Goldfinger coming back from hibernation has affirmed that BAI was a “disaster waiting to happen” …He accused the BAI group of having ‘plundered investors’ and asserted that he believes that Dawood Rawat's demand for Rs 100 billion will not be met. Trusting the justice system, he argued that Rawat would not be fortunate enough to get even ‘one rupee’. On the contrary, he said, the government should ask him to pay back the money spent to save the country. There are different versions of the whole narrative of the BAI saga ; a very emotive subject given our special context of acute political partisanship and occasional outbursts of identity politics.
There are many who agree or disagree on the persistent liquidity and regulatory capital shortages , the political leaning, the insatiable desire for material gains, the policy of forbearance that was being carried out, the related party transactions , the Ponzi-like schemes, the revengeful bursting of the bubble and the vindictive dismantling of the BAI group, the absence of a clear rescue plan, the role of the traditional economic elite and the role of KPMG and PWC in the BAI saga and so on….
Some will display para 28 from the IMF “Financial Sector Reforms” of 2012-
"A number of issues have arisen with respect to a particular conglomerate and which could arise in other cases. The 2007 FSAP Update report referred to a single insurance company with a substantial proportion of its assets invested in related companies and emphasised the need for this issue to be resolved. The mission found that the issue had not been resolved. The authorities have observed the issuance of single policy premium life insurance products by this company. These policies attract high bonuses and can then be cashed in. The FSC notes that such products have some of the characteristics of investment products, and the BOM suggests that they also have some characteristics of time deposits. It is important that the appropriate regulatory requirements should be applied, regardless of the name of the products. In addition to these problems, the FSC was concerned that a banking license was given to a company in this same group by the BOM without proper consultation with the FSC, notwithstanding the issues described above. These issues have been evident to the authorities for some time. The failure to address them could be explained by the limited capacity of the FSC and the inadequate cooperation and coordination between the FSC and the BOM. Although the group may not pose a systemic threat, the issues are potentially serious for the policyholders, depositors and investors and the weaknesses that allowed the problem to remain unresolved for so long, could also result in more serious failure of a systemically more important institution."
Or the following from 2015 IMF Article IV consultation:-
“The recent collapse of the BAI financial conglomerate highlighted weaknesses in regulation, consolidated supervision, crisis management and resolution. Although the authorities succeeded in averting a systemic crisis, the lack of an ex-ante bank and financial resolution regime and of an explicit deposit insurance scheme (DIS) translated into substantial fiscal costs and potential moral hazard. This episode also highlighted issues of regulatory forbearance, political leaning, and coordination problems among financial regulators. The consultation discussions noted the systemic importance of mixed conglomerates, of which several banks are part, highlighting the importance to upgrade consolidated supervision and cooperation among regulatory agencies—in particular between the BoM and the Financial Services Commission (FSC).”
Observations that go beyond the BAI saga to show the failures of the regulatory institutions of the then Labour government. It was the govt of the day that failed us . (It had encouraged a population of Zougaders !) We have not improved much since especially in the digital, e-business and crypto-assets transactions !
But who cares , because we seem to be more concerned about whether the BAI group posed a systemic threat or not to our financial sector and economy !
Some argue for a yes , while others disagree. We agree to disagree , that’s the GREATNESS OF OUR DEMOCRACY !
No more comments ; let’s leave it to Justice to decide.
“Fiat justitia, ruat caelum”
Sameer SharmaInvestments made by the group including to related parties were not liquid while promised returns in investment products such as super cash back gold could not be sustained beyond paying with other client inflows given the liquidity situation.
Ponzi is one term and I don't know if I would call it that but I would rather call it Regulatory failure allowing the bai investment portfolio to be overly illiquid and the lack of clear rules to prevent investments in related parties. Many investments were not generating the returns and cash flows needed to refund. Some investments were still cash flow drains vs generators because they were still in the early stage of the J curve.
Liquidity risk being high and not being managed leading to insolvency was a risk factor with this group. As long as inflows came, they could sustain but in any time of shock, they would have faced major issues. The regulator should have worked with the company to force it to change its ways esrly on vs the whole drama show and it's all about patronage politics. We don't have strong and independent regulators
In a nutshell retail investors were unknowingly investing a large share of their money in iliquid assets. The investment portfolio was overly concentrated in illiquids which would mean it would fail during any stress scenario. That's the reality of it. That's not ponzi that's just bad portfolio management and clueless regulators who viewed a certain group as being close to the powers of the day and let it be vs pushing it to change its ways. Other conglomerates also knew about the weakness ie liquidity profile of the group and lobbied aggressively to push things over. MAURITIUS is a dirty place with a rotten system and oligopolies don't like others to grow as well. The story is multi faceted .
The group would still be here today if we had done that
Nalini BurnSameer Sharma agreed. Remember reading the IMF at the time. But then they are often influenced in a country where they don't have as much influence... And the other aspect is the political economx of the other incumbent conglomerates who have and still influence markets. And did not want the upstarts and snapped up the asset stripping goodies...
Prak NeeVL is the wrong person to say it was a Ponzi scheme. He was not and is not a financial expert. He acted politically as MOF to dismantle BAI to suit a political agenda set by his masters. Let the judiciary decide based on evidence whether it was Ponzi or not. In previous posts, I have said that our regulators (BOM and FSC) failed to take timely measures to regulate related party transactions within a corporate group. Instead of regulation, they dismantled a whole corporate group and sold its assets at bargain basement prices. That’s not the way to act in a democracy based on the rule of law. Expropriation of private assets without compensation is an autocratic measure under any circumstances.
AuthorU are right in acknowledging that the regulators of the Navin regime failed in taking the appropriate regulatory measures allowing the bubble to grow.(see S.Sharma comments)..in other words a "disaster waiting happen" and I totally agree with you about the bursting of the bubble , acting like a bull in a china shop without any rescue plan...
Horeesran GianishBAI was never a ponzi scheme.Seized by the govt of mts in 2015. The BAI group was brutally liquidated by a revengeful regime in April 2015 in never thought of
circumstances.By dismantling BAI the perpetrators should now realise their rashful blunder.
Author Horeesran Gianish see Sameer Sharma’s comments. Don’t be emotional about it , go by the facts! We are not limiting ourselves to the
Ponzi scheme …what about the problems of liquidity and the absence of proper regulation before 2015 (see page 5 of today's L'express)…I’m not saying so …it is the IMF in the context of proposed financial sector reforms…
Nand GhurburrunQuo Vadis Berenger? A l'aise avec un voleur Comme ça qui rode dans le parrage?
Prak NeeWhat does the Companies Act say about relationships between holding company and subsidiaries? What does the Insurance Act say about capital and liquidity ratios of insurance companies? What does the Income Tax Act provide for dealing with inter-company transactions in a corporate group with reference to cross subsidization, investment and exchange of goods or services below or above fair market value? What does it say about transfer pricing? These are all questions that regulators should ask. Our laws are obsolete and should be reformed to tackle the issues of modern finance, including cross border transactions.
