MASERU — The Central Bank of Lesotho (CBL) rejected two proposals by MKM that the company had suggested to get out of its mess, Finance Minister Timothy Thahane told parliament yesterday.
The proposals include suggestions to secure loans from banks to improve its liquidity and a take-over deal that the MKM had stitched with South African insurance firm, Channel Life.
The CBL found the proposals to be “unprofessional and lacking in substance”, Thahane said during an address to parliament.
The proposals came after the High Court and the Court of Appeal found that MKM, also known as Star Lion Group, was illegally operating banking and insurance businesses.
MKM first proposed to sell part of its properties to pay out depositors but the central bank rejected the proposal saying it lacked merit.
“The proposal was evaluated by the CBL and was found to be unprofessional and lacking in substance,” Thahane told parliament.
The proposal’s covering letter stated that one of the issues required to reinstate business to its good standing was “the handing back of the property of the members (money owed to the depositors) in terms of the agreement”.
“The specific agreement referred to was not disclosed but the amount of M502 500 000 was recorded as being the amount required to reinstate the business and hand back the members property,” Thahane said.
“Prior to making of the statement, Mr (Simon) Thebe-ea-khale (MKM director) had on several occasions, including under oath in court, stated that the amount owed to members was less than M100 million.
“There was no indication in the proposal regarding how the M502 500 000 that Mr Thebe-ea-khale was later admitting to had (sic) been made up or any reason why he had now conceded a new liability figure that was much higher than he had previously stated.”
Parliament heard that the CBL also rejected this first proposal because no investor would have wanted to buy MKM’s shares and its efforts to secure loans were unlikely to succeed because the company had holes in its financial books.
Thahane said even if the company had sold its properties it would not have been able to raise the half a billion maloti that it owed investors.
The sale of the buildings, Thahane said, would only have raised M110 802 705, a far cry from the M502 500 000 that Thebe-ea-khale had admited as the company’s total liability.
“No financial institution will lend the significant amounts of money the group would require to borrow to repay the members,” Thahane said.
“The Star Lion Group would have no way of repaying the loans as the money could not be invested in revenue generating activities, since the money would have been used to repay members.”
“None of the Star Lion Group businesses are profitable.”
After the proposal failed MKM submitted another one which included a takeover of the troubled company by Channel Life.
The CBL rejected that proposal too because it did not include a capital injection into MKM.
“Channel Life, in that sense, clearly did not want to be drawn into the existing liabilities of the group.”
Thahane said the CBL rejected the proposal because MKM needed money to pay back members but Channel Life was not prepared to inject new funds.
Channel Life was “not willing to accept unlimited exposures”, he said.
Thahane said Thebe-ea-Khale then hired a South African firm Oricle Investment Services to investigate the extent to which MKM was liable to investors.
The CBL rejected Oricle’s final report because it was found to be “completely irrelevant in that it did not address itself to the problem at hand and further failed to prove the extent of liability”.
“The Oricle report merely presented a classification of the products issued by the Star Lion Group,” Thahane said.
“Classification of the products has never been an issue at all.”
Thahane said MKM was supposed to submit its own version of its liabilities to the CBL but Oricle, acting on behalf of MKM, submitted irrelevant information that had already been overruled by the High Court and the Court of Appeal.
“An evaluation of the Channel Life and Oricle reports indicates that these companies were only interested in taking over the funeral business of MKM,” Thahane said.
“Furthermore, the reports claim incorrectly that most of the investors have already been paid by MKM. The credibility of this report is also questionable.”
The MKM case has been in the courts since the CBL shut down the company in November 2007 after alleging that it was operating illegal banking and insurance businesses.
The CBL argues that MKM was a pyramid scheme meant to fleece people.
It wants the troubled company liquidated but so far six High Court judges have shied away from the case.
Chief Justice Mahapela Lehohla has requested a South African judge, Justice Cagney John Musi, to hear the case.
The case will resume on November 22.
