Home' Trinidad and Tobago Guardian : April 27th 2014 Contents On April 17, Republic Bank
announced that it would be
making a mandatory offer
to the shareholders of HFC
Bank Ltd to acquire all of
the shares of the Ghana
bank it does not already own.
Republic began investing in Ghana in
November 2012, with the acquisition of an
8.9 per cent stake in HFC Bank "in keeping
with its expansion strategy and its focus on
areas outside of its traditional Caribbean mar-
kets," according to a statement from the local
bank at the time.
HFC Bank was licensed as a commercial
bank in 2003, with core services in mortgages,
consumer loans, commercial and investment
banking. The bank is considered to be a leader
in Ghana s mortgages market, and operates
27 branches in that country.
The West African country---the world s sec-
ond largest producer of cocoa---is not without
risk with the International Monetary Fund
identifying Ghana and Zambia as the African
countries most at risk if there s a sudden rever-
sal of foreign inflows.
"Countries with large fiscal deficits or
increasing debt levels, for example, Ghana and
Zambia, should intensify their efforts to bring
their public finances back to a sustainable
footing, including by containing expenditure,"
the IMF said in its Regional Economic Outlook.
Bouyed by strong oil and cocoa prices and
continuing investment, the Ghana economy
expanded 7.1 per cent last year, but inflation
is running at over 14 per cent and on Friday
the Ghana Central Bank issued a three-year
note that pays investors an eye-watering 25.48
per cent yield.
Given the possibility that Republic Bank
shareholders may have concerns about the
bank s embrace of Ghana, the Sunday BG s
Anthony Wilson sent Republic executive direc-
tor, NIGEL BAPTISTE, some questions by
e-mail on Thursday, to which he promptly
Q: If all outstanding shareholders accept
this offer, Republic Bank will pay
US$83,697,859 (TT$540.7 million). This
is equal to about six months of RBL profit.
Is the bank biting off more than it can
chew in Ghana?
A: Assuming all of the shareholders accepted
our offer, our total investment would be the
US$83 million plus US$47 million already
invested in acquiring the 40 per cent. The
total investment would then be around US$130
million (TT$840 million). The relevant refer-
ence point for assessing the bank s ability to
digest a transaction of this size is actually the
bank s capital base. Republic Bank s capital
base as at September 2013 was $8.3 billion.
This transaction therefore represents a man-
ageable 10 per cent of our total capital.
How will the transaction be financed?
This transaction will be financed by drawing
down on the bank s surplus US dollar liquidity.
We have balances on deposit with our US cor-
respondent banks that can be used for this
purpose with negligible impact on our US$
Will RBL's dividends be cut as a result
of the transaction?
Based on the existing performance of HFC
Bank in Ghana, we expect the transaction to
be accretive to our shareholders.
What were HFC's 2013 earnings in TT
dollars and what is the earnings expec-
tation for 2014?
HFC s financial year end is December. I can
tell you that, in 2012, profit after tax was US$8
million and that for the first half of 2013, the
profits after tax exceeded US$8 million. The
AGM was today (April 24, 2014) and the bank
reported profits after tax of US$18.4 million
for 2013. The expectations for 2014 are pos-
One notes that RBL's share of the profits
from Ghana for two months amounted
to $10 million. If RBL owned 100 per cent
of HFC in 2013, what would the bank
have contributed to the parent's top and
With respect to the $10 million, if we had
100 per cent rather than 40 per cent, it would
have contributed around $25 million to the
bottom line (we got up to the 40 per cent via
a series of transactions over a period of time
so the actual math would not be as straight-
forward but the number would not be far off
$25 million). If we had 100 per cent for the
entire year of 2013, then the US$18.4 million
would have come through to the group s bot-
Ghana is a high inflation, large fiscal
deficit, fluctuating exchange rate econ-
omy. Some may argue that the economy
is facing the prospects of a sharp down-
turn if gold and oil prices soften. What
is Republic Bank's view of the Ghana
Gold, cocoa and oil will be the main drivers
of the economy going forward. The three vari-
ables mentioned are all interconnected, of
course, and the first challenge is to get the
fiscal deficit under control.
On the plus side is that the Ghana economy
has not begun to see the benefits of its oil
discoveries just yet, so that should hopefully
generate positive government revenues before
Our view though has always been a long
term view. There are challenges at the moment
but the fiscal deficit is where it is because the
government is also trying to propel the country
forward. There is a lot of public sector invest-
We know how to manage a bank in a chal-
lenging economic environment. We experi-
enced it in Trinidad in the 80s, Guyana in the
late 90s and Grenada and Barbados are expe-
riencing it now.
We think the price being paid is fair when
you look at the long-term prospects: 26 million
people, a burgeoning middle class, foreign
direct investment in the oil and gas sector.
What is the loan loss ratio for HFC and
what is the expectation if there is an eco-
The non performing loