Home' Trinidad and Tobago Guardian : April 3rd 2014 Contents APRIL 2014 • WEEK ONE www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
Fax: (868) 623-2050 (Editorial)
Fax: (868) 623-2050 (Advertising)
22-24 St Vincent Street,
PO Box 122.
The revelation last weekend that dismissed First
Citizens chief risk officer Phillip Rahaman sold
634,588 shares in the bank worth $26.7 million
to his cousin Imtiaz Rahaman, a Rahaman family
member and five Rahaman companies would not
have come as a surprise to anyone who has been
following this story.
The transaction is reported to have taken place on the morning
of January 14 and Bourse Securities, the brokerage house founded
by Subhas Ramkhelawan, represented the interests of both the
buyer of the shares, Imtiaz Rahaman, and the seller of the shares,
Mr Ramkhelawan, who is the managing director of Bourse
Securities, is a long-serving Independent Senator, as well as being
the current chairman of the T&T Stock Exchange. While
Ramkhelawan is the founder of Bourse Securities, Imtiaz Rahaman
is the chairman of the broker and mutual fund company.
He is also the CEO of Ramco Industries Ltd, the cooking gas
company, and several other family-owned companies---at least
five of which are now the proud owner of First Citizens shares,
purchased at $42.15 each.
So just to ensure that readers get this straight: a prominent
businessman, Imtiaz Rahaman, arranges to buy 634,588 First Cit-
izens shares for $26.7 million---using a brokerage company that
he chairs---directly from his cousin, Phillip Rahaman, who was
a senior executive at a state-controlled bank that was divesting
shares in an initial public offering (IPO). The brokerage company
was founded by a prominent independent senator, Subhas
Ramkhelawan, who is currently the chairman of the local stock
The shares were purchased close to the First Citizens peak
trading price and on Wednesday, the shares were trading at $7.45
less than the Rahaman family paid for them (a paper loss of $4.7
The issue of the financing of Phillip Rahaman s initial acquisition
raises another interesting point: The Sunday Express revealed
details of the internal audit conducted by the bank into the trans-
action, which eventually led to Phillip Rahaman s dismissal.
In an e-mail on January 15 (which was the day after he sold
the 634,588 shares) confirming a discussion they held that same
day, Phillip Rahaman is reported to have written: "To confirm
our discussions, the $14.5 million in funds was raised via a com-
bination of personal/family funds and third-party bank debt...."
It seems to me that if Mr Rahaman acquired the shares worth
$14.5 million using third-party bank debt, the bank would have
held the shares in a blocked account until the collateral had been
In other words, if he borrowed money from Bank A:
The bank would "block" the shares, preventing him from
selling them himself
The bank would dispose the shares on his instructions
The bank would ensure that its loan was repaid and would
place the balance in his account
The bank---at least RBC, Republic, First Citizens or Scotia---
would use its own broker to undertake the transaction and the
shares would be offered to the market at the price indicated by
If he borrowed money from any one of these four banks men-
tioned in the paragraph above that have affiliated brokers, the
bank would have little interest in who is buying the shares.
More to the point, if the bank is holding the shares and using
its own broker, how is it that Bourse Securities represented both
the buyer and the seller?
If Bourse represents no bank, how is it possible that part of
the original acquisition of shares was financed by a bank?
Further, if Mr Rahaman borrowed money from a bank, the
bank would insist that he sign at least three documents: an advice
of facility form, a pledge form and a loan agreement. Therefore,
there are paper trails with bank loans that are very easy to retrieve.
Also, if the bank was selling the shares, it would do so on the
open market and not through some arrangement in which the
seller is disposing of shares to his family.
Given the fact that Phillip Rahaman, according to the Sunday
Express, chose not to submit any bank documents, one can
question whether Phillip Rahaman used third-party bank debt
to acquire any of the 659,588 First Citizens shares in the IPO.
This still leaves open the question of how was the original
acquisition financed (since Phillip Rahaman has acknowledged
that he used debt to acquire the shares)?
Is there a possibility that the original acquisition was financed
by Bourse Securities?
