The Social Security and National Insurance Trust (SSNIT) is losing the integrity and trust of financial and investment analysts and contributors at an accelerated pace in recent years.

This is attributed to some investment decisions the board and management of the Trust took which came out to be bad investment decisions.

For the days, SSNIT has been in the media for allegedly inflating the OBS, software purchase installation and maintenance, project cost which was undertaken by the previous board.

This latest development has brought to the fore more questions about the competence of the management of SSNIT in the management of pensions fund, as Ghanaians come to terms with the US$72 million OBS deal and other numerous bad investment deals.

Again, to add to woes of SSNIT is the case of it losing shareholding in the UMB after a takeover transaction between SSNIT and SIC Life (a subsidiary of SSNIT) and Fortiz Equity Firm.

The recent outcome of the takeover transaction is that, SSNIT and SIC Life’s shareholding in UMB has been diluted by 50% following what appears to be their lack of understanding of the transaction they entered into with Fortiz in the takeover of the erstwhile troubled Merchant Bank.

This has aggravated the loss of trust in the investment decision of the SSNIT by investment experts.

Bright Simons, Vice President of IMANI Africa, has thereby advised SSNIT to urgently change its investment strategies if is to see a turnaround from its current bleak standing.

Mr. Simons noted that about half of the money SSNIT has invested is generating negative returns.

“When you look at how much SSNIT invests and the mechanisms through which it invests, you have to start becoming very worried. No wonder SSNIT itself says that in 14 years, it will run out of money… 45 percent of SSNIT’s output now is trending towards negative returns. That is frightening.”

“SSNIT’s most profitable area is actually to go and compete with the Banks because when you look at its portfolio, it is the loans and things that are doing well. So we need to start reconfiguring the entire portfolio investment approach of SSNIT. That is very critical.”

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Prior to the troubles of the hitherto wholly state owned Merchant Bank, SSNIT controlled an 89.6% stake with the remaining 10.4% belonging to SIC Life.

SSNIT and SIC Life sold 90% of the bank to Fortiz, with the expectation that they could claw back more shares when a plan by the special purpose vehicle, the Merban Assets Recovery Trust (MART) succeeds in recovering more than 30% of the bank’s bad or impaired loans.

The new majority owners of the bank, however opted for a cause of action which resulted in increasing their grip in UMB and effectively reducing the state owned entities’ shares from 10% to a mere 5% jointly.

It is recalled that following debt troubles in 2013, Merchant bank was acquired by Fortiz, a Private Equity Fund.

Fortiz paid GH¢90 million for a majority stake in the bank with the understanding that an additional injection of GHC50 million would be injected within a six month period.

The amount gave them a controlling stake of 90 percent in the bank, leaving the minority 10 percent to the country’s pensions fund manager, SSNIT and SIC Life Limited.

But after an initial payment of GHC10 million to UMB as equity capital by Fortiz, it entered into an unsecured, subordinated debt instrument facility, referred to as a convertible loan with the bank, through which an additional GHC40 million was invested into UMB.

Soon after it was concluded, the loan was converted into equity, in accordance with the Term sheet as approved by the AGM.

This led to SSNIT shares reducing from 8.96 to 4.43% of the company, and valued at GHC2,565,537, while that of SIC life reduced from 1.04% to 0.51% and valued at GHC297, 780.

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Unhappy with the turn of events, SSNIT and SIC Life took Fortiz and UMB to arbitration, in January 2017 claiming among other things that it was not right for Fortiz to use the means it did to acquire more shares in the bank.

The arbitration panel however roundly rejected the claims by the two, stating “even if the deal struck by the claimants does not appear to be very favourable to them that deal is what has to be enforced.”

The tribunal explained further that the money paid by Fortiz to acquire shares in UMB could have been paid to SSNIT & SIC Life, “But this was not the option chosen…Rather, they agreed to use this consideration paid by the First Respondent (Fortiz) to increase the capital adequacy ratio of the bank.”

“This therefore is the agreement that has to be enforced, even though its consequence was inevitably to dilute the shareholding of the claimants”

It is revealed that, the case put forward by the claimants gives the impression that they did not seem to appreciate sufficiently the extent of the consensual diminution of their interests in the bank.

What is baffling is how SSNIT and SIC life did not seem to know that the clause in the Share Sale and Purchase Agreement (SPSA) that they were relying on to claw back some shareholding, section 4.7 was illegal and in breach of the Companies Act, 1963.

Fortiz in their response to the claims by the two pointed out that the “Book debts and any recoveries made were assets of UMB and could not be shared among its shareholders. Clause 4.7 of the SPSA was therefore contrary to law and therefore unenforceable.”

In a chastening arbitration award in June 2017, the arbitration panel noted that the “there had not been sufficient or adequate preparation of the claimant’s case, adding that “the case presented to the tribunal differed in material parts from what has been pleaded.”

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The panel chaired by eminent Ghanaian, Justice Date-Bah, with Prof Emeritus Albert K Fiadjoe and Felix Addo as Arbitrators, denied all the reliefs sought by the claimants and dismissed their claims in its entirety.

Commenting on the seemingly bad investment decision by SSNIT, Mr. Simons explained that SSNIT, on paper, is in a good enough position to provide enough security to pensioners given Ghana has a huge advantage, with one beneficiary to almost 10 active contributors, but SSNIT “pays out benefits almost half of what it receives as contributions.”

Among questions, he queried why, “it [SSNIT] has over four million (4,000,000) members but of that, only about 1.5 to 1.6 million are active contributors.”

He attributed this to government indebtedness, indicating that, “the government of Ghana owed SSNIT, for a while, nearly US$150 million and were defaulting and the private sector had only about 15 percent of the default rate and yet still, SSNIT had no strategy to go after the public sector.”

Mr. Simons’ assessment resembled Vice President, Dr. Mahamudu Bawumia’s bleak projections in 2016 when he promised an urgent review of SSNIT investments and costs to ensure its financial sustainability.

Dr. Bawumia, then, held that pensioners were under threat and that the World Bank in its 2016 report on governance of SSNIT, stated that the actuarial valuation shows that the fund will become a cash flow negative in 2019 and all assets will be used up by 2031.

As part of the urgent undertakings to ensure the sustainability of SSNIT, Dr. Bawumia said an NPP government will ensure that the funds of the National Pension’s Regulatory Authority will be applied solely for the purpose of the development of pensions and they will fully implement section 103 of the pension act which assigns pension benefits for housing of workers.

Source: Adnan Adams Mohammed