Banks, BDCs to take GH¢824m haircut to enable govt pay up FX debt

After months of intense negotiations, banks and bulk oil distribution companies (BDCs) have finally agreed to shave off some GH¢824 million in interest and commissions to allow the government to pay up its indebtedness to the lenders and the petroleum wholesalers and retailers.

The debt, which dates back to 2013, totalled GH¢1.62 billion but is being scaled down after all sides agreed to the landmark haircut. The amount agreed on as a haircut is part of the government’s indebtedness to the companies, which is monies the BDCs sourced from banks to procure petroleum products for the domestic market.

The Chief Executive Officer (CBOD) of the Chamber of Bulk Oil Distributors (CBOD), Mr Senyo Hosi, told the GRAPHIC BUSINESS on May 29 that the debt in question related to foreign exchange loss under-recoveries (FLUR) and the accompanying interest, known as FLURI.

He explained that although the BDCs and banks were entitled to the entire amount based on the government’s own policy, ongoing negotiations were aimed at making the corporates forfeit part in return for payment.

From the side of the BDCs and the banks, the negotiations are led by Legacy Bonds Limited (LBL), assignees of the BDCs payment, headed by Mr Hosi.

“They push (the government) hard and so we will take it; we have taken it, we cut our losses and move on,” he said on the sidelines of the chamber’s annual policy session dubbed: ‘Time with the Minister’.

The May 29 meeting with the Energy Minister, Mr Boakye Agyarko, allowed top management executives in the petroleum downstream to interact with him on topical issues affecting their operations.

It also afforded the minister the opportunity to properly explain policies that were being taken to help make the sub-sector more robust.

Earlier haircut

If successful, this will be the second time corporate institutions will be taking a haircut to allow the government to pay up its debt.

In July 2016, the Volta River Authority, through the Ministries of Finance and Power (now erstwhile), secured a deal that allowed the creditor banks to lose some GH¢300 million in interest, fees and commissions in return for part payment of the infamous energy sector legacy debt.

Mr Hosi of the CBOD said the negotiations were such that interest on the debts – which are in cedi and US dollars – will be halved.

For the dollar rate, he said although his outfit was applying 12 per cent, “which is the market rate for corporates, the government is negotiating 5.25 per cent and that will mean that we are going to lose a lot of money”.

“On the cedi side, the market rate has been 28 per cent because remember the debt is not to this year but those years when the rates were 30 per cent and all that. So, we are doing 28 per cent but the government is asking to pay 19 per cent,” he said.

With the negotiations almost concluded, Mr Hosi indicated that his outfit had “sort of agreed” to the haircut.

Exorbitant rates

A top executive of one of the banks told the paper in confidence that banks had taken the “exorbitant rate of 12 per cent” for dollar loans as income when the government borrowed between six per cent and five per cent.

That, it said, was wrong.

“In an ideal world, that should not be a haircut but most banks, over the years, may have taken that exorbitant calculation and reported it as income. Most likely, some could have even paid dividend on it and if you did that only to be paid less than what you paid dividend on, then it can really hurt you,” it added.

Difficult calculations

The GRAPHIC BUSINESS understands that the money is owed to about 10 banks in the country, whose representatives have been participating in the negotiations.

Although the CBOD’s CEO said the banks “will have to swallow some of the losses”, one executive in the banking sector told the GRAPHIC BUSINESS that banks would not be affected.

It explained that any planned haircut would only affect the “beneficiaries of the money”.

“If you ow me one cedi and you get 50 pesewas, you still owe me 50 pesewas.

“Note that you are talking about BDCs, not banks. If there is any sacrifice at all, it is the BDCs who should sacrifice. They owe the banks. They were supposed to use the proceeds paid by the government to pay the banks,” it said.

“If somebody is saying that the banks, which are owed by the BDCs, have to forgo something, then it is not true. Remember, the government does not owe banks in respect of BDCs because banks did not give the money to banks to give to BDCs,” it added.

It said unlike the VRA legacy debt which was directly owed to the banks, the current arrangement was different; banks were only intermediaries in the debt issue.

“Where we come in is the financing and that is because they will come to us with their individual merit to borrow,” it explained.