Now, it is interesting that if one goes to the Bourse Securities
Web site, one would find a section under the rubric "Financial
Services" in which Mr Ramkhelawan advertises the fact that
Bourse provides what he refers to as Funding Against Securities
(otherwise known as margin loans).
In the section, Bourse promises "exceptionally low-cost financing
as compared to banks and other lending institutions," as well as
"financing for up to 75 per cent of the value of your holdings in
locally listed equities or an even higher percentage for other mar-
ketable securities such as bonds and debt securities, mutual
funds/Unit Trust holdings, deposits held with banks and other
In other words, if you want to buy shares worth $100,000, you
can go to Bourse and the brokerage house will lend you up to
$75,000 to buy the shares, which will be held as collateral (blocked)
for a period of between three and 18 months "with rollover of
the financing for periods thereafter." The rate of interest advertised
on the Web site is one per cent below prime, which works out
to be 6.5 per cent at this time.
So the question that Bourse Securities needs to answer is: Did
the company provide a margin loan at 6.5 per cent for 75 per cent
of the acquisition cost to Phillip Rahaman to acquire 659,588
shares in the First Citizens IPO worth $14.5 million?
It is interesting to note that 75 per cent of $14.5 million is $10.9
million and that a 6.5 per cent margin loan on $10.9 million is
$708,500 for a year and $236,166.66 for four months. Imagine
getting access to nearly $11 million for a sum total of $236,166?
I need to add, that while this situation seems dangerously inces-
tuous, there is nothing illegal in a broker providing a margin loan
to a customer.
Speaking in the Senate on March 11, Mr Ramkhelawan spent
quite some time in his contribution to the debate on the amendment
to the Securities Act 2012 addressing the issue of capital adequa-
cy.Mr Ramkhelawan referred to the Securities Act 2012 as one leg
of a three-legged stool of financial legislation that is necessary
to position T&T as a regional capital centre. The other two are
amendments to the Insurance Act and the Financial Institutions
Act of 2008.
He made the point that financial institutions (banks and non-
banks) now have minimum capital requirements and that insurance
companies now have minimum capital requirements. He said that
neither the Securities Act, 2012 or the Securities (Amdt.) Bill,
2013, have made provisions "for minimum capital in terms of
these entities acting as principal."
Mr Ramkhelawan then made the theoretically sound point
about capital adequacy: "The point is that you must have minimum
capital for risk that you take on your balance sheet as a principal,
and your capital must grow in terms of the additional risk that
you take as your assets grow."
He also noted that in the case of authorised broker/dealers,
there are minimum capital requirement of $6 million for agency
functions and he strongly advocated that the minimum capital
requirement of $15 million be added to the amended Securities
Act "for persons who are broker/dealers, investment advisers or
He said in the Financial Institutions Act, 2008, certain exemptions
have been given to players under the Securities Act, 2012---the
first one being for the sale of repos.
Now, having provided all of the context for Mr Ramkhelawan s
Senate contribution on the amendment to the Securities Act 2012,
here is the nub of the matter:
"The second area which is another exemption for securities
for broker/dealers and the like to undertake business of a financial
nature without falling afoul of the Financial Institutions Act,
lending and borrowing against securities---meaning---this is the
other side of the equation now---if such a firm was to lend anyone,
any person, against the securities that those persons hold---in the
normal scheme of things you might know of it as margining in
other jurisdictions, Mr President.
"But if you were to lend against these securities as defined in
the Securities Act, 2012, then you are exempt from the question
of doing business of a financial nature under the Financial Insti-
tutions Act. But these are all areas which, I repeat, makes these
firms act as principal, not as agent. We are not selling for Mr X
or buying for Mr X. We are actually taking risks on our books
and once you are doing that business, there is a necessity for you
to have capital."
Mr Ramkhelawan s contribution raises the question of the
extent to which Bourse s capital prudently allows it to conduct
Financing Against Securities.
I say no more for now.
Who financed Phillip
Rahaman's share purchase?
Links Archive April 2nd 2014 April 4th 2014 Navigation Previous Page Next Page