Since assuming office in 2017, our Finance Minister,Mr Ken Ofori-Atta, has used various schemes and strategies to enrich and empower his financial empire and impoverish other companies seen as his competitors or not aligned to his party, the New Patriotic Party. It started with the granting of juicy state contracts to his firm, Databank at the expense of qualified competitors. Now, he has extended it to state institutions, using dubious arrangements that baffle every well-meaning Ghanaian. 

The latest is the Ghana Amalgamated Trust Limited (GAT). In the next few days, the plan to take over our national banking assets such as NIB and ADB and a significant stake in three other banks namely Prudential Bank, Omni/Sahel Bank and Universal Merchant Bank (UMB)will start unfolding. 
Before I get into the details, let me be upfront here that GAT is a complete scam, dubious arrangementand national tragedy knitted together by persons pretending to be interested in the wellbeing of Ghana but with a clear plan to get you and I to pay astronomically over the next five years so that Ken Ofori-Atta can take over these banks. The plan is simply that ‘let’s use state resources to clean up these banks in the name of a government support and take them over in five years’ time when they are healthier and ready to take off.’ How is this going to happen?

In this article, I intend to review this arrangement and the dubious plan to saddle the taxpayer with huge fiscal costs for no real value except to satisfy Ken Ofori-Atta. I will also expose how the entire arrangement is already cooked up for Franklin Templeton (FT) Plc of the 2017 Ken Bond fame to come and take. 

1. GAT IS A SCAM AND AN EXPENSIVE FISCAL WASTE
In January this year, the Governor of the Bank of Ghana announced that private pension funds have come together in a private arrangement to help these banks recapitalise after they failed to do so by the close of 31st December, 2018 being the deadline for recapitalisation. At the time, we were told that this would occasion no costs to the state. Several questions were asked about the ownership of GAT and who those private funds behind it were. These were never answered to date. 

To date, Government has not answered the question of the ownership of GAT. Who are the so called private pension funds behind it and what are their names? What is the ownership structure among those fund management companies?Interestingly the pension funds come out to claim that they were neither aware nor consulted on GAT. So, who are the owners?

Information at the Registrar General’s Department reveal that GAT was incorporated in December 17 2018 with the National Trust Holding Company Limited (NTHC) as a 100 per cent nominee shareholder on behalf of the government of Ghana. Interestingly, the NTHC is owned by the Social Security & National Insurance Trust (SSNIT) – 43.48%; the State Insurance Company (SIC) – 19.70%; the National Investment Bank (NIB) – 19.70%, the AccreCon Consulting – 12.39%; and the NTHC PF – 4.73%. Thus, how can GAT be a private sector initiative when even its nominee shareholder is a majority state-owned entity? Is the government and the Bank of Ghana Governor saying that the supposed private sector investors could not, on their own, incorporate a vehicle to take advantage of an opportunity but had to rely on the government to identify such an opportunity, establish a SPV and then hand it over to them through a dubious scheme to then use to supposedly salvage five banks, including two national banks? Obviously, GAT is a state-owned entity and as such, its debts must count fiscal costs to the state.

Financing of GAT

Having dealt with the ownership of GAT, let me state that GAT adds to the emerging trends of huge fiscal risks and fiscal costs from complex transactions that rely on form over substance in their treatment. Just like the Synohydro deal, which threatens the short to medium term fiscal risks of about GHC10 billion, GAT imposes a whopping GHC4.1 billion fiscal costs and rising short to medium term fiscal risks on the economy. Together, these two complex deals provide a medium term fiscal costs of about GHc14.1 billion. That is ridiculous!

To properly understand how I arrived at the GHC4.1 billion fiscal costs arising from GAT, please note that the government is providing a guarantee to cover 70% of the GHC2 billion that isnow preferred to be quoted as $400millionto be borrowed by GAT. This includes the payment of applicable interest for the next 5 years through the issuance of bonds to enable it invest in the challenged banks. Currently, we are told that GAT will pay 21% to investors of these bonds though BOG’s Policy rate is 16%. At the 21%, the poor taxpayer will be paying GHC420million every year and GHC2.1 billion in five years as interest costs alone. Thisis obviouslyan outrageous waste of taxpayer’s money. In addition to the guaranteed bond, we will be spending a whopping GHC4.1 billion of taxpayer’s money on this dubious scheme. 

