Yesterday, key representatives of the recently formed Board and management of the Ghana Amalgamated Trust – the special purpose vehicle established by the Ministry of Finance (MoF) to secure financing for the recapitalization of five selected indigenous banks – met with the media for the first time to explain the dynamics of the controversial initiative.
The meeting was most enlightening in what it revealed.
Firstly, it has shown that the biggest controversy surrounding GAT since it was first announced by the MoF in early January has been a storm in a tea cup all along. Unlike what Ghanaians were told at that time, GAT does not comprise a consortium of private pension funds, who have agreed to use their members funds to provide equity finance for the five beneficiary banks to recapitalize. Instructively it was that initial, and completely untrue, presentation of GAT’s structure that ignited so much opposition – including that from this newspaper – in the first place.
Rather GAT is a purely government owned institution which is about to issue bonds, that are largely guaranteed by government, the proceeds of which will be used by the Trust as equity capital for those banks. To be sure, any pension fund, or other investor that buys into those bonds, is taking a credit risk in that they are to be amortized by GAT’s sale of the shares acquired and the sales will only generate the money needed to amortize the bonds if the banks themselves are worth that amount at maturity.
However, the guarantees would greatly reduce the investment risk, bringing it closer to the risk on government’s own similarly tenured – and instructively similarly priced – treasury bonds.
Similar but not quite the same and this is where pension fund managers will have to tread cautiously. But crucially, they will not be under any coercion to subscribe to the bonds – if they do and the investment ultimately goes wrong, they will have only themselves to blame.
On the other hand, the bonds could possibly be a good investment, especially with those guarantees in place. This newspaper is not a fund manager and we would not pretend to have the knowledge requisite for making such an investment decision.
What we do know however is that if the beneficiary banks are to have any chance of using the capital being sought to improve their respective market values to the requisite levels whereby the bonds can be amortized without recourse to government, then government must allow GAT to do its job of overseeing a turnaround in their financial performance. If government continues to interfere in how they are run, then five years from now, the investors about to subscribe to the GAT bonds will have to fall back on government’s guarantees; translate this as taxpayers’ monies.
Unfortunately, this newspaper still sees little reason to have faith in government in this regard. After all it is now clear that contrary to government’s claims, not all the banks have been well managed and are solvent; one of the state-owned banks involved has a capital deficit twice the size of the minimum capital requirement itself and GAT itself is so worried about its finances that it wants a 100 percent guarantee on investments in bond for its recapitalization.
However, this newspaper supports the new initiative on the grounds that under the worst-case scenario – which we believe is a likely one – all that would happen is that government would have to cough up on its guarantees. Even if that happens the monies involved are far less than what has been spent on banking sector reformation already and at least it would keep the flag of indigenous Ghanaian banking flying.