Due diligence investigations

“Due diligence investigations comprise special

investigations to provide assurance to the parties
involved in a transaction”

Required:

Your client has requested you to perform a due diligence

investigation on Kingdom Bank and recommend whether
or not to invest in that bank. In your report include
matters like procedures and areas to follow to
substantiate your recommendation.(20 marks)
 Due diligence investigations comprise special
investigations to provide assurance to parties
involved in a transaction.
 In the context of the Zimbabwean capital
market, it simply refers to the process which
persons must conduct enquiries for the
purposes of timely, sufficient and accurate
disclosure of all material statements /
information to potential investors, so as to
enable them to make informed decisions.
 Commercial due diligence –review of industry,
market, and business model of the issuer.
 Reputational due diligence – review of credit
worthiness and reputation of individual
counterparties.
 Financial due diligence- review of tax, financial
position, policies and internal controls.
 Legal due diligence – review of documentation to
identify potential legal issues that may be
risks/impediments to the (i) transaction or(ii) in
the general operations of the issuer, that may affect
the value or consideration in connection with the
transaction.
The following areas where covered during the
investigations:
 Background

 Services offered

 Reputation and Experience in Business

Community
 Financial Performance

 Legal Issues

 Corporate Governance
 Kingdom is a registered Commercial Bank in
terms of the Banking Act Chapter 24:20 .
 Founded in 1997 by N. Chanakira who still sits
on the board of directors and until recently was
the major shareholder.
 Changed its name from Kingdom to AfrAsia
Kingdom Zimbabwe Ltd in 2012.
 Normal banking services
 Ebanking services
 Kingdom cell card
 The Kingdom Gold and Green MasterCard
 Kingdom Unit Trusts
 Funeral Assurance Services
 Insurance Services
 Chanakira’s Kingdom Bank entered into a merger with Meikles to form
Kingdom Meikles Africa Ltd (KMAL) which also included Tanganda and
Cotton Printers in 2008. The merger only lasted for 18 months after major
differences between Chanakira and Moxon emerged, leading to the
proposed de-merger which resulted in the company struggling to raise
new capital and investor confidence was low.
 KMAL got caught up in the cross-fire that ensued from the use of Old
Mutual (OMIR) shares in the determination of the parallel market
exchange rates, resulting in the annulment of an earlier approval for the
KMAL shares listed on the London and Zimbabwe stock markets to trade
across bourses.
 After the demerger from Kingdom Meikles Conglomerate the bank hit a
grey patch as instability settled in within the bank as client flight was
characteristic at the bank.
 The situation was further worsened when a banking crisis hit the
Zimbabwean banking sector which saw banks like Royal and Genesis
Bank ending operations as they had failed to meet the capital
requirements as stipulated by the Central Bank.
 Clients and depositors lost confidence in the bank
which forced them to settle for other banks like the
Commercial bank of Zimbabwe which was more
stable and had long met the capital requirements
stipulated by the central bank.
 To resuscitate its corporate image, management
came up with the Cell Card initiative to attract
depositors to the bank.
 The company further sold 35% stake to AfrAsia for
$9.5 million in a desperate move to meet the
capital threshold set by the Reserve Bank
RATIO 2012 2011

Return on Capital Employed 3.6 % 5.88%

Profit before interest and tax $1 948 616 $ 2 783 115

Sundry Debtors $2, 091, 132 $1 864 844

Sundry Creditors $3, 057, 936 $2, 456, 299

  AfrAsia Kingdom Zimbabwe Limited vs Thompson Mpinganjira Trust
and Old Mutual Malawi
AKZL is in the process of disposing its 38.15% shareholding in FDH
Financial Holdings Limited (incorporated and domiciled in Malawi). AKZL is
in the process of resolving the outstanding issues with the Malawi based
shareholders through the courts with a view to obtaining a fair return from
the disinvestment.
 Kingdom Workers Committee vs. Kingdom Bank Limited
Kingdom Bank Limited appealed to the Supreme Court against the Labour
Court ruling ordering the Bank to pay US$490 000 in alleged arrear salaries
emanating from an National Employment Council ("NEC") Cost of Living
Adjustment ("COLA") award of 2009.
 Kingdom Bank Limited vs. Saturn Trading Investments Limited
Kingdom Bank Limited instituted proceedings against Saturn Trading
Investments (Private) Limited for the recovery of US$900 000 owed to
Kingdom Bank Limited through various corporate finance structures. The
matter is still to be heard at the High Court. The directors are confident that,
based on the facts, the claim will succeed.
 The board of directors comprises 24 members, of which
7 are executive directors and 17 are non- executive.
This is in compliance with the King 111 corporate
governance code, which is adopted in Zimbabwe due
to the absence of a home-grown code.
 The company has an audit committee, consisting of
four members with the necessary expertise. The
Chairman of the board is not part of the audit
committee and this again is in compliance with the
King Code.
 Other committees in the company include Risk and
Compliance Committee, Remuneration and Directors’
Affairs Committee, Credit Review Committee, Credit
Approval Committee and Information Communication
Technology Committee.
 From the results of the above investigation a
conclusion was reached that AfrAsia Kingdom
Zimbabwe Ltd would not be a worthwhile
investment destination.
 The following were considered in reaching the
decision:
 Stiff competition being faced by the banks
products offered by the bank (Cell Card)
 Bruised corporate image after the KMAL
demerger
 Challenges in meeting the minimum capital
threshold requirements set by the Central
bank