Financial Investment Bank is a young institution. What were the reasons behind the creation of the bank?
Sudan took a step towards the establishment of the capital market long time ago, but it is only in 1994 when the Khartoum Stock Exchange was officially established and started the business that it really took off. There must be some sort of other institutions like merchant banks and brokerage companies so that we can activate the business in the capital market. When the market started it started with few number of companies supposed to be public listed companies, the problem was that they were not strong enough, and in 1997 the present Minister of Finance, who was chairman here before, and myself, decided to establish this bank. It took some time to make the studies and to make contact with the government, some businessmen and some banks as well as with the central bank to draft the idea, to negotiate, to discuss and to convince different people. We called a number of people to participate in the bank and finally we succeeded in establishing it; we resumed our activities some time in 1998 like any merchant bank. Its role is mainly to work on financial products in the stock market, so trading in shares, fund financial products and establishing public listed companies and put them in the first market and then in the secondary market. So, this was the main activity with which we started our business. We were also involved with the government in the privatization of the public enterprises, but it took us a long time to convince the government to trust this bank to do this job because before the government used to do this through technical committees to study the project or enterprise and to evaluate and to propose the procedure for disposing of it and so on. But now, since we established the institution stock market and this bank, we can do the job in the proper way from the inception of the idea, evaluating the enterprise, conducting whatever studies to put it in better shape for marketing need and assessing performance, preparing something like a due diligence report, come into a network and proposing a new setup for the enterprise in a sort of public listed company, and proposed the participation of the government in this new company using the assets of the previous enterprise and privatization, and calling new founders in that you can start the public company and then later on put the shares in the stock and finally goes to the secondary market in the stock exchange.
At the moment, we are working in 2 projects: Free zones is one of them, and what we called Roads and Bridges Company. This is a 50 years old institution, and 3 or 4 years ago it was transformed from a public corporation into a private company owned by the government. The process will be over by Saturday when we receive the final registration of the new company; we have already gone to the founders and by next week we will call the first meeting for the founders to sort of elect the board of directors and go to the public listed in the stock exchange. We are also working in a number of other projects; similarly we have some private companies that came up seeking for advice and assistance to move from private family companies to public listed. We also managed a sort of placement of new shares for companies and banks. We have done this twice for Sudatel, and once for a company and once for a bank. We also established new public listed companies by putting some money into these companies and called for founders. We have established a leasing company almost finished now; the capital is paid and we expect that within a month time it will start operating with his board of directors and managers. We initiated the idea from here; we take the initiatives and call people, we convince them and if they accept the idea, as a bank, we put some money with them and then promote the idea, get the founders and make the company. We have in mind 3 or 4 ideas and we hope before the end of this year at least 2 or 3 of them would be realized.
What is the shareholding structure of the Financial Investment Bank?
Shareholding structure is widespread. The public or the government only participate in this bank through the Central Bank. The later hold something about just under 30%, and SDC less than 5%; the rest is private holdings, companies, banks, individuals, etc.
Why have private investors been cautious and even reluctant to invest in the stock exchange? Have you managed to attract investment from the private community?
Our bank actually manages about 85% of the business of the stock exchange. There are other four companies working as brokers but we do almost 85%. We have other products that are very attractive to the public and give them confidence in us . We manage about four or five funds; for example, we have a fund called the fund of Sudatel shares. Sudatel shares in the market are about 4200 dinars something that not everyone can afford; so we made a fund of 900 million dinars. Actually we started with 300 million dinars and the bond for this is 500 dinars, so when we announced the people came up and bought 3 times the amount, because for 300 million the bought 900, 500 dinars per stock, we bought Sudatel shares with this money and both Sudatel shares are in the secondary market and core bonds are in the secondary market. This started some time in early Nov. 2000, and at that time people bought our bonds of 500 dinars. At that time, I think, Sudatel shares were about three thousands and seven something dinars, nowadays our bonds in the market rate at 575 dinars, they made 50%, and Sudatel shares when we sell we will sell it at 4200 plus Sudatel dividends was 31% , so the one who bought this one will get more than 31%. Last year we did the same: Sudatel shares were 39% our people got from the bonds after the commission we got 44.5%, it means if you bought 2 bonds last year of 1000 we will pay you at the end when we finish with the fund 1445 dinars. Interestingly enough, about 45% of the people who bought these bonds were ladies, students, workers and young employees, and the other 55% were institutions, banks, companies.
