Now that things seem to be stabilising at MK following its Annual Meeting of Shareholders and the appointment of a temporary Managing Committee with executive powers pending the nomination of a new Chief Executive Officer, ( as in the pre-2014 days waiting for NCR to come out of his proverbial lethargy and now familiar equivocation ), it’s time now for the Governor of the Bank of Mauritius to ask for a full audit of AHL, which has not yet published its audited financial accounts since its setting-up in August 2021.
As you are aware , Airport Holdings Ltd (AHL), is an entity owned 51% by the government and 49% by the Mauritius Investment Corporation (MIC), a subsidiary of the Bank of Mauritius, which acquired the majority of the company’s shares. BoM/MIC invested Rs 25 billion in AHL . Rs 12 billion was used to repay a loan that AHL obtained from the government and Rs 13 billion was used to buy up government’s shares in Airports of Mauritius Ltd (AML), Airport Terminal Operations Ltd (ATOL) and other related entities.
There should also be an enquiry on how the previous MIC Board of Directors approved the investment of Rs25 bn in Airports Holding Ltd (AHL) without carrying out a proper independent evaluation and how were the AHL shares valued and the doubtful accounting practices approved by Govt and the Ministry of Finance officials.
That should be our focus, these billions of rupees wasted rather than the series of juicy episodes of Pulse Analytics /Menlo Park that we are being served daily to divert our attention from the real issues of BoM and MIC.
In his interview to Mauritius Times on July 22, 2022, Sithanen, was arguing, along the same lines as the IMF Art IV reports , that “the BOM’s ownership of the MIC weighs on the BOM’s independence, blurs the separation of monetary and fiscal policies, and will likely contribute to higher monetary policy costs and/or higher inflation going forward” . He added that “Without a recapitalization of its equity and the Government meeting the cost of mopping up excess liquidity, the BOM will be incapable of conducting its monetary policy, fight inflation and defend the rupee. ….and concluding with this statement ‘‘There are also risks if ……the Bank of Mauritius does not act fast to control inflation and to raise its equity and reserves to conduct proper monetary policy.”
Yes, Mr Sithanen, what has changed meanwhile sine 2022, is BOM still not exposed to contingent risks ? Should not BOM demand a proper evaluation of MIC assets , including AHL.?
So, why this reluctance about conducting an independent audit of MIC (and thus AHL) ? Because public exposure of MIC’s bleak financial condition would apparently damage Bank of Mauritius (BoM) capital and credibility and adversely affect the rupee. .
So what’s the difference with the previous regime then? Both the previous Minister and the Governor were against changing the ownership of the MIC because it would have weakened considerably the balance sheet of the BoM by exposing it to high contingent risks and and leading to a Moody’s downgrade !
Does it mean Govt will have to continue with the same kind of lies and lack of transparency as its predecessor, same faking of GDP and budget figures, same overvaluation of MIC assets , same …just because our Governor is worried that the BoM balance sheet will see a very substantial hole if MIC assets are properly valued …
Recapitalization of the central bank is not a major priority. A lot of central banks across the world operate with negative equity. The concern about the BoM’s interests in focusing on short-term damage control on MIC conflicts with the broader longer-term interests of the country. Getting rid of MIC appropriately is an excellent means of shoring up credibility in the rupee, by demonstrating that BoM will never irresponsibly support fiscal profligacy ever again.
Moody's maintaining its Baa3 rating was a small respite .The disastrous State of the Economy will not disappear by continuing with fake growth and public debt figures and the overvaluation of MIC assets.
Public opinion supports a fully open, transparent, and independent forensic audit of MIC .
Let us start by AHL.