What is strange is the fact that there is a risk of 30% which is not covered by Government but we are not told who is taking up that 30% risk. Are the investors developing this into the GAT and target banks agreements to give them a direct lien on the investments in these banks to cover the 30% risks? Or this is left to the investors to carry? If so, will it not lead to shady investors taking over these banks for whose monies it is investing? This is a scary financial engineering that must be resisted.
It provides an enormous fiscal burden on the national purse as taxpayers will have to pay for these costs annually through taxes for the next five years. Unfortunately, there is no basis for borrowing this amount. There has been no due diligence to establish the financial requirements to turn these banks around and deliver value to the taxpayer. The Minister is simply engaging in try and error with the taxpayer’s money.

What are the Banks worth and what stake are we taking? What is even more striking is the fact that as we speak today, we have not done any valuation of these banks as a going concern and not any dubious Net Assets valuation. What are the banks worth as a going concern and valuation of their future value proposition? What is the value of what we are buying? What percentage will that be with GHC4.1 billion? Will these banks deliver at least GHC4.1 billion to us in five years? If the owners cannot raise GHC4.1 billion to pay us in five years, will we collect the banks from them and give them to Ghana Amalgamated Trust? How will GAT in that situation pay the so-called investors for its bond? This is a complex dubious scheme ultimately aimed at robbing us of our banks through Franklin Templeton and Ken Ofori Atta.

2. GAT and compliance with sources of funding equity in a bank

Per the structuring of GAT and the intended utilisation of the bond issuance which is to acquire equity shareholding in these banks, GAT is deemed a Financial Holding Company per the exposure draft of the Bank of Ghana directives on Financial Holding companies. This position is defined in Section 156 of Act 930 of 2016 as “a company that controls a bank or specialised deposit-taking institution which is subject to registration requirement under the banks and specialised deposit-taking institutions Act 2016 (Act 930). Its principal object includes managing equity investments in two or more companies being its subsidiaries, engaged in the provision of financial services, one of which must be a bank or special deposit-taking institution.”

A review of the preliminary agreements signed with some of the banks reveals that GAT will have significant control of these banks in respect of appointment of Board Members and Management team in the exercise of its powers from its equity participation. GAT will therefore be a financial holding company for each of the banks.

As a Financial Holding company, therefore, the source of its equity financing must comply with Bank of Ghana’s requirements on sources of funding paid-up capital of a bank. In particular, Section 9(d) of BSDI Act, 2016 (Act 930) states that “the original sources of capital are acceptable and do not include borrowed funds.” Clearly issuing bonds which are borrowed funds for GAT, which is established as a financial holding company, as its original source of capital for its equity in the five banks is a clear violation of Section 9 (d) of ACT 930.Theefore, one wonders why no other institution than the BOG and Ministry of Finance will agree to an arrangement that flouts their own laws; laws that were recently used to arbitrarily take down banks that were in conditions similar to those the five GAT banks are currently in.

3. MANAGEMENT OF GAT AND ASSOCIATED COSTS

One major question regarding the management of GAT is who will bear the costs associated with the management of the trust. How are expenses relating to payment of rent or otherwise for its office, operational costs, including vehicles and the salaries, conditions of service as well as allowances of management, staff and Board of Directors? Is it the taxpayer who will fund this or these poor under-capitalised banks will be compelled to sign some management agreements for GAT to siphon their meagre resources to pay the fat salaries of management and staff and allowances of the Board? Clearly, this additional burden is unnecessary and wasteful costs to these banks.

Management Team of GAT

Whilst I respect the expertise of the various people on the management team and board of GAT, I am compelled to examine their suitability for this turnaround project with a huge complex financial outlay. I have reviewed their backgrounds and expertise and find them suitable for their previous roles of different nature but largely unsuitable for this huge value-driving project. I will limit myself to just the board chairman and the Managing Director.

Mr Albert Essien

Mr Essien had an enormous stewardship at Ecobank until his retirement. Unfortunately, the Ecobank assignment was a completely different proposition from this project. At Ecobank, he inherited a strong brand that had led the banking sector for many years. Ecobank had already developed systems, culture and high performing teams. The bank had not suffered excruciating panic withdrawals in a stifling financial sector. 

Fortunately, Mr Essien’s assignment as the Board Chairman of GHL Bank Limited in the last few years provides a peep into his suitability for this role. I was, therefore, very surprised that when the announcement of his appointment was made, this singular most important role was completely missing from his profile. Was this inadvertent or he is simply not proud of his record at GHL Bank Limited which falls into the category of his new role at GAT. What happened to GHL Bank Limited under him? Did he turn it around or aground? Has GHL Bank Limited emerged stronger from the recapitalisation?Surely, we cannot entrust five banks in the hands of a person who could not turnaround just one of its peers and that led to Ghana’s only surviving mortgage provider being taken over by First National Bank (FNB). Such a decision is surely a huge gamble with our GHC4.1 billion.

