The annual report of the Bank of Mauritius (BOM) for the fiscal year ended June 30, 2021, reveals that the Mauritius Investment Corporation (MIC) incurred a loss of Rs 537 million in its first year of operation.
The MIC was set up as a wholly owned subsidiary of the BOM to channel financial assistance to private companies facing cash-flow problems due to the pandemic- induced downturn in business starting in March 2020. The MIC was supposed to invest in those companies with equity and quasi equity instruments (loans convertible in shares).
Up to the end of September 2021, the MIC had already disbursed Rs12.3 billion to companies mainly operating in the “Accommodation and Food Service Activities” sector. However, the beneficiaries are not known to the public. Government has refused to disclose relevant information on the economic package on the ground that MIC is a private company, although it is owned by a Public Interest Body like the BOM.
It is important to note that the IMF suggested that the MIC be disbanded with government taking over the task of bailing out companies with assistance granted through the Consolidated Revenue Fund (CRF). However, government did not want to borrow funds from the BOM and transfer them into the CRF for disbursement to companies as that would have increased its national debt, which was already at 80% of GDP.
The MIC was therefore set up with a capital of Rs 80 billion to help private enterprises in need of assistance, especially in the hospitality industry. It is a Special Purpose Vehicle to take debt off the government’s books in a classical off-balance sheet financing. In this process, the BOM has confused its role as regulator with that of an economic operator.
The loss of Rs 0.5 billion incurred in the first year raises a few questions:
- It looks like the loss arises from loans granted to companies that have been written off as bad debts after only one year. Why was money invested in lame-duck enterprises that had no liquidity and profitability prospects in the short or medium terms?
- Who are the bad debtors and in which sector do they operate?
- Are some of the debtors already out of business?
- Did the MIC do an appropriate credit risk assessment of the companies bailed out?
- What were the conditions of financial assistance in terms of interest rate and repayment of principal?
- How many more debtors would default on their loans in the current and future fiscal years?
- What monitoring of debtors’ financial condition and prospects the MIC is doing based on their external environment?
- Are proper KYC tests being done before approving loans?
Stimulus assistance is meant to help companies in dire straits tide over the crisis and bounce back when the economy picks up. Unfortunately, in many cases it sounds like socializing loss and privatizing gain for private companies.