THE battle by dozens of angry creditors owed millions of dollars by Madison Asset Management Company (MAMCo) shows no signs of conclusion, two years after revelations that the company was in financial distress, writes John Mukela.
Mamco, a subsidiary of the Zambian finance and insurance group, Lawrence Sikutwa & Associates (LSA), was forced to halt its business when in early March 2020, the Securities and Exchange Commission (SEC) announced that it had taken supervisory possession in order to safeguard investors’ interests.
Mamco had offered investors bonanza interest rates, according to their preferred investment class, in what it called the “Fixed Income Fund (FIF)”, in either kwacha or U.S. dollar denominated products. The investment duration could range from between 60 to 365 days.
With comparative average commercial bank annual interest rates ranging from between 6-15% for a 365-day investment, the FIF offer was seen by punters as a once-in-a-lifetime opportunity for high returns.
The minimum investment bracket was between K50,000 to K200,000. Mid-range was between K200,000 to K500,000 and the third bracket was any amount above K500,000. For all these brackets, the interest rates ranged from a 60-day rate of 9.5% to an annual rate of 22.5%.
If the offer was too good to be true, it did not deter dozens of unsuspecting investors, many of them retired pensioners, from ploughing their hard-earned savings into Mamco’s Fixed Income Fund.
But the promised returns have not materialised, and instead of yielding profits, the investors have reaped a festering sore of resentment, frustration and fear.
In September 2019, a “scheme of arrangement” negotiated between the company and creditors revealed that Mamco owed unsecured creditors the equivalent of US$19 million, at the relevant September 2019 kwacha-dollar exchange rate.
The 337 unsecured creditors included corporations, charities, retired military servicemen, churches, health clinics, banks, colleges and dozens of pensioners.
In the interim, in an attempt to seek redress over the SEC’s possession, Mamco has lodged its complaint before the newly-created Capital Markets Tribunal. Among reasons justifying the SEC’s possession of Mamco assets, were that Mamco had failed to “submit information and comply with the Commission’s directives.”
The Tribunal is charged with hearing and determining “appeals from decisions of the SEC, cases of misconduct in the securities market and other matters specified in the Securities Act or any other written law relating to securities in Zambia.”
Consequently, two Joint Interim Managers from SEC and the Pensions and Insurance Authority (PIA) were appointed to oversee the possession and ensure the objectives of the possession. They included ascertaining the state of affairs of Mamco, facilitating the payment of creditors and lastly, establishing the going concern status of Mamco.
MakanDay has established that two of the objectives have been achieved, except for the main bone of contention – the payment of Mamco’s creditors.
An extensive review of Mamco has been underway by the SEC’s interim managers and now, almost two years since the SEC’s possession, the results of the SEC probe are yet to be released.
“To the extent possible, the public will be informed at an appropriate time of the findings of the possession. The assignment is complex, requiring the Commission to thoroughly review a number of areas in line with the possession objectives. A lot of work has since been done,” SEC CEO Phillip Chitalu told MakanDay.
“The Commission is optimistic that the last objective of the possession will be achieved soon to allow a smooth handover process. It is anticipated that the lifting of the possession will be done as soon as creditors’ interests are secured and the public will be informed at an appropriate time,” he added.
But Chitalu fell short of spelling out whether or not this meant that creditors interests include the full repayment of their initial investments, as well as the relevant accrued interest.
“The mechanics of the payment – whether it will be full repayment or not, or whether it will include interest or not, is a matter that the SEC cannot respond to at this point. Suffice to mention that the SEC is working to ensure that the best interests of the creditors are secured,” he explained.
Aside from the 2019 “scheme of arrangement”, through its parent company, Madison Capital Limited, Mamco has attempted to come to some mutual agreements with a few lucky investors by offering them ownership of three-bedroom bungalows at its Buboni Phase 2 Housing Scheme in Lusaka’s upmarket Roma Park complex.
A provision in the terms of sale stipulates: “the purchase price shall be offset against the balance outstanding in the Fixed Income Fund…”
In other words in exchange, investors have been offered houses equivalent to the value of their lost investments.