AuthorNote : Mr Ken Arian, the ex-boss of AHL is of no interest to us in our arguments in this post ; he is just a minor cog in the whole wheel ; we are more concerned about the true asset value of MIC assets. As Sameer has put it: MIC asset value ‘is much lower than currently priced on the BoM Balance Sheet. From massively overvalued land assets and convertible bonds which are busted to dodgy deals and to an insolvent MK and hence low AHL value , the mark to market of MIC assets would be large eg 30 pc at least if not higher. This would largely wipe out the equity of BoM which is largely positive anyway because of the weaker rupee.” That’s our main concern.
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Prak Nee
The only solution for MIC is to sell its 49% of shares in AHL to private investors who can be strategic partners in the management of subsidiaries like Air Mauritius. The Rs25 billion initial investment has already been reduced by an impairment loss of Rs1.7 billion according to MIC’s latest financial statement. The loss in value of shares will continue as long as AM is insolvent. It’s better for MIC to sell now than to incur a bigger capital loss. The only way to turn around AM is to privatize it with the State holding no more than 40% of shares. That’s the model being used in some advanced countries for national airlines. Air Canada, which was a crown corporation, was fully privatized in 1989. As a public company, it is well managed. By the way, the whole corporate model of AHL is wrong as I explained in a recent article in Mauritius Times.
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Sameer Sharma
Prak Nee MK shareholders equity is negative 11bn. At the AHL level this is also going to lead to negative equity. The 1.2bn impairment of mic investments and loans done in June by the previous lot is a massive understatement.
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Sameer Sharma
The true asset value of the MIC assets is much lower than currently priced on the BoM BS. From massively overvalued land assets and convertible bonds which are busted to dodgy deals and to an insolvent mk and hence low ahl value , the mark to market of mic assets would be large eg 30 pc at least if not higher. This would largely wipe out the equity of bom which is largely positive anyway because of the weaker rupee.
The problem is that the bom has a major asset liability problem with negative carry. In such a scenario where its expenses are continuously larger than its income and given valuation losses which are still not being carried out in the land of exotic accounting, a central bank with negative equity Rattan Chand would in the conexy of this context need to print money to fund its domestic liabilities such as monetary instruments. This is not a Swiss National Bank situation. Bom also does not have the same credibility to have negative equity and carry.
SNB typically has negative equity from the past but with positive carry
The reality is that the bom needs to bite the bullet, improve returns on int reserves post asset liability study and mic mark to market
So that it gets into a position where it can at least generate positive carry. It's cost of borrowings are higher than the returns at generates right now in international Reserves and the income it is generating from mic assets are extremely low versus the losses it will make so the situation is very bad which is why I believe they have yet to conduct this independent International audit and also there must be a lot of pressure from private sector players who are concerned about all of this which is why the only solution in the end also does require some kind of windfall profit Taxation and all the winners of those Hadley priced bailouts they need to help the contribute to fix this economy we can just expect that magically things will improve by putting people there at the bank of Mauritius that has to be the fiscal side that takes a hit and the prime minister of the country must sit with the private sector and say enough is enough you have gotten too much we have bent over backwards for you and now you need to help us stay down our problems which is essentially going to be a Readjustment because they got too much and we gave them more than we could afford and now we need to bring this somewhere back in the middle again and they need to pay a bit for it through a windfall profit tax
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Manjeet Allock
Chicken and Egg situation….The private sector wants the most profitable part of business whilst the MIC/GOVT wants to offload the sinking businesses….this is a totally irreconcilable scenario…in any case why would ‘they’ offload a profit making business ? and why would the private sector burden themselves with insolvent and sinking businesses? This type of privatization exists nowhere….Several years back the PPP Act and the BOT Act were enacted….I don’t know how far this is correct but one website mentions not a single business was captured under either the PPP Act or the BOT Act. Is this true? Hope we can get the right answer….Few weeks back I mentioned in one of your posts that those international institutions that bails out require some form of privatization….and I immediately followed by saying that there was only ONE WAY out to save this country….Though I never mentioned ‘Privatization’ as such many assumed that was what I meant….What I had in my mind was something more than that, not Privatization per se…..but which makes a huge difference between a developing country and a developed country….
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