What did you do to have this success among this new clientele?
It's a new idea and the people here say anything new has its own flavor; people here are very fashionable, they like the new things and they like to try the new things and if it is successful then to proceed. In addition, we have what we call private portfolios. It started first time in 1999 when someone gave us 50 million SD, about 200.000 USD. He said: ok, make a private fund for me, use it in any basket of shares and bonds, and he knew that we would take 50% for management; in 8 months he got about 40%. This started in 1999, today we have 21 private portfolios like this, we make list of the companies, for example this is one of the portfolios, we have 11 companies for this portfolio all of them listed in the stock exchange.
What criteria do you follow when operating a fund?
We have a very strong financial analysis department; for every day when the stock market close they make this report to me and all departments, every portfolio has a basket of companies; so they make the analysis regularly, they follow the movement of the market and the shares, they make advises and take decisions.
You mentioned before that one of your goals is to persuade the traditional family business. What interests do they have in going public, is it to raise capital, is it to introduce more professionals into the company? And how are you approaching these companies, could you also name some of the companies you are interested now?
It is not easy to mention them, but I can tell you what is the objective behind going public. One of the strong reasons of going public is that it is easy and more rewarding for them to get financial resources from capital market rather than from banking and this is very clear. Actually most of those people who came to us are producers mainly in the industry; only one of them is in the agriculture field. Their problem is mainly in getting finance to rehabilitate their production facilities. So far, according to the local policies in the banking system, banks are not allowed to give finance in foreign currency or even accepting foreign facilities with guarantees from local banks for a period of more than one year. Very recently the Central Bank amended this policy and extended the period to 3 years, and before it was not allowed for capital goods, you could get it for working capital inputs for production, so this is one of the reasons if you wanted to raise a capital for capital goods it was not easy. The second reason in most cases is the social structure. Here traditionally we call Amid Elosra to the dean of the family. He has everything in his hand, he is the leader for his youngest brothers in the business and when he dies the brothers would be in critical position; so, some of the new generation, who are relatively educated and sophisticated suggested to establish institutions where everyone know its just shares from the family and if you go public this make it more transparent by law. By law a public listed company has to be very transparent has to issue all its accounts, policies, everything to the stock market. Family business is not required by law to do that; this is one of the reasons also, some of them may be seeking some sort of technical know how or management capabilities realizing that the competition is now in the market and the country is moving towards free market economy and opening its doors to competition in everything; so they may have realized that they are not capable enough to stand this competition. As you can see, there are many reasons; there may be other reasons but definitely everyone has its reasons.
| In a country like Sudan, access to information is not easy at all and this is probably one of the main reasons why the private companies are reluctant to go public. What do you think is the solution to that problem?
This is actually the main difficulty we are facing because if I want to promote a company I have to have full information about it. This is not a secret taxation, it is everywhere in the world. If I'm asked to make a proper analysis, I need your final accounts for the last 3-4 or 5 years. If I am given the official accounts which were sent to the tax department, the company will be unmarketable because it would reflect very little profits or sometimes loss. How can I promote company which make losses or very little profits? There are other issues, but generally speaking it's not an esay process.
Could you elaborate on your financial performance and expectations?
We started small with a capital of 1 billion SD, which is just over 4 million US dollars. We have completed 2 financial years 1999 & 2000. In 1999 we made very little profit, in 2000 we made good profit, we make 26.6% and we took dividends 50% and returned the rest; many people showed interest in this bank some of them foreigners. Last month, we raised our capital five times: it was 1 billion and now it is 5 billion which is over 20 million US dollars.
