Zambian Airways saga: follow the loans paper trail

Zambian Airways saga: follow the loans paper trail

By A Correspondent

THE gloves are off, the guns are out and blazing and the war is on. After enduring months of insults and bad reports, President Rupiah Banda responded with a rare but strong attack against his attackers.
President Banda’s attack was particularly targeted at Zambian Airways shareholders, who include Post editor, Fred M’membe, for their alleged part in the loss of US$30 million, some of which was taxpayers’ money. Mr Banda condemned the paper’s constant corruption allegations against his Government.
The Post is an institutional shareholder in Zambian Airways. Mmembe is one of the directors. Investigations have targeted the directors of the airline for causing the loss of $30 million.
The airline faces civil litigation aimed at recovering $30 million. Its chief executive officer, Mutembo Nchito, faces possible criminal charges ranging from fraud, theft, tax evasion, money laundering, and exerting undue influence on public officials to force them to authorise and release the loans.
The directors are facing charges under the law that are deemed ‘directors’ offences for false accounting to obtain the loans from the bank.
In an address to MMD cadres who marched to State House in support of his leadership, in the face of internal and external political attacks, President Banda stated that he would tolerate no nonsense from the party or cliques.
He charged that he is Republican President of Zambia and was now MMD acting president and would, therefore, not allow indiscipline in the party. To this effect, he fired two deputy ministers, whom he said, enjoyed wide coverage in The Post, for their purported good leadership. These were Lameck Chibombamilimo and Jonas Shakafuswa.
Mr Banda declared that he fought for national independence, and would not allow people’s freedom to be taken away by a clique. He demanded that the airline’s shareholders repay the $30 million they borrowed in questionable circumstances when they ran Zambian Airways.
The president may be excused for sounding so strong against the shareholders in question because of the large sum of $30 million lent to Zambian Airways even when it showed signs of insolvency.
Mr Nchito as chief executive officer of Zambian Airways, with the help of Ministry of Finance and National Planning, appeared to have targeted public bodies such as Napsa, ZSIC, DBZ, and ZCCM-IH. He also ignored obligations due to ZRA, National Airports Corporation and Napsa.
The airline was bankrupt. Its books were bad. The books were so bad that an expert termed them ‘crimson red’.
The airline had no assets of worth, and it had been running consistently at a loss for many years and was insolvent. Despite its insolvency, the airline obtained loans and acquired debts totalling over $30 million.
Investigations are revealing that the obtaining of a string of loans was tied to the campaign quoting a ‘wide range’ of people demanding for the Government to turn Zambian Airways into a national carrier, and these people found ready media coverage.
The loans were allowed to pass because of its underlying status in the country as a ‘National Airline’ or one to be converted as such.
Creditors were duped that the ‘Government’ does not need to provide security for any loan. The assurances were given that once the airline was turned and taken over as a national carrier, the Government would assume the debts.
The directors ran a vigorous and parallel campaign demanding that the Government takes over the airline (with its debts) and make it a national airline. The take-over by the Government would have disguised this fact.
In all this, no explanation was given how the previous loans were utilised and investigators will be interested to establish that the loans went into the airline.
How did the airline’s chief executive officer Mr Nchito do all this? How did he obtain loans from banks and financial institutions in the face of stringent banking and financial regulations? The answers to this question will be very revealing.
Take for example the $5.5 million DBZ loan syndicated and guaranteed with Investrust and Intermarket Banking Corporation.
The loan was reportedly obtained by Zambian Airways by offering two planes worth $200, 000.00 each but valued at $1.2 million by the airline itself. Despite showing marked features of bankruptcy, and therefore not eligible for such a loan, DBZ (a public company) and the two banks, disbursed the loan of $5.5 million to Zambian Airways.
By September 2008, predictably, the loan was not performing. DBZ board consisting of director general Dr Abraham Mweenda, board members S. Beyani, R. Phiri, A. Musukwa and C. Habasonda decided to place Zambian Airways under receivership.
