The Social Security and National Insurance Trust (SSNIT) has said it is swapping debts owed it by some companies with lands, houses and bonds.

The Auditor-General’s 2019 report unearthed that “in contravention of Section 91(1) of Act 921”, the state pension trust, “as of 31 December 2018, has not recovered a total of GH¢2,379,233,073.10 loans granted to eight related companies”.

The report blames the situation on “ineffective due diligence on the investment”.

“We recommended to the management to improve on the Trust’s loan granting processes and also ensure that the loans are fully recovered”, the report suggested.

Among other things, the Auditor-General observed that: “In spite of the provision of Section 91(1) of the PFM Act 2016, the management of SSNIT sunk a cedi equivalent of US$185,250,000.00 in a housing Project at Klagon and Sakumono”.

“The project is halted and it is being managed by RSS, a Joint Venture Company belonging to SSNIT and Regimanuel Gray. We urged the Board to consider RSS’s proposal to rent the houses to reduce the losses on the investment. We further recommended to the Trust to institute an effective project evaluation process in investments of similar nature”, the report noted.

It also said: “Contrary to the Board approval in its 292nd meeting to convert apportion of CENIT loan into preference shares, in order to eliminate its Thin capitalisation problem, the management of SSNIT could not ensure the completion of the conversion as authorised by the Board. We recommended that Management should follow up and ensure that sufficient amount of the loan is converted to preference share to eliminate the Thin capitalisation”.

Read SSNIT’s response in connection with the non-recovery of the GH¢2.38 billion loans advanced to related companies:

Management Responded that;

i. ALUWORKS LIMITED Effective due diligence not carried out 2725. “Due diligence on the viability of the project was undertaken before the facility was granted. The loan facility was granted to build a new cold mill to improve the company’s production, given the old mill had deteriorated and become obsolete.

2726. The project was adversely affected by the government’s trade liberalisation policy when the new cold mill was completed. This resulted in a huge influx of cheaper Chinese and Indian products that benefitted from export rebates in their home countries.

2727. The recent reduction in tariffs at the ports has also adversely affected Aluworks.

2728. In order to reduce the debt burden owed to SSNIT, the first phase of the restructuring of Aluworks involved the swap of land for debt and working capital.

2729. Subsequent to this, and as part of the second phase of the proposed restructuring, the Board of Aluworks Limited has given its consent to a Subscription Agreement between Caitlyn Limited (a 20% equity shareholder in Aluworks) and Aluworks Ltd, for the purchase of additional shares in the company.

2730. The funds from this transaction will primarily be used to retire a significant portion of the SSNIT debt and the remainder, restructured into a seven-year loan. This transaction is yet to be approved by the SSNIT Board.

2731. SSNIT Management is also considering other options which will help resolve the debt issue and provide the needed injection of external capital into the company.

ii. RSS DEVELOPERS LIMITED

Effective due diligence not carried out 2732. “RSS Limited is a joint venture company (JV) formed by SSNIT and Regimanuel Gray Limited (RGL) in 2009. The goal for the formation of the Company was to combine the expertise of Regimanuel in the real estate sector with SSNIT’s financial strength to develop high class residential, commercial and industrial properties in Accra (Klagon & Sakumono) and Kumasi (Asuoyeboah).

2733. Due diligence was conducted on the viability of the project and found to be viable at the time. However, in the course of implementation, there was a downturn in the economy coupled with a significant change in the project concept at the company level. A number of real estate developers were caught in the unexpected economic slowdown. This created a glut in the market of the types of housing units being built by RSS.

2734. The significant change in the scope of the project at the company level resulted in the project cost being significantly different from the originally estimated cost.

• An asset-liability matching exercise has been done following which SSNIT Board approved the swap of debt owed SSNIT by RSS with completed housing units.

• An Extraordinary General Meeting (EGM) has been held by the company and the shareholders have agreed to the swap.

The Trust is putting in place a new Investment Policy and Guidelines document to guide such future transactions. The document contains stricter and more rigorous processes. In this regard, any change in project scope at any joint venture company level that causes a change in the project’s financials as approved should be referred back to the SSNIT Board for consideration before implementation.

• The SSNIT Board has also directed that, in future, SSNIT shall not enter into any joint venture agreement where a partner in the JV will be the contractor for the project the JV is to undertake.

• A value-for-money audit of the entire project has been commissioned. The draft report has been received and is currently being studied. Recommendations from the report would also guide the Trust on the way forward.”

iii. CENIT ENERGY LIMITED (CEL) Effective due diligence not carried out 2735. “The investment in CEL was undertaken when the country had a huge power crisis with insufficient generation capacity. The loan to CEL was part of the capital structure during SSNIT’s initial investment in the company, which was duly evaluated. The capital structure was to ensure that, SSNIT would be able to recoup a greater proportion of its investment early rather than being locked in the equity of the company. (Page 875)

2736. Since then, a lot more power plants with relatively ‘cheaper’ tariffs have been built which have increased the country’s generation capacity and made CEL uncompetitive. CEL has therefore fallen down the pecking order for dispatch by the national grid.

• SSNIT negotiated with the government and swapped part of the ECG debt owed CEL for ESLA Bonds. CEL has pledged its outstanding US$100 million ESLA bonds to SSNIT. In addition, CEL plans to add any other bonds that Government would issue for the company’s outstanding indebtedness to SSNIT. Interest on the ESLA bonds currently held by CEL has, therefore, started financing repayments of the outstanding debt.

• CEL is in discussions to enter a gas purchase agreement to begin operations in order to improve the finances of the company and be able to settle any outstanding debt due SSNIT.”

iv. INTERCITY STC COACHES LIMITED

Effective due diligence not carried out Loan 1 2737. “This was due to judgment debt against ISTC in favour of the creditor SVANI Limited. ISTC which is 80% owned by SSNIT was not in a position to pay the debt so SSNIT stepped in to settle the debt on the company's behalf.

Loan 2 2738. This was also due to judgment debt against ISTC in favour of the creditor National Investment Bank (NIB). ISTC which is 80% owned by SSNIT was not in a position to pay on their own, and the bank was going to auction the assets of ISTC to recover their loan.