S.S.B. Chairman says B.E.L. property not needed as security for debenture

As you’ve heard by now, the Investment Committee of the Social Security Board (S.S.B.) has approved a fifteen million dollar investment in the government owned Belize Electricity Limited. As soon as that came to light, attorneys for Fortis, the previous owner who is challenging the nationalization, gave notice that Fortis will be heading to court to stop the issue of shares and debentures. But there are lingering questions, as pointed out to us by an investor who refers to an internal memo on the investment. It says, “If S.S.B. purchases ten million preference shares; B.E.L. will provide two properties as collateral. However, due to time constraints, a valuation of both properties cannot be conducted. S.S.B. may request recent valuations from B.E.L. S.S.B. can subsequently conduct its own valuation”

We checked the revised S.S.B. Act which was amended in 2007. At the time, the reported questionable investments led to huge protests and demonstrations that brought the then government to its knees. That scenario resulted in the appointment of the Senate Special Select Committee. The act was subsequently amended to provide a firewall for the security of investments. Part of the amended third schedule reads, “A major consideration for the loans and mortgages shall be that adequate collateral must exist to cover any default. There shall be no exception to this predominant principle.” But the internal memo makes the point that the collateral for the investment, two properties of the Belize Electricity Limited headquarters, were not evaluated when the investment was approved, a violation of the third schedule. Investing in a company that has cash flow problems without a proper evaluation of collateral, may also contravene rules. S.S.B. already owns twenty-six point nine percent of the shares of B.E.L. and about seven hundred thousand dollars in debentures. The exposure to one company is already large. Then, B.E.L.’s two point three two acres property already has two cautions lodged against it, one from the First Caribbean Bank and the other from Scotiabank. According to S.S.B. Chairman Doug Singh, B.E.L. intends to service those debts and grant the two point six acres as security to S.S.B. In an interview on Wednesday Singh said that though the valuation of the property is not complete, it is also not necessary.

Doug Singh

Doug Singh, Chairman, S.S.B.

“B.E.L. made the representation with the prospectus sometime last week. B.E.L. needed an indication of whether or not the Board would be prepared to consider it. The investment committee reviewed it and so did the board, but the board had a scheduled meeting for Monday, the eighth. There is not another S.S.B. meeting for several weeks and Social Security determined that in the interest of trying to get the best possible interest return, to review the proposal in the shortest possible period. It may have inhibited the ability for us to do an independent evaluation; notwithstanding that though, whether or not there were securities for the preferred shares, S.S.B. would have still invested. In other words, it was not a prerequisite; it was not a priority. It is not normal for an institution who invests in the shares of a company to use security as a part of the condition. So all this is extra surety for Social Security. It doesn’t mean that that would have been the conditions under which Social Security would have purchased those preferred shares.”

Net Vasquez

Net Vasquez, Chairman, Investment Committee, S.S.B.

“He was suggesting that probably it was operating capital and that makes sense to me. They need operating capital right now and if they need it for that; that is why they give you the collateral until they could tidy up a few things. You get your certificates. Any company, big companies take about; the law gives you two months before you get a certificate. So I mean that is not out of line.”

Doug Singh

“But in addition to that, B.E.L. had those securities as collateral for their working capital financing needs. All they are saying is that if you would supply our working capital financing needs, we are prepared to give you—in addition to the instrument that we are selling to you—we are prepared to take the same security that we’ve given to the institutions who currently have our working capital financing to you. And of course we are gonna say yes. Anybody giving you additional security is a plus, but it is not something that was requirement by Social Security and would have been a hindrance for Social Security.”