Credit Suisse suppressed valuation of Ematum assets – AIM report

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Credit Suisse suppressed valuation of Ematum assets – AIM report

5:33 CAT | 08 Nov 2019

File photo: Folha de Maputo

The bank Credit Suisse suppressed key information from its own independent valuation of the assets of the company Ematum (Mozambique Tuna Company), and so this information was never disclosed to investors in the 850 million dollars worth of Ematum bonds (known as LPN – loan participation notes) issued on the European bond market.

Ematum’s fishing boats and other assets were provided by the Abu Dhabi based group Privinvest, and the valuation ordered by Credit Suisse showed that they were vastly overpriced.

Giving evidence for the third day in the New York trial of Privinvest sales executive Jean Boustani, a former Credit Suisse director, Surjan Singh, said that the price on the invoice for each of the boats was 22.3 million US dollars.

The same price was being charged for each of the 21 longliner tuna fishing boats, the three trawlers that were to catch bait fish, and the three trimaran speedboats.

According to the transcript of Thursday’s proceedings in the New York court, Singh said this uniform price led to concerns at Credit Suisse, which commissioned independent valuations of the vessels.

In January 2016, a company called English White valued the fishing boats, and determined that the price should be between 10 and 15 million dollars per boat – over seven million dollars less than the price Privinvest had charged.

A second company, Renaissance Strategic Advisors, looked at the trimarans, and estimated their true value at between 19.39 and 22.29 million euros (between 21.4 and 24.6 million dollars) – so not wildly out of line with the invoice price.

Singh said that, based on the valuations obtained by Credit Suisse, the 27 boats were only worth 435 million dollars, rather than the 602 million dollars on the invoices.

When the other known costs of Ematum were included, the price rose to 584.6 million dollars – far short of the total loan of 850 million dollars that Credit Suisse and VTB of Russia had provided to Ematum.

This calculation, however, takes the higher end of the valuation of the boats. If the lower end is taken, the true cost of the boats is 306 million dollars, and the total Ematum costs are 455.6 million dollars – almost 400 million dollars less than the Credit Suisse/VTB loan.

This should have posed a serious problem for Credit Suisse, since it was considering the swap of the original Ematum bonds for Eurobonds that would be issued by the Mozambican government. The investors in the Ematum bonds had no idea that their money had not gone towards buying fishing boats, and Credit Suisse did not tell them.

Singh said that the Credit Suisse reputational risk committee looked at the information on the boats’ true value – and did nothing with it. The bond exchange went ahead despite the shortfall in the value of the boats, as indicated by the independent valuation.

Asked whether Credit Suisse had disclosed this information to the investors, Singh replied “Not as far as I’m aware”.

Credit Suisse was more worried about the impending payment of interest and principal on the loan. Singh said that, since Ematum was not making any substantial revenues, it would not be able to service its debt. Swapping the Ematum bonds for the Mozambican government Eurobonds was the way out of this problem.

But an internal approval process was required at Credit Suisse, and Singh admitted this could not have gone ahead had it become known that he, and his superior at the bank, Andrew Pearse, had received kickbacks from Boustani.

Singh thought it “extremely unlikely” that the bond exchange would have gone ahead if the relevant committees in the bank had known about the kickbacks.

The holders of the Ematum bonds were asked to exchange then for the government’s Eurobonds, and most did so – but they did not have full information, since Singh and Pearse successfully kept Boustani’s kickbacks a secret.

Singh confirmed that the illicit payments were never disclosed to the investors.

Source: AIM