The Auditor General’s Report on the parastatal bodies and other statutory institutions has revealed that Yalelo Limited failed to pay nearly K17.3 million in dividends to the Development Bank of Zambia (DBZ), contrary to a shareholding agreement entered between the two parties.
The Report disclosed that Yalelo and DBZ entered into a shareholders’ agreement in 2013 in which DBZ acquired 1,245 preferential redeemable shares in Yalelo at a total paid value of K12,500,000.
According to the agreement, DBZ was entitled to fixed dividends of K4,000,000 in 2014 and K7,500,000 each year from 2015 onwards, but the parastatal did not receive the funds as per the agreement it entered into.
“On 31st July, 2013, DBZ entered into a shareholders’ agreement with Liongate Venture Fund I SPC (LVFI) of Cayman Islands and Yalelo Limited, a fish farming company incorporated in Zambia. Under the agreement the following took place: DBZ immediately acquired 1,245 preferential redeemable shares in Yalelo Limited at a total fully paid up value of K12,500,000,” the Report narrated.
“DBZ became entitled to fixed dividends of K4,000,000 in 2014 and K7,500,000 each year from 2015 onwards as long as the dividends were not above DBZ’s proportional ownership in Yalelo Limited. Where this was not the case, the dividend would be equal to DBZ’s proportional shareholding. The size of the Board of Yalelo was set at five members with a three year renewable tenure of office. DBZ became entitled to appoint one Director to the Board, while the rest of the Board members were appointed by LVFI.”
The Report revealed that Yalelo failed to generate and pay dividends to DBZ amounting to K17,250,000 as of November, 2018.
“On 25th August, 2014, the parties amended the agreement and agreed that DBZ would be entitled to a share of profits of K4,000,000 in 2014 and K7,500,000 each year from 2015 onwards. In 2015, the two parties further amended the agreement and provided that DBZ would be entitled to a dividend calculated at 23 per cent per annum of K12,500,000 payable every 31st July. DBZ invested in Yalelo Ltd to receive dividends on its preferred shares. Further, the amendment to the shareholders’ agreement made in 2015 provided that unpaid dividends would attract interest payable to DBZ at floating interest rate based on the DBZ kwacha lending rate. However, a scrutiny of statement of account for the month of November, 2018, revealed that the investment had failed to generate desired returns for the period under review,” the Report disclosed.
“Yalelo Ltd failed to generate dividends for DBZ in amounts totalling K17,250,000 as of November, 2018. Further, the unpaid dividends attracted interest receivable in amounts totalling K7,058,386, which also remained unpaid as of November, 2018. As of the same date, the total outstanding income receivable from Yalelo Ltd had accumulated to K27,183,386, contrary to the DBZ Investment Policy of 2015 that requires that DBZ should prudently hold investments that generate maximum returns.”
The report further revealed that DBZ understated the dividends received from Yalelo from 2013 to 2017 amounting to K7,475,000, contrary to provisions of the shareholders’ agreement.
“DBZ understated the dividends receivable from Yalelo Limited for the period from 2013 to 2017 by amounts totalling K7,475,000, contrary to provisions of the original shareholders’ agreement and its subsequent amendments. DBZ understated the share of profit receivable from Yalelo Limited in each year under review. As at the end of 2017, the understatement accumulated to K7,475,000, contrary to the provisions of the amended shareholders’ agreement,” it revealed.
And in a detailed analysis, DBZ’s Non-Performing Loans (NPLs) ratio revealed that the number of loans classified as “losses” had rapidly increased during the period under review.
“A review of the Portfolio Management Report for the month ended 30th November, 2017, revealed that 36 out of 91 loan accounts were categorised as losses. 15 customer accounts with total outstanding balances of K127,775,838, representing 24 per cent of the total loan portfolio were doubtful and loss accounts. This increased to 31 accounts with total account value of K235,231,830, representing 34 per cent of the loan portfolio in 2016. Further, doubtful and loss customer accounts increased to 36 accounts in 2017 with values in amounts totalling K237,791,373, representing 31 per cent of the total portfolio,” revealed the AG’s Report.
DBZ’s profit margins were equally found to be shrinking over the three-year period under review.
Profit margins express profits before taxation as a percentage of interest income.