Renaissance: The untold story

Capital Uplift clause, after using the loan the group obtained from the businessman.
The dispute over whether Mr Shah was entitled to the Capital Uplift degenerated to the extent that it resulted in the intervention of the Reserve Bank of Zimbabwe.
Sources said the Capital Uplift clause provided for an additional US$12,5 million per annum while the loan was extended at 9 percent interest per annum.
The source told Herald Business the loan agreement signed with RFHL on September 3, 2009 was approved by the Reserve Bank of Zimbabwe.
“There is an agreement for US$12,5 million capital uplift. It was a precondition to the agreement. The whole thing was agreed,” said the source.
Clause 6,1of the agreement provided that interest would be nine percent per year and clause 6,2 stated RFHL would pay interest of 3,5 percent per month in the event that they failed to repay the loan in time, as agreed.
Herald Business understands the 42 percent interest was the compound annual default interest rate and not the interest rate at which the loan was given.
Extracts from the agreement indicated RFHL had been unable to obtain financial assistance elsewhere when it resorted to borrowing from Mr Shah.
Sources said RFHL hoped to easily repay the loan as Renaissance Merchant Bank was charging very profitable interest rates for loans.
“The borrower shall pay the lender interest of 9 percent per annum. In the event of default of payment of any amount due in terms of this agreement, then default interest shall accrue at an interest rate of 3,5 percent per month.
“But this shall not be read as extending to the borrower a credit or other facility moratorium in relation to repayment of loan,” read part of the agreement.
The default interest rate was applied in March this year when Renaissance failed to meet its financial obligations to the tycoon. In the end, RFHL paid US$7,2 million, including late payment interest.
RFHL is said to have defaulted in March after which the default interest rate was applied.
But the company fell out with Mr Shah when he sought to evoke the Capital Uplift clause, which RFHL strongly opposed.
Renaissance’s founding chief executive Mr Patterson Timba, said the clause was only applicable if the value of the business had increased.
An excerpt of the agreement shows the Capital Uplift clause was based on the understanding that RFHL would grow by at least US$25 million after the loan.
“The parties record that following the application of the funds lent to the borrower by the lender towards recapitalisation of RFHL the residual value shall be enhanced by at least US$25 million,” read the excerpt.
According to the agreement Mr Shah was entitled to 50 percent of the company after the loan had been paid to RFHL.
RFHL disputed the claim and called for an audit on the value of the business in an effort to dismiss Mr Shah’s claim under the Capital Uplift clause.
In the heat of the dispute, Mr Shah is said to have reported RFHL to the central bank, alleging the firm had used depositors’ funds for unlawful purposes.
Investigations by the RBZ unearthed shareholding, board and corporate governance flaws, as well as a string of irregular inter-company transactions.
The financial institution was also discovered to be undercapitalised. The RBZ and the Ministry of Finance agreed with the National Social Security Authority to inject a total of US$17 million in fresh capital.
This will result in a complete overhaul of the board and management of RFHL with executives and directors implicated in the illegal transactions at the firm expected to play no further part in its affairs.
Previous shareholders will retain their interest in the financial group, but indications are that the new investor would certainly significantly dilute that interest.