Socialising the corporates at taxpayers's expense

The Mauritius Investment Corporation (MIC), a subsidiary of the Bank of Mauritius, has committed its first billion rupees from its War Chest of Rs 80 billion. The first beneficiary is in the tourism industry, is Lux Island Resorts ltd. The financial envelope is Rs 1 billion through the issue of redeemable and convertible bonds having a nominal value of Rs 10 million with a maturity of nine years.

Lux Island Resorts will have the option to redeem some or all of the Bonds any time prior to maturity. At maturity, any outstanding bonds will be converted into ordinary shares of the company at a pre-agreed valuation. This approved price represents the average of the quotations on the stock market for the period from January 1 to June 30 of this year. Shouldn't government allow the market to find that price before it steps in to socialize corporate distress at taxpayers’ expense ? With such an extended loan maturity of the bonds, the equity conversion prospect appears most unlikely. The callable feature,i.e., redemption at any time by Lux, also adds to making the equity conversion quite irrelevant. These bonds are low ranking in security. The MIC is in effect bailing out Lux with a long term loan, although the interest rate is not known.

The funds put at the disposal of Lux Island Resorts Ltd will be used to meet working capital requirements as well as the repayment of interest on loans contracted with commercial banks.

Given that Covid-19 has foregrounded vulnerabilities in the banking sector which had been fighting gargantuan bad loans on the one hand and slackening credit offtake on the other, these Big Boys of the tourism sector, to make up for the shortfalls in funding from the commercial banks, have no alternative but to have recourse to MIC.

Our Big boys of the hospitality sector don't pay that much taxes as there are always renovating but do get big checks from the government. And the MIC ,which is supposed to invest the assets under its management to secure key basic necessities , support higher long-term growth and build a savings base for the citizens of Mauritius, is it ensuring that appropriate and strict terms and conditions prevail such that the spoils accrue to taxpayers?

IT SHOULD START BY BEING TRANSPARENT AND ACCOUNTABLE ABOUT ITS INVESTMENTS AND ITS RESULTS.

Once the economy and the hotel industry recovers, the big players of the sector ,with the help of their long time backers, the MCB , will be repaying back the cheap loans . We end up subsidising the corporates and what are we,taxpayers, getting back in return for our assistance ? Why are these companies, which have failed to build up cash reserves and have mostly relied on debt, being rescued when the SMEs , that employ many more workers overall , aren’t ? Why are the big businesses get a helping hand at taxpayers’ expense while the average Mauritians are mostly left to fend for themselves or given a mere pittance ?

Privatize the profits, socialise the losses - it’s another form of our crony capitalism

14Raj Ramlugun, Harish Chundunsing and 12 others

2 comments

1 share

Like

Comment

Share