?
It was also curious that despite the beginning of a court
ordered arbitration process, Vantage moved to transfer Simba Group’s shares it
had held as security to the loan, a process Uganda Registration Services Bureau
(URSB) refused to do because there was an ongoing arbitration process and also because
Vantage was not registered in Uganda.
Vantage had chosen London as the arbitration venue and were
in the process with Simba Group of agreeing on the composition of the panel.
For URSB to transfer the shares to Vantage, at the bare
minimum, the recipient had to be a legal entity, able to sue and be sued, in
Uganda.
Vantage as was their right challenged URSB’s action in court.
But the court’s hands were tied. On 9th
May while agreeing with URSB that Vantage was not registered in Uganda, the
court said, in effect, that had that not been the case, it may have looked
favourably on Vantage’s appeal to move on Simba Group to recover what was due
to them.
They promptly moved to appeal the ruling. But curiously again,
barely two days after lodging their notice to appeal they published the above
mentioned ad to auction Simba’s properties.
Interestingly, a major regional bank already has mortgages
on those properties and has first charge, a first right on action on them, a
fact that Vantage knew before it did the deal in 2014. This happens with mezzanine
financing all the time – lending to entities whose assets are already
mortgaged. Their comfort when they do these deals comes from holding the
borrower’s shares as security.
"By taking control of Simba Group, Vantage would be able to restructure the debt with the bank or sell off the group, debt and all, to others interested in owning the group, valued according to some estimates at more than $150m. Vantage’s core competence is not running other businesses, but rather restructuring their balance sheets, selling them off to show a return to their investors and moving on to the next deal....
So it is curious what Vantage’s agents in the country were
trying to achieve by advertising Simba’s properties, embarrassing Bitature and
bringing into the open a matter, that is purely a business dispute.
The way it seems to me, both parties are jostling for
leverage and time.
Vantage have chosen to move now. It is hard to justify a
non-performing loan on your books for eight years, someone’s bonuses or even
job maybe on the line because of this debacle. Because of this and other motivations,
it is clear Vantage is looking to force the issue, bring it to a conclusion
sooner rather than later. With the courts not playing ball, they have clearly
chosen to appeal to the court of public opinion and embarrass Bitature into “good”
behavior.
Bitature on his part, riding on the ruling that Vantage has
no legal standing in this country, may have bought himself some precious time. Time
to organize himself.
Covid was a blow to his hospitality businesses, with occupancies
only just beginning to creep up from the grave, but even before Covid, he is
owed millions of dollars by the Uganda government, emanating from his power
generation plants in Tororo and Arua, debts going back to before Covid.
Everyone who owes money – and Bitature has not denied that he
owes Vantage money, should repay what he or she owes.
Bitature cannot afford not to come to an amicable settlement
with Vantage, because in the rarefied atmosphere of high finance that he
operates in, trust counts more than any asset. It is in his best interest to
pay off Vantage, if only because to default now would easily see him
blacklisted by financiers far and wide.
Vantage on its part has brought the bare knuckles world of
international finance to our door. The warning is clear, that if you want to
play with the big boys you better be ready to flex.