But with only 30 homes on offer, the number of available properties at Buboni Phase2 does not cover all eligible investors and many have been left out in the cold.
Moreover, if this appeared to be a good deal, in reality, most of the houses are incomplete shells, “with no ceilings, no floors, no tiles, no paint, no doors, just empty shells,” an investor revealed, speaking to MakanDay anonymously.
And then the Buboni properties were seized by the Drug Enforcement Commission’s Anti-Money Laundering Unit (DEC), leaving the investors in more limbo.
In a memo to clients soon after the seizure, Madison Capital Company Secretary Kafula Mwiche wrote: “In this regard, any transaction that is currently underway on any of the listed properties will have to be put in abeyance until either the Notice of Seizure is lifted or the investigations are concluded.”
Two years down the line, the seizure is still in place, with no indication of the likely conclusion of the investigations.
“Most of us just want to get rid of our properties, but no one can sell because no8 one has title deeds. We have been banned from going to the Ministry of Lands to get our title deeds. We were told even before the seizure that if we wanted to get title deeds we would have to pay the property transfer tax ourselves, so its just a complete sham,” an investor told MakanDay.
According to another investor, who carried out his own independent property valuation, there was “a big difference,” between the independent valuation and Mamco’s valuation.
He further alleged that apart from the property transfer tax of 5%, “which is a lot of money, Mamco over-valued the properties, so that they could undercut what they owed to the investors. It’s a horrible situation,” he said.
Another investor told MakanDay that the Buboni complex has two 10,000 litre water tanks – insufficient for the needs of the complex, and a borehole that “is constantly leaking.”
She said she paid US$20,000 to fix up her incomplete house, but that the whole complex has now gone to wrack and ruin. “It looks like a Western cowboy movie set. There’s just rolling rumble weed and nothing there. There are no gardens, there’s nothing,” she said.
“I was so angry, I wanted to go there with a baseball bat and I actually almost did. And break the whole place down, and smash their computers, and smash their windows. That’s how I felt. The uncertainty was causing me huge amounts of anxiety and physical pain. I went to see a psychiatrist, because I couldn’t handle the pressure of losing all our money. I look healthy, but I was very sick,” she told MakanDay.
Another investor narrated a similar story of frustrated rage.
“At some point I just went there with my three young children and we camped in their office. I was also expecting a baby, and we all sat there and I told them I am not going to leave, until I am paid. So they had no choice apart from initiating a payment. Then the noise of three young kids…they couldn’t work properly because the kids were all over the place.
“I said the children are hungry they have to eat. So they had to get us lunch, they had to get us water. When they realised that I was not going to leave, and that they were soon having to lock up the office, they also realised that they couldn’t drag a pregnant woman out. They initiated a payment, which was the highest that I had ever received from them, I think it was K120,000. I told them that if I was not going to manage to cash that cheque the following day, I would be back at their offices with my kids,” she said.
Upon entering Buboni Phase 2, a row of decrepit coffee painted bungalows with maroon clay rooftiles greets the visitor. Almost all the properties appear neglected and the derelict conditions of the complex surroundings is in stark contrast to many of the posh mansions dotted within this exclusive gated community.
Most of the investors offered to buy the houses had little or no money for construction costs needed to make the shell houses habitable.
“The problem was that we were forced to acquire those properties because we did not have a choice. I could have made a better investment elsewhere. Because for the same money, I could have acquired something far much better somewhere else,”MakanDay was told.
As one of the Mamco creditors put it, the entire Mamco fiasco “leaves a sour taste in my mouth.”
But maybe all is not lost. In December 2018, the SEC undertook a similar exercise with Minet Zambia Consulting Limited, and was able to successfully complete the possession and pay off all unit holders in the Mukuyu Collective Investment scheme.
Following resolutions of the members of the unit trust to wind down the Mukuyu Unit Trust, Minet was no longer authorised to offer any securities business in Zambia and its dealers’ license was subsequently cancelled and publicised in the media.