Mr Eric Otoo

Mr Otoo’s profile appear more to me as those that lists everything a former employer did as those of your roles. This is very striking when you read what was reported by Bloomberg as his role when he was appointed by Duet Private Equity. Bloomberg indicated that Mr Otoo had been appointed to coordinate business plans across the equity firm but the profile now appears he was basically in charge of everything. One thing that is striking is the fact that just as Mr Essien, his previous role in Ghana, which happens to be his last before he joined Duet Private Equity, only some 2 years ago is completely missing. Bloomberg indicates that he was the Director of Route to Consumer and Strategy at Diageo Ghana where he managed how Guinness Ghana got us Guinness to drink through Key Distributors. While that may be challenging as a distribution job, I am surprised it was omitted for roles played between 2013 and 2016 yet jobs before and after that period were boldly captured in the profile accompanying his appointment as managing director of GAT. Upon reading his “impressive profile” and later discovering his route to market job at Guinness Ghana, one wonders how such a strong finance person did not attract any of the banks and Finance Houses with such expertise? Granted that he wanted to diversify his career experience, why did he exclude it in his profile but included jobs he did in-between it? I am only curious but managing route to the market for beer and Guinness is not the appropriate skill set for the GAT project.

4. Clandestine move to takeover ADB and NIB

The inclusion of ADB Bank and NIB in the GAT scheme is scandalous and a clear attempt to sell Government’s stake in the banks. A review of the terms and amounts being quoted for these banks is a clear testimony of the intention of Ken Ofori-Atta to sell these banks for cheap.

ADB Bank Limited

With all honesty, ADB should not be on the list of banks to be supported by GAT. This is because Government has already fully met the minimum capital requirement of ADB Bank. At the Extra Ordinary Annual General Meeting held in late December 2018, the shareholders of ADB Bank Limited, largely the BOG and the Ministry of Finance, agreed that BOG will convert its loan of GHC150 million, which represents unpaid liquidity support to the ADB Bank, into equity. About GHC233 million was to be raised by shareholders through a renounceable rights issue. I am fully aware that the Government took up all the rights with Ken Ofori-Atta paying the Gh233 million on behalf of the state. This means ADB Bank Limited has met the minimum capital requirement by GHc427 million. So, why is ADB Bank Limited on the GAT list if not for dubious reasons? Clearly, Ken Ofori-Atta is bent on selling ADB Bank Limited.
The worst part in all of these is that as we speak, there is neither a due diligence nor a valuation of ADB Bank Limited. How then can one determine the value of ADB to be able to enter into discussions with third-party investors like GAT for equity investment?

Related to this is the gross violation of theBSDI Act 2016 (Act 930) by Ken Ofori-Atta and Bank of Ghana with regards to the board of ADB Bank Limited. Why has BOG not approved the board of ADB? Why are people involved in the collapse of UT Bank and Capital Bank allowed to sit on the Board of ADB Bank contrary to the BSDI Act 2016 (Act 930).

Section 58 of Act 930) and the Bank of Ghana’s Fit and Proper regulations stats categorically that ‘ A person shall not be appointed or elected or, accept an appointment or election , as a director or key management personnel of a bank, specialised deposit taking-institution or financial holding company if that person (d) has been a director, key management personnel or associated with the management of an institutionwhich is being or has been wound up by a court of competent jurisdiction on account of bankruptcy or an offence committed under an enactment.’

The resolution of UT Bank and Capital Banks were in response to reported breaches of an enactment, which enactment was referred to as Act 930 by BOG.

Yet, it is on record that the ADB Board, chaired by Mr Alex Benarsko, a former director of UT Bank, has not been approved by the Bank of Ghana. The board, however, was inaugurated on the authority of Ken Ofori-Atta. Also, in blatant violation of Section 58(d) of Act 930, three ‘unfit’ persons sit on the ADB Board. 

The board chair, Mr Alex Benarsko, was a director of UT Bank prior to its collapse in 2017. The current MD, Dr John Kofi Mensah is also a former MD of Capital Bank. In fact, Dr Mensah has been sued by the Receivers of Capital Bank to pay back GHS15.7 million that he is believed to have misappropriated to himself while serving as MD. Also, a former Secretary to the board of UT Bank, Madam Mary AblaKessie, is now a director of ADB Bank. In effect, three persons, who are not fit and proper, according to Bank of Ghana’s own rules, sit on the board of ADB Bank, a bank that is 60 percent owned by the Central Bank. 

It is these corporate governance breaches at ADB Bank Limited that should be addressed by Ken Ofori-Atta and not a scheme to take over our ADB Bank through the backdoor.

