The core of the project will involve merging leading financial institutions, including CBZ Holdings, ZB Financial Holdings, First Mutual Holdings Limited (FMHL), and First Mutual Properties (FMP).
An investigation into the project already taking shape shows that the new institution – which will have a footprint on local and regional markets – will involve serious financial engineering and megabucks.
It will have five major divisions: banking, insurance, investment, property, and agriculture.
The merger and subsequent consolidation process will be led by CBZ chairperson Marc Holtzman, an American international banker, who was appointed on 1 September 2019 to preside over the biggest bank in the country. He will work with government and local bankers in the financial institutions involved.
Holtzman also is the Bank of Kigali chairperson. Previously, he was chairperson of Meridian Capital HK, a private equity firm with investments in natural resources, real estate, food, agriculture, and transportation.
Prior to joining Meridian, he had served as vice-chairperson of Barclays Capital and at ABN Amro Bank in the same capacity.
Holtzman was once appointed by former Kazakhstan prime minister Karim Massimov to the board of Kazyna, the nation’s sovereign wealth fund. He was also chairperson and chief executive of Kazkommertsbank, Kazakhstan’s largest bank.
His orbit in the corporate sphere began at Barclays Capital and ABN Amro Bank where he was vice-chair in both entities. He was co-founder and president of MeesPierson Euramerica which was later acquired by ABN Amro Bank. Furthermore, he was a senior adviser to Salomon Brothers, an American Investment Banking firm (now Salomon Inc).
The investigation shows that Tagwirei, who already has interest across the merging financial institutions, together with his vast business portfolio which straddles mining, finance, agriculture, construction, and other areas – making his Sotic International conglomerate one of the biggest in the country and region, will take a back seat as a politically exposed person buffeted by allegations of corruption and sanctions.
Documents obtained from banks involved in the project show that the new financial services institution will thrive on economies of scale and fund large-scale public, national and private sector projects, while directly impacting on loan pricing and credit growth in the market.
It will also have a major impact on the economic landscape, which is largely dominated and driven by big companies such as Old Mutual, Econet, Delta, and Innscor.
Details show that the project is now at an advanced stage, with all the market research, concept, and necessary reports already done.
“Plans by government and bankers, as well as associated business people, are underway to form a new financial services institution, which will be the biggest in the market, by merging and consolidating CBZ, ZB, FMHL, and its properties subsidiary FMP,” one document says.
“The project will be driven by bankers and government which has an interest in CBZ and is also in the process of selling off or reducing its interests in the relevant financial institutions held through the National Social Security Authority (Nssa) and other entities.
“Over the past 20 years, Zimbabwe’s national development agenda in the private sector has been dominated and driven by a few companies, namely Old Mutual, Econet, and Innscor. These entities have influence across critical sectors spanning financial services, telecommunications, agriculture, property, and mining.
“This type of private sector influence is not unique to Zimbabwe. However, what is unique is that their agenda has not necessarily and always converged with that of the government, leading to misalignment with the country’s socio-economic trajectory. To realign with the government’s national development agenda and its 2030 vision, we need to create a new institution which feeds into and drives that process.”
Documents say to achieve this, a merger between CBZ, ZB, FMHL, and FMP is critical to creating a holding company specialising and investing in an entrepreneurial business that forms the backbone of the economy.
“The size and scale of such an institution would also enable the country to increase the ability to fund large-scale projects, for example in mining and agriculture,” another document states.
“Merging operations of CBZ, ZB, FML and FMP will achieve the scale needed to compete against the likes of Old Mutual in the Zimbabwean local market.
“The combined total asset base, which will be about US$2.5 billion, will allow the new group to be the lead institution in funding large-scale national projects.”
Further, documents say the new institution will have a higher single obligor limit – the maximum amount a bank is allowed to lend a single borrower or an individual in relation to the total shareholders’ fund of that bank – from US$15 million to at least US$35 million.
