The BAI Saga – Back to the Fore

Unpaid insurance policy holders of the former British American Insurance (BAI) have gone on hunger strike since 8th May. They are carrying on with the hunger strike in the Company Gardens in Port Louis. Some have been hospitalised. The hunger strikers are protesting that, despite promises having been made by a then-minister of the government, at the time of dismantling of the BAI group, that all dues will be paid back to them without spending any rupee from the Public Treasury, they have been left in the lurch.

The Prime Minister stated this week that there were insufficient funds from the residual assets of the BAI to meet those BAI obligations towards policy holders. The government was therefore looking for alternative avenues to meet those BAI commitments. There was no commitment however. This means there is no end in view for the policy holders, at least for the time being.

This situation is far from reassuring for members of the public having fallen victim to this situation. Many are people of little means who had invested their lifetime savings in dashing schemes like the Super Cash Back Gold (SCBG) insurance policies of the former BAI. Among the victims are members of a cooperative society which had collected funds from individual members and invested up to Rs72m in the BAI insurance schemes.

It should be evident that the total value of the remaining assets of the former BAI happens to be far less than the amounts contributed by policy holders and other investors into the group. Why this discrepancy? There are several possible answers to explain this situation.

First, pressed by financial commitments taken, the former BAI management would have employed the money raised from policy holders and others not to invest into assets producing a return on investment (as it should have been) but for meeting the group’s recurrent expenses in excess of revenues being generated. Policy holders would not be aware of such intricacies. An excess of expenditure over revenues, over a sustained period, is a clear sign of mismanagement.

Second, money raised from issuing insurance policies/investments would have been diverted into unproductive investments in failing BAI related group companies. The more unprofitable such entities would have been, the more would have been the group companies’ appetite for additional injection of funds into them derived from third parties, including from subscribers of insurance policies, to bridge the gap in their running costs. Finally, such related party investments would not intrinsically be worth anything much and the money poured in would have been simply lost for good.

Third, funds raised from investors and policy holders would have been employed to pay all sorts of huge bills to owners and managers of the Group or even to make political donations. Such diverted funds not only would not earn incomes. They would be passed off as expenses, never to be recovered. Things like this happen in conglomerates in which one or a few related dominant shareholders decide everything or almost everything. There is barely any concept of corporate governance in them, it being left to the discretion of a few at the top to employ funds left and right, without being held truly accountable for prudent employment of those funds. Were politicians in power at the time aware but chose to turn a blind eye?

The BAI Group may have suffered from all these three types of failures. It would explain why the Group was having recourse, over a dozen years at least before 2015, to aggressive marketing of its products. That could have been for generating sufficient cash to meet the next round of regular and irregular payments. Accordingly, the funds so raised would not always have been employed for the declared purpose of carrying out productive newer higher-earning investments with which to reward investors and policy holders at higher than going market rates. Situations like this call on the regulator to probe into mischiefs which, once established, can be subjected to legal action. Not so, in the present case.

Given this, it is not surprising that there are insufficient assets to meet the extensive liabilities incurred by the Group, leaving the hunger strikers in the lurch. That the government has come to this same conclusion confirms that this is indeed the state of affairs: funds have been siphoned off. But why did the then-minister who pronounced that not a rupee of public money would be spent to repay those to whom the BAI Group was obligated make such a senseless statement? Clearly, he should not have known the facts on the ground.

Such misleading statements may have given a false assurance that “everything was under control” when that was not actually the case. Besides, they may have opened up the gateways for further poor management of what was left over by way of assets of the former BAI Group. Pressed by demands from panicked clients of the Group to pay them up, assets may have been realised quickly for less than what they are worth, without grooming them up beforehand to get higher value.

For example, we were informed recently that BAI’s investments in a Kenyan group, Britam, was sold away not at the highest value it would have fetched from a South African investor but at a lower value to a party associated with the Kenyan government. Because there would have been a request to this effect from the Government of Kenya. It is elementary, in matters of recuperation of assets for meeting gaps in expenditures of distressed companies, that one should realise maximum value of assets rather than go for political niceties. There may be other examples of sub-par realisation of values of assets.

All this reflects a messy management of a bad situation. An already bad situation may have been aggravated by rash political decisions to precipitate the downfall of the former BAI Group as a political show, not as a well-advised and coolly calculated regulatory action intended to sustain public confidence in our financial institutions.

Subsequent events such as the inability to meet obligations to policy holders and investors of the former BAI Group put on display the amateurism and frivolity with which serious work of constructive redress of the Group’s financial condition failed to be undertaken.

Wouldn’t it have been preferable, for instance, to decide about the future of the former Bramer Bank (which was made to go first) in the presence of Dawood Rawat here in Mauritius by asking him to provide solutions? Why was the drastic action taken not by confronting him with facts when he was physically present but rather when he was already away in Paris, apparently on a health check? Wouldn’t this have been a better timing and a solution-finding approach for a decision which has been so disruptive and left so many financing gaps and put in jeopardy so many small savers?

Several billions have already been poured in by the government to re-capitalise the ex-Bramer Bank in its new incarnation as part of the newly created MauBank. The 5,000 or so unpaid holders of SCBG policies left in the lurch tell a similar story – bad political management of the situation. If there is no asset enough in what remains of the former BAI to repay these, wherefrom will the Bank of Mauritius, on its part, which initially advanced Rs 3.6bn to the Special Administrators of the defunct group to meet immediate commitments, get back its money? Yet another financing gap?

This dramatic story illustrates how much political interference has helped to aggravate an already bad situation in the former BAI Group. It is a big price to pay for the country.

M.K.

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