National Investment Bank Limited

The situation of NIB has been a deliberate effort by the Minister of Finance to run it down so that it can be sold for peanuts through the backdoor too. It is interesting to note that NIB has been resilient and consistently posted positive operating profits in the last three years. Its net profits or profits after tax have been negative in the last three years on account of excessive impairments of its loan books resulting significantly from Governments inability pay its exposures to NIB clients who have worked for Government. If Government were to pay its exposure today, NIB will immediately reverse the losses on its income surplus account and be able to recapitalise and improve liquidity.

However, a review of the preliminary agreement between GAT and NIB show a very shocking effort to take the bank. In any financial engineering to turnaround a company, you start with the least costs option. In the case of NIB, you must first look to the resources of the bank to recapitalise it. If there are any shortfalls, you must first find a cheaper way to meet the gap. Any financial engineering that adds so much additional burden to the struggling company can only be attributable to incompetence or ulterior motive.

That is why the GAT arrangement with NIB is doubtful. It is meant to impose return on equity on NIB from day one. Clearly, this is a complex equity arrangement that looks more like a preference share transferring the expected coupon rate to NIB in guaranteed return. Of course, no ordinary shares get guaranteed return on equity anywhere in the world. This means that NIB will fail to meet these requirements in five years so they can take over.

The preliminary agreements envisages pumping GHC1.4 billion into NIB for both liquidity support and meeting the minimum capital. It is shocking how they arrived at this colossal amount without due diligence. What is even more disturbing is how much of NIB will Ghana through the Ministry of Finance lose in return for the GHc1.4 billion from GAT. Without a valuation of NIB, how do we determine the value of this investment? How did they determine the internal resources available to NIB and the additional reasonable funding to achieve a least cost funding option?

I have done a preliminary review of the financial statements of NIB for the period ended 31st December 2018 and realised that NIB, on its own, can fully recapitalise to GHC545 million if it is allowed to sell its stake in Nestle Ghana and the government of Ghana pays its GHC700 million to the bank. At best, NIB does not need a pesewa from GAT not to talk of the GHC1.4 billion that the trust says NIB requires. My further analysis show that NIB, with appropriate decisions to restructure its balance sheet, with Government fully paying its exposure to NIB and its customers, the bank’s liquidity situation could be over GHC2.5 billion.

Below are my Preliminary Analysis:
CURRENT LIQUID ASSETS OF NIB GHC
1. Cash and Balances with Bank of Ghana 488,758,926

2. Government Securities 401,246,262

3. Due from Banks and Financial Institutions403,239,556
Total liquid assets in cash or easily convertible to cash1,093,244,746
Please note that out of the due from Banks and Financial Institutions, about GHC300 million of it is locked up at CBG. This money should be paid to NIB immediately.

Restructuring balance sheet for capitalisation

Sale of 24% equity in Nestle Ghana will increase liquidity and reduce income surplus deficit significantly to reduce requirements for fresh injection to meet minimum capital;

1. Estimated value of shares in Nestle 500,000,00

2. Less costs of shares

i. Investment in associates as revalued on B/S 210,447,225

ii. Less Available for sale reserves recognised 155,907,842

iii. Costs of Nestle shares 54,539,383

3. Profit or capital Gain from sales of Nestle Shares transferred 
To income surplus 445,460,617

Please note that NIB will receive GHC500 million from the sale of its shares in Nestle Ghana. This will increase NIB’s cash by GHC500m to GHC1,593,244,746. The decision to sell these shares alone will increase the liquidity of NIB to about GHC1.6 billion.

The sale of the Nestle shares is a real game-changer because it will contribute about GHC445 million towards meeting NIB’s minimum capital requirements whilst at the same time significantly improving its liquidity.
NIB meeting minimum capital requirement.

Section 28(1) of the BSDI Act 2016 (Act930) states that ‘A bank or specialised deposit taking institution shall ensure that while in operation, it maintains in the country a minimum paid capital, unimpaired by losses, including accumulated losses or other adjustments, as may be prescribed by the Bank of Ghana for Banks and specialised deposit-taking institutions.”

This means that minimum capital is the paid-up capital plus your income surplus at any point in time. Thus, losses and negative income surplus reduce your capital, thereby making the bank non-compliant with the minimum capital prescribed by Bank of Ghana. This means that NIB must clean up its income surplus losses and then top up its paid-up capital meet the requirements. Therefore, any decision affecting its current balance sheet that can release realised surpluses will go a long way to clean up the losses and reduce the amount required to recapitalise. In any case, scrutiny of the bank’s income surplus account and what accounted for it would make a significant impact towards addressing the capital needs of NIB.
 

