BELIZE CITY, Mon. Feb. 8, 2016–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.