Santander Applied for S.S.B. Loan to Bridge Shortfall in Consortium Loan
The airwaves have been consumed with the news that mega-million dollar sugar-cane production and milling facility, Green Tropics, has been given a twelve million dollar loan from the Social Security Board. Green Tropics’ Parent company, the Santander Group, is Guatemalan owned – that’s one immediate concern being voiced, since S.S.B. money is from Belizean contributors. Then there’s the obvious question – if Santander is a Guatemalan company making an investment of more than one hundred and forty million U.S. dollars in Belize, why does it need a loan of twelve million from the S.S.B.? Today, News Five spoke to S.S.B. Chairman Doug Singh provided some answers, and also information which was certainly not public before concerning the actual investment breakdown. First…some background on the loan application which was made back in October 2015.
Douglas Singh, Chairman, Social Security Board
“Their total investment in their business plan was one hundred and forty-two million U.S. dollars at the onset, of which ninety-five or ninety-six million would be funded by debt and the rest would be by equity. I believe their equity portion was in excess of forty-eight million US dollars. The ninety-five million dollars was sought from the financial markets. Some of it came from a bank in Washington, others from a bank in Panama, others from a bank in Guatemala – I think there were two banks in Guatemala and the remainder from financial institutions in Belize. The consortium loan had been fully subscribed for, meaning that they had already gotten commitments from all the banks. In fact I believe that it has already been funded except for one institution. There was a financial institution in Guatemala called Occidente which had some restrictions. I believe I was told that they were acquired by another financial institution that had limitations to its regional lending, so while the previous institution had approved it, after the acquisition Belize was not a part of the region they could lend to and so they had to withdraw that offer. That was a total of seven million dollars. Since then Santander had funded an additional million so they sought the difference to complete their long term financing package of ninety-five million dollars. They approached the Social Security.”
$12 Million from S.S.B. Approved, But Not Disbursed to Santander
Singh reiterated that the Board cannot even look at an investment until the Investment Committee recommends it after due diligence. That was done, and the Board of Directors reviewed it in late January and gave a stamp of approval. That’s where it is at this point…pending a loan offer and an acceptance. But even with all that movement at the S.S.B. level, Singh explained that no move will be made if contributors do not support it.
Douglas Singh, Chairman, Social Security Board
“After a loan has been approved there’s a two week period that you do publication, and that two week period is for several things. It is certainly for transparency so the public is aware of what Social Security is investing in, and also in my mind it gives the public an opportunity to weigh in. Normally we do not issue a letter of loan offer until after that period. I believe that there might have been one or two circumstances when it might have been before – not disbursement but certainly at least a loan offer has gone out. We’re not allowed to disburse any funds until that period has been completed. If there is a fundamental objection on the part of the public who are the contributors to the funds it is the Board’s obligation to review it, to look at it and to make changes if necessary, to revoke it or not to issue an offer at that point in time if that’s the circumstance, and that’s exactly how it will be with this particular loan.”
“Do you think the outcry is perhaps a little bit premature or maybe based on less than comprehensive or accurate information?”
“I think it might be as a result of lack of information. I wouldn’t say it’s premature. I certainly think that people need to voice their opinion early in any kind of a process so they can be heard, and you certainly need to do it before actions are taken that you may disagree with. You don’t wait until after the fact. I think it’s too late then. So I think people have every right to ask questions. I certainly think that there may be a lack of information but that’s really how the system is designed. Lending is a private business to a great extent. Banks do not disclose information about what they do with their customers. That’s not the circumstances with social Security. This is public money and I think people have a right to get more information. I think to a great extent most people might not be as interested in the details of others. This one though perhaps more so that the rest certainly because the borrowers…while it is a Belizean company most of its shareholders are not Belizeans.”
Belizean Banks Invested U.S. $54 Million in Green Tropics Project
We’re not sure the breakdown of monies invested into the Santander facility has ever been public knowledge. The project has been sold repeatedly as a hundred and fifty million dollar U.S. foreign investment. Singh broke it down for us today and the truth is that more than fifty million dollars U.S. is actually being invested through our domestic banking system.
Douglas Singh, Chairman, Social Security Board
“The total amount loan…what we have is a total of eighty-nine million dollars that has been loan so far to the project; the additional six that was approved by Social Security—and I am speaking in terms of U.S. dollars. Even though this is in U.S. dollars, Social Security cannot lend U.S. dollars; we lend Belize dollars, so it would be the equivalent in Belize dollars. But of the eighty-nine thus far, there are four banks in Belize—one of the banks is an international division and a domestic division—that has lent into the project and combined those add up to fifty-four million U.S. dollars from the banking system in Belize, which includes an international bank and the others domestic banks. There’s a Guatemalan Bank, Bank Colombia, which loan fifteen million U.S. dollars. Banco Aliado, Panama another ten million U.S. dollars and CIFI in Washington DC another ten million U.S. dollars. The remainder of it came from the banking system in Belize.”
Just for a clarification, Singh also noted that there is no connection between this Santander Group and the mega-billion dollar Santander Bank in Spain.
SSB approves $12 mil loan; SSB and Belize banks financing bulk of Santander investment
The Belize Social Security Board (SSB) has approved a BZ$12 million loan to Santander Farms, which operates, among its subsidiaries, Green Tropics in Belize. Since the SSB proposes to release the money from its BZ$450 million fund, the loan will be open to public scrutiny for the next few weeks, before any move can be made to finalize the proposed lending to the Spanish-owned company, whose parent company, Santander Group, also operates a wealthy international bank.
