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GAT in for tough ride • Aims to restructure banks, deliver value by 5th year

By: Maxwell Akalaare Adombila
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Dr John Kofi Mensah, MD, ADB
Dr John Kofi Mensah, MD, ADB

 

PARTIES in the newly established Ghana Amalgamated Trust (GAT) have rolled up their sleeves and settled to do business on a slippery road that aims to turn around the fortunes of five undercapitalised banks within five years.

The team, comprising Algebra Securities Limited, KPMG, PwC, EY, Bentsi-Entsill, Letsa and Ankomah and NTHC (the nominee shareholder), is rolling out five phases in five years that will see the special purpose vehicle (SPV) raise up to GH¢2 billion from private investors between now and March to invest in the five banks, revamp their operations and recoup the investment by 2024.

The phases are the incorporation of GAT, due diligence and valuation, raising and actual investment in the banks, business transformation and final exit, GAT’s transaction advisor and Managing Director of Algebra Securities, Mr Kofi Osafo Sampong, told the GRAPHIC BUSINESS on January 6.

Dr John Kofi Mensah, MD, ADB                     Mr John Awuah, MD, UMB          Dr John Kweku Asamoah — MD, NIB

Mr Philip Oti Mensah, MD, OmniBank    Mr Stephen Sekyere Abankwa, MD, Prudential Bank

Tough ride

At the moment though, the team has the Herculean task of convincing investors, comprising pension and mutual fund managers and insurers, to buy into the GAT concept by investing in it.

For instance, two of the top 10 pension fund managers told the GRAPHIC BUSINESS in confidence that the industry did not currently have ready cash to support GAT’s proposed fund size.

Besides, one said the five-year period appeared “unrealistic” and not long enough for pension funds, considered patient capital, to be used by GAT to turn the banks around and deliver value to investors.

“GAT, I assume is acting as an SPV but where from this company; any track record? 

“What shows that they can manage these banks and make sure they are profitable,” it said.

Another said pension funds were “bleeding” from a recent arrangement by Consolidated Bank Ghana Limited (CBG) that forced them to forfeit annualised yields of up to 19 per cent for a 7.5 per cent five-year bond.

The pension funds have over GH¢1.1 billion with CBG, which was established in August, last year as a state lender to assume the assets of five insolvent banks. On January 4, 2019, BoG added two more banks to it after withdrawing their licences.

The source said the mood among pension fund managers was that if a state entity could downgrade investments this low, a government-sponsored SPV could do similar.

“This might happen again if we take positions and it fails and government may give you peanuts in return,” it said. 

No fears

Mr Sampong, an investment banker, however, said the overriding objective of GAT would be how to get the beneficiary banks to deliver returns to investors.

“This is private money and we intend to get all the money back to the investors,” he said, in an assurance directed at the fund managers and other investors that are still studying the GAT arrangement. 

“So, these banks cannot do business the way they used to.

“We want to put these banks in such a straitjacket that they will do just what they have to do so that they will return the money,” he added.

The beneficiary banks are the ADB Bank, National Investment Bank , Universal Merchant Bank , Prudential Bank and the OmniBank and Sahel Sahara Bank, which are merging into the yet-to-be unveiled Omni-BSIC Bank.

Avoiding surprises

In late December, GAT, a government-sponsored SPV, received provisional approval from the Bank of Ghana (BoG) to invest in the five banks to help build up their capitals to GH¢400 million.

The move is the government’s response to chronic appeals by indigenous banks that were facing challenges recapitalising to GH¢400 million, a statement from the Ministry of Finance said.

Mr Sampong said although BoG had confirmed the capital deficits of the five banks to GAT, the team was also conducting its own due diligence into the banks to help “avoid surprises.”

It will also serve as the basis for valuation, making it a critical success factor to the last-minute arrangement that helped to save the five banks.

“At this stage, we will confirm what we are putting in so that we do not lose out,” he said.

This should pave the way for the next stage, which is the raising and investing of the funds.

He, however, explained that the funds could be raised in stages although the entire amount has been approved. 

No business as usual 

Since accepting to be bridged by GAT finances to meet the GH¢400 million minimum capital, Mr Sampong said each of the banks had signed a preliminary investment agreement (IA) with the trust, committing them to seek express approval from GAT before taking key decisions in their businesses.

The arrangement gives GAT, through a consultant yet-to-be announced, the power to veto significant decisions involving governance, lending and related party transactions (RTPs) and further places restrictions on executive compensation, bonuses and payment of dividends, among others, he said. 

This is irrespective of the stake that GAT would  hold in a bank, Mr Sampong said, explaining that that arrangement was meant to ensure efficiency, prudence and profitability of the banks. 

“For GAT, so far as you accept to take the money, you must abide by our terms and conditions. 

“What we are saying is that you couldn’t raise the money and we have come in to help you. We want you to turn around the business and give us our money back,” he said.