We have some people interested in the bank; we are very confident that these people will at least take 50% of the new increase, all the existing shareholders by law are entitled to 50% of the increase, but I don't think that would happen a sizable part would be taken by them, and in other way we are going to call for new shares some time early July. So, out of this new 4 billion I'm expecting to call 3 billion and I'm very confident that at least 70% of this will be taken by existing and new shareholders.
You mentioned you were having talks with foreign investors. How do you approach those investors, and how important are the Asian markets for you?
Actually, since we started, we had some sort of connection with institutions somewhere around in the region. The Minister who was the Chairman and myself have also personal contacts with many institutions, businessmen and organizations. Wherever we travel we talk about this bank and we tell the people this is a new bank, unique in a sort of what we call emergent market, Sudan is an emerging economy, so some people respond positively. They showed some respect, they said ok, even some of them came here and met us and have a look at our track record and books. Now, we have funds for Sudanese export and we may have something for housing. We are studying ideas like this one; we are also studying ideas for public transport, we are also studying ideas with some institutions for syndication, for some infrastructure projects, in this case our role will be to be a catalyst. I'm not going to be in a financial position to participate sizably, but we can act as a promoter or coordinator.
Since you have undertaken a role that was not played by any other institution previously, provided promotion in the capital market and worked in different projects and feasibility studies, what would you say are the reasons for our readers, and potential investors to approach you when thinking of investing in Sudan?
One of our roles is financial advice and investment consultation; we may not be well based in direct investment consultation if the investor come here and say:" I want to put my money in investment, what do you advice industry, energy, transport, agriculture, animal production?" As a bank we may not be the agency that gives the best advice, but as individuals we are ready to any suggestion and willing to work with you. As a bank, we established very recently a department giving investment directives. Whoever comes here we can give him a quick general advice within 2 or 3 month time, but if he wants to go into details for direct investment projects then definitely he must seek other consultation. On the other hands, if he wants to do investment in financial capital market then this is the place for him.
You served 11 years as Finance Minister, now you are involved in many private activities and you are member of the board of directors of many companies. Could you give us a big picture of what is today the role of private institutions in Sudan and your focus for the future?
Of course the pledge of the government started in 1992, that was the time when we started to implement free market economy. A society like ours has endured different regimes, and before this government came to power the socialist totalitarian approach of the government was very dominating, so to transform people from this to another completely opposite approach is not easy. There was some sort of opposition even sometimes from the politicians and the ministers themselves, because when we started this program we started with the program for privatization from Aug.1990 until Feb. 1995, and most of privatization including Sudatel was done during this period; we faced very strong opposition but we were very strong against them. The country was facing political, regional and international problems, but we were very adamant about it. Fortunately since the government decided to go into this policy, it never changed its mind. So if they were patient all this time against all odds from 1992 up to 2001, I can't imagine how they would go back after this long experience considered as a successful one. So I think for this policy of free market economy the government is definitely not going to change its mind. They may face difficulties, and the main difficulty is not in taking the decision, but in the mentality of the people who implement the decision. I don't think there will be any changes and the country is still welcoming private initiatives. Last December, I think, the government issued IPP act and now the Minister of Finance is issuing sort of directives which are going to be indorsed for means of doing this in other sectors. So every now and then there is a step forward and I don't think people will go back unless something abnormal takes place; moreover the fruits of this policy have started to grow, now the exchange rate is fixed and the inflation is 1 digit, that's why now you can establish the leasing company: I sell this to you today and you pay in 3 or 4 month no problem. But last time there was a joke, they said that a child was sent by his mom to the shop to buy something in the morning. She gave him the money and when he came back in the evening for the same thing they said: no go back and bring some more money. Then he came back to his mom, and she was angry, she went to the shop and she said you are cheating my son, he said no that was the price at that time and this is the price at this time. But now it is very stable !
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