(Published in MTimes 29 03 2019)
The Report of the Director of Audit on the accounts of the Republic of Mauritius for the financial year 2017/18 provides a good deal of information that makes it possible to estimate the cost of dismantling the BAI Group.
NPF
The National Property Fund (NPF), a state owned company, was set up in 2015 for refunding holders of Super Cash Back Gold policies of BA Insurance, a core company of the BAI Group, and investors of Bramer Asset Management (BAM), also a member of the BAI Group. To further this objective, NPF took a loan of Rs3.5 bn from the Bank of Mauritius (BOM) in June 2015.
It was then considered as a bridging loan (i.e short term) by BOM, but it turns out that the loan is now payable in a one bullet repayment of capital and interest in June 2022 (i.e, 7 years later). Accrued interest at June 2022 will amount to Rs0.9 bn, so the total amount to be repaid by NPF in June 2022 is Rs 4.4 bn (3.5+0.9).
The NPF took a new loan of Rs6.4 bn from SBM Bank (Mauritius) Ltd in Sep 2017. The loan repayment date is not mentioned in the audit report, but the loan is most likely to extend beyond 2019.
The debt liabilities of the NPF from both BOM and SBM currently stand at Rs 9.9 bn (3.5+6.4). Including accrued interest, the total NPF debt exceeds Rs10 bn.
Maubank
Maubank Holdings Ltd was incorporated in Sep 2015 with an equity investment of Rs1.6 bn by Govt for onward equity investment in Maubank Ltd, which was set up to take over the merged activities of Mauritius Post and Cooperative Bank and National Commercial Bank (NCB). NCB took over selected assets and liabilities of Bramer Bank, a member of the BAI Group, after BOM revoked its licence in April 2015.
In 2016-17, Maubank Holdings Ltd took a loan of Rs3 bn from SBM Bank (Mauritius) Ltd, guaranteed by Govt. At Oct 2018, Mauritius Holdings Ltd could not refund the SBM loan, and got an extension of the facility for another 2 years.
The liabilities of Maubank Holdings Ltd in respect of both equity injection by Govt and debt currently amount to Rs4.6 bn (1.6+3.0). These financial obligations shored up the bank’s solvency, serving mainly to resolve the capital and liquidity issues stemming from the closure of Bramer Bank.
Cost Estimate
The liabilities of both the NPF and Maubank Holdings Ltd total Rs14.5 bn (9.9+4.6). Inclusive of accrued interest, the total amount of equity invested by Govt and of debt, to cover repayments to holders of BAI SCBG policies and BAM investors and to fund the solvency gap arising from Bramer Bank, is around Rs15 bn.
This figure of Rs15 bn represents a measure of the current outstanding cost of dismantling the BAI Group. The public has already borne a small share of this cost, namely by a Govt capital injection of Rs 1.6 bn in Maubank. The major part, or Rs12.9 bn, represents loans to be repaid in future to SBM Bank and BOM. In addition, interest on the debt will be payable. In all likelihood, the public will have to bear this burden by way of additional Government equity investments.
The proceeds from the sale of shares of Britam Kenya, held by the BAI group, for Rs2.4 bn in 2016, were also used by the NPF for BAI repayments. The current gross cost of breaking up the BAI Group is thus higher, or Rs17.4 bn.
NIC
Further disposal of assets held by the NPF will serve to meet loan repayments, and bring down the cost of the BAI breakup. The market valuation of NPF assets is however highly uncertain. Moreover, the financial situation of the National Insurance Company Ltd (NIC), which took over part of the liabilities and assets of BA Insurance in 2015, is giving rise to serious concern.
Audited annual financial statements have not been produced by the NIC, and it is doubtful whether NIC is complying with the insurance regulatory requirements of the Financial Services Commission. The valuation of the NIC’s assets, especially of the Wellkin (formerly Apollo) hospital property, held through a NIC subsidiary, was recently questioned by NIC auditors. In response, NIC kicked out E&Y, an accounting and auditing firm ranking among the top 4 global firms, to be replaced by a lower tier, but probably more docile auditing firm.
It is critically important to conduct a proper actuarial evaluation of the NIC, and especially of liabilities arising from BA Insurance policies transferred to NIC.Otherwise, apprehensions about the adequacy of NIC’s actuarial reserves and of its solvency will continue to be entertained. It appears most likely that Government will have to strengthen NIC’s financial position with a capital infusion.
Final Cost
While the sale of the NPF’s remaining assets will reduce the BAI dismantling cost, a capital injection by Govt in NIC will raise it. Without more detailed information, it is not possible to state what the net effect will be. However, it can be reasonably estimated that the cost of the BAI debacle has already exceeded Rs15 bn, and could well reach a final amount of Rs20 bn.
Coping with the consequences of BAI busting has contributed to the significant deterioration of the public sector debt ratio from around 60% of GDP in Dec 2014 to 65% of GDP in Dec 2018. And the public will be footing the bill in the coming years, after having been fed with illusions of high returns from the outright sale of NIC, Maubank, Apollo Hospital, and other BAI assets.
While the N’Tan Report considered that BAI operations were akin to a Ponzi scheme, the observed financial fudging in relation to the public cost of closing down BAI comes close to portraying similar features.