GHC

1. Income Surplus as at 31stDecember 2018 (-660,613,663) 

2. Add realised capital gains from sale of Nestle Shares 445,460,617

3. Revised Income Surplus (-215,153,046) 
This means that for NIB to be fully recapitalised, Government musts first pay off the losses of about GHC215 million and then find additional money to top up its current paid-up capital to meet the GHc400 million paid up capital. The current paid up capital of NIB is Ghc70 million, leaving a balance of Ghc330 million to be paid to meet the GHc400million. This results in the following amount to recapitalise NIB.

1. Additional to increase capital to GHc400 million 330,000,000

2. Add Amount required to pay up the losses 215,153,046

3. Total Amount required to recapitalise NIB 545,153,046 
This means that NIB will need just GHC545,153,046 to recapitalise. Note that when this GHC545 million is paid by Government to recapitalise, it will go to increase the cash of NIB and therefore increase its liquidity to a whopping GHc2, 138,397,792. This will make NIB a solid bank with huge liquidity of GHc2.1 billion cash resources. One then wonders why they trying to hang GHC1.4 billion on the neck of NIB whilst keeping the Nestle shares just to overburden the bank and take.

This only goes to support my point that there is a clandestine attempt to take our bank. As a matter of fact, the NIB negative income surplus is a non-existent income loss caused by Government to bring it on its knees. The reason why NIB has recorded this GHC660 million negative income surplus is not because NIB is a loss-making bank. The Bank has been making operating profits in the last three years. Unfortunately, Government has failed to pay its indebtedness to NIB and contractors who took monies from NIB. As a result, NIB has been compelled to write off or impair loans totalling about GHC700 million. If Government were to pay its debts to NIB and its customers who took loans to work for Government, NIB will be over capitalised and over liquid. 

If Government were to pay its debt today with the restructuring proposed above, NIB will have a capital of GHC555 million and liquidity of GHc2.255 billion without the need of Government spending a cedi on it.
Tell me why then has government abandoned this and rather endorse a scam like GAT to ‘bail out NIB?’ if the motive is not a clandestine one to take over the bank through a backdoor approach?

5. Deal cooked for Franklin Templeton

News out there is that GAT has started a roadshow to try and convince investors to lend it the first tranche of the GHC2 billion bond. That is a gimmick calculated to hide the real buyers of the bond.

I am aware that Ken Ofori-Atta has ALREADY SECURED A DEAL WITH FRANKLIN TEMPLETON (FT) TO TAKE UP THE GHC2 BILLION BONDS TO BE ISSUED FOR GAT UNDER GOVERNMENT GUARANTEE SIMILAR TO THE US$2.25 BILLION BOND ISSUANCE IN APRIL 2017. 

And the involvement of Franklin Templeton in the GAT should be a major concern to Ghanaians because as a Fund Manager, you are not too sure where this money is coming from and whose money FT is bringing to buy the bond. 

Please recall that in the heat of the US$2.25 billion dollar bond issuance, we were told by some industry watchers that they suspected that there was a 4% commission on the US$2 billion bonds given to FT and that the commission was calculated for 7 years and built into the interest rate you and I are currently paying for that bond. We were told that the so-called commission was a tool for kickback to those in Ghana who arranged that deal. That 4% translates into a whopping $80 million a year and some $560 million over 7 years. 

Recall also that three months after the deal, Black Star Holdings,which is believed to be owned by a Deputy Minister for Finance, found USD130 million to invest in Enterprise Group owned by Ken Ofori-Atta in a deal that was worth just $21 million 7 years earlier. To date, nobody knows who approved that transaction since the Governing Board of the Securities and Exchange Commission was not in place. Did Ken Ofori-Atta approve the transaction involving his own Enterprise group and a deputy minister’s Black Star Holdings? Now, FT has resurfaced again, this time round, lurking to buy bonds of banks that are being prepared for a future takeover.

This should be a source of worry for you and I. In fact, what we should envisage is a Ghana Amalgamated Bank or something similar to be owned by shady persons and institutions after 2024 when these banks are expectantly unable to pay off GAT and GAT will be forced to take them over and consolidate them into one bank or more bigger banks.

In conclusion, GAT is a sham by persons with dubious intention to saddle the taxpayer with unnecessary costs, siphon public funds into private pockets, takeover our state banks and deprive private investors of the due through a clandestine move that is being trumpeted as the saviour of their licences and retention of indigenous ownership in the banking sector.

I expect every well-meaning Ghanaian to loudly resist this deal in its entirety. 

Isaac Adongo,
Member of Parliament, Bolgatanga Central
Member, Finance Committee of Parliament