“The merger is likely to increase the competitiveness of the industry against our regional peers, directly impact loan pricing and enhance credit growth. It will also combine FMHL/ZB’s high return on equity and low cost of funding in CBZ. The resultant entity will further combine CBZ’s market-leading consumer banking business, asset management and strong agriculture offerings with the robust insurance and property portfolios of FMHL and ZB.
“This will create a well-balanced financial services entity that can support the development of Zimbabwe’s public and private sectors.”
The documents add that the institution will be a catalyst for individual, corporate and national projects in the process.
“The current capital requirements for a Tier 1 bank is US$30 million and Tier 2 building society US$20 million, which means that CBZ requires two licenses that need US$50 million. ZB also requires the same. The government as a shareholder has to inject fresh capital into both banks. However, if they merge, no fresh capital is required.”
The new project will also create a bigger insurance portfolio.
“The larger insurance entity created would increase risk retention and result in greater premium retention by the combined entity – this will increase risk cover for trade and project development. The larger entity should be able to apply economies of scale to reduce their combined cost base and thus result in higher profits and dividends to shareholders. The synergies would reduce the number of branches, combine management teams and reduce costs of improving technologies for banking and insurance.”
The post-consolidation strategy requires significant investment in technology and digital products and delivery.
That will enhance gross margins, for instance, better market pricing or greater purchasing power from suppliers, the documents say.
“There will also need to sell assets or non-core divisions to enable better focus or fund growth,” it says.
The new institution aims to make inroads into the unbanked segments of the market and into the region using FMHL’s operation in Botswana, Malawi, and Mozambique. The new financial services institution project is already underway.
Nssa, which manages a more than US$1 billion fund, has been selling its equities in several banks while keeping strategic shareholdings. This has helped the new financial institution process to move.
Nssa last year disposed of its 37.79% stake in ZB Bank then worth more than ZW$755 million (US$11.984 million) to Tagwirei who already had a stake in CBZ, and could also have equity in FMHL.
The merger plan also includes Tagwirei buying out ZB’s second-largest shareholder Nicholas Vingirai, although the latter says he has not been approached.
“I have not had any discussions on that (disposing of his ZB stake). You are aware that there is a settlement that has been ongoing? However, send me your questions so that I directly respond to them,” Vingirai said.
He, however, did not respond to questions sent to him. The ZB deal was a share swap which saw Nssa getting CBZ shares then worth ZW$640 million or US$7.8 million.
Nssa earlier this year said it was reducing its shareholding in FMHL and creating a strategic alliance around its 100%-owned subsidiary, National Building Society to unlock value.
It said it would sell 31.22% of its 66.22% stake in FMHL and remain with 35%. The size of Nssa’s shareholding, which it held since 2012, violated the regulations of both the Zimbabwe Stock Exchange and those of the Insurance and Pensions Commission, the sector’s regulator.
That came after Nssa disposed of its shareholding in First Capital Bank and ZB.
In the initial phases, Nssa merged NicozDiamond into FMHL and disposed of its stake in Fidelity Life and Zimre Property Investments in a share swap deal with Zimre Holdings Limited.
“The new project in Zimbabwe will be similar to those found in Nigeria, South Africa, United Arab Emirates, and South East Asia spanning banking, insurance, mining, agriculture and other sectors of the economy,” one document says.
CBZ group marketing and corporate affairs executive Matilda Nyathi did not respond to questions. Similarly, FMHL group chief executive Douglas Hoto did not respond to questions sent to him via WhatsApp, although he read them. But CBZ has issued a cautionary, saying it was in negotiations to acquire shares in a financial institution.
“Further to the cautionary statement issued by the board on 30 May 2021, the directors of CBZ Holdings Limited, advised shareholders that CBZ Holdings Limited (the company) is in negotiations for a potential transaction involving the acquisition of shares in a complementary business, which if successfully concluded may have a material effect on the price of the companies securities, the full impact of which is currently being determined,” the bank said.
Nssa spokesperson Tendai Mutseyekwa said: “I acknowledge receipt of your email and will get back to you after checking with colleagues working on this.”