The board recognised that Mr Nchito had provided very weak security and receivership was inevitable since the loan was not being serviced.
The airline’s chief executive officer is then reported to have called for an urgent meeting where he came up with an ingenious proposal; turn the debt with DBZ into equity. Let the bank buy the shares by turning what the airline owed DBZ into shareholding.
He is also said to have pledged to bring more external security to the company, downsize and restructure the management of the airline, and reduce on unprofitable routes.
He informed the board that he would bring a strategic equity partner and allow the airline to be managed by Comair or Airlink.
He also stated that the airline’s books would be ‘clean’ since Zambia State Insurance Corporation (ZSIC) was expected to inject a $4 million into the airline which would allow Zambian Airways to buy the leased planes and clear outstanding lease amounts. The ZSIC bid, however, eventually failed.
In October 2008, while the country was steeped in election fever, Mr Nchito was busy working on the conversion of the $4 million DBZ debt into equity.
The DBZ board had consistently opposed this restructuring of its debt. The board expressed unwillingness with such an arrangement, and part of the current investigation aims at establishing that undue political influence was then brought to bear on the board members.
The DBZ board continued to refuse to buy shares in Zambian Airways. The board insisted on recovering the $4 million due by retaining the debt structure.
However, there was a presidential election in the air, President Mwanawasa who was deemed to be friendly to the airline and its associates was no more. The potential successor, Ngandu Magande had failed in his presidential bid, the board chose to be prudent and excercised caution.
Mr Nchito, however, desperately pursued the conversion of the debt to shareholding structure to escape the intended receivership action by DBZ and avoid paying the loan entirely.
He informed the DBZ board that he was bringing on board his business partners and Zambian Airways shareholders, The Post. The Post brought to the table a reasonable proposal.
The Post apparently drew up documents to allow DBZ exit from the syndicated loan and committed and undertook to assume and settle the other loans that DBZ had guaranteed and was outstanding with Investrust and Intermarket Banking Corporation totalling $2.1 million.
Mutembo and Nchima Nchito and Fred Mmembe then drew up and signed a document called ‘Common stock Equity Facility’ to finally convert the DBZ debt facility Zambian Airways owed, to equity facility. At this stage DBZ were deemed to be Zambian Airways latest shareholders! And the Zambian Airways directors had managed to escape paying the $4 million.
Minister of Transport and Communication Dora Siliya, in her ministerial statement to Parliament stated that DBZ did not buy shares in Zambian Airways and had insisted that the loan was still outstanding and had to be paid back.
In effect, the Government deems this purported conversion of the $4 million to shareholding as illegal and constituting a blatant fraudulent activity.
The biggest losers in this matter are leaders of civil society groupings that were blindly used to prevent the investigations of $30 million loss, and undermined the good standing of their institutions.
The PF leader, Michael Sata has been caught wrong footed. He called for President Banda’s Government to “silence criminals in Government and not The Post” (The Post Feb 21, 2009). One would think criminals are criminals wherever they are.
The invitation for non-governmental organizations (NGOs) to run parallel investigations is a diversionary tactic to characterize these criminal investigations as a campaign to silence critical media. Sadly, even respectable institutions of professionals such as the Zambia Institute of Chartered Accountants (ZICA), were drawn in the defence of criminal activities, and may live to rue their rash reaction.
Law Association of Zambia, Southern Africa Centre for the Constructive Resolution of Disputes and Transparency International Zambia supported the parallel investigations.
Whilst the NGOs were active during the calls for the probe of Ms Siliya, there is a deafening silence over the disappearance of the $30 million.
It is even ironical that an organization such Transparency International Zambia formed to fight graft and theft of public funds could promote activities that might prevent the recovery of this money and are part of a charade to pervert the course of justice.
It is clear that the leaders of these NGOs are in an alliance that serves the interest, of those of their own clique rather than the interests of their members and the country. This smacks of double standards.

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