SSB chairman, Douglas Singh, told Amandala that these kinds of investment opportunities don’t come around too often. He told us that the banks are paying the SSB as little as 3% of deposits, down by about half when compared to what they used to earn at the banks 5 years ago, when interest rates were better. Singh said, by contrast, that the Santander loan would be offered at 8% for the first two years, and 7% for the remainder of the 10-year agreement.
Although questions have been raised as to whether SSB money should be lent to foreign investors, Singh said that under law, SSB is allowed to assign 18% to 20% of its portfolio to foreign investment. Singh, who noted that it is not unusual for SSB schemes to make foreign investments, said that two Social Security schemes from the Caribbean had actually invested in Belize’s Super-bond.
What seems to have been creating a buzz, is the fact that the Santander loan is part of a much bigger syndicated loan of US$96 million, involving local and foreign banks, and there is the concern that the addition of the SSB loan would tip the scales, with the majority of the financing (over US$56 million) now coming from locally-based banks rather than foreign banks. This is in the context of the bank having received fiscal incentives, including duty exemptions, from Parliament, which are normally granted to attract foreign direct investment.
We first reported back in June 2015 that Santander had entered a syndicated loan agreement with a group of local and foreign financiers. At the time, we were told that the company had intended to raise over US$110 million for its operations in Belize. Concerns had been raised at the time that a financial package that large could hurt Belize’s financial sector—should anything go wrong with Santander’s operations.
“There is risk in lending; lending is always a risk,” Central Bank Governor Glenford Ysaguirre, told us today, adding that their analysis looked at whether the banks could collectively and individually take that risk.
Ysaguirre said that the individual banks operating in Belize had to each apply for approval from the Central Bank in cases where Santander was asking to borrow more than 25% of the commercial bank’s capital. The SSB loan did not require Central Bank approval because the SSB is not regulated by the Central Bank, he said.
In its review last year, the Central Bank had to look at a number of other factors – such as the level of collateral, the equity from the foreign investor, and the overall exposure of the banks and the Belize banking system. The banks presented their SWOT analyses, and the Central Bank had to look at whether the banks are strong enough to take the level of risk considered.
The SSB has come into the picture months later, and the added financing puts the country’s exposure above what had been originally considered by the Central Bank.
For his part, Singh told us that the Santander loan amounts to less than 3% of the SSB’s fund and the transaction would not singularly endanger the fund. As for concerns that the Santander Group would also place a high demand on the US dollars in our system to be able to make large purchases overseas, we were advised that with respect to the SSB loan, the loan is being given in Belize dollars to replace short-term financing which the company had procured for its investment scheme.
According to Singh, the investment in phase 1 of the Cayo-based sugar mill and sugar plantations was quoted at US$142 million, with the company providing equity investment of roughly US$40 million. He said that three local banks had also bought into the deal: namely the Belize Bank, Atlantic Bank and Heritage Bank. The other financiers are from Washington, Panama, and Guatemala, out of which Santander’s Belize investment is run.
We were told that one of the Guatemalan financiers pulled out after a recent change in ownership, because Belize is excluded from the countries in which they can invest. Santander then turned to the SSB for financing.
Singh said that the proposal was approved by the SSB’s board after a review and recommendation from the SSB investment committee. If there is any strong public objection to the arrangement, the board can review its decision, he said.
According to Singh, Santander employs roughly 200 people and indications are that it intends to hire upwards of 300. There has been criticism in some quarters that the company hires a lot of foreign laborers. Singh said that although the workers are deemed seasonal workers who would not qualify for a pension, they, and Santander, are Social Security contributors, which would enable the workers to access benefits such as employment injury benefits.
As for the security provided to guarantee the SSB loan, Singh told us, when we asked what security had been levied, that there is adequate collateral, which include lands, the factory and other assets. Under the syndicated loan agreement, the Atlantic Bank is collateral manager in Belize.
Singh said that the company has indicated that it intends to add US$36 million in equity investment in 2017.
When the conclusion of the syndicated loan was reported last June, the Central Bank Governor had commented: “This is a significant foreign investment in Belize and provided a much needed shot in the portfolio of the participating Belizean banks given the level of excess liquidity that was in the system.”
He added that, “Syndications of this type for large-scale projects are common occurrences in more mature markets. It spreads risk and promotes competition among banks.”
Ysaguirre further noted, “The portion of the loan financed by Belizean institutions barely put a dent in the amount of excess liquidity currently in the Belize banking system, leaving more than sufficient liquidity for any similar future investments of like magnitude.”
Amandala understands that since last March, even as the Santander syndication was being concluded, the various domestic banks, the Social Security Bank, the Development Finance Corporation and credit unions servicing cañeros in northern Belize, have similarly been in dialogue with the sugar investor, American Sugar Refining (ASR), majority owner of Belize Sugar Industries (BSI), as part of a new strategic development plan.
The argument is that the biggest challenge facing the sugar sector—the export sector which performed the best in 2015—is the need for capital injection to improve production efficiencies and reduce cost, so that Belize can successfully compete on the world market, since it will no longer benefit from preferential prices in Europe. This would require millions in financing, which would be sought for both the farmers, represented by three associations (the Belize Sugar Cane Farmers’ Association, the Progressive Sugar Cane Producers Association, and the Corozal Sugar Cane Producers Association ), and the factory, BSI.
Mike Singh, former CEO in the Ministry of Investment and Trade, has said in an interview with News 5 that with the investments by Santander and ASR/BSI, sugar production would double or triple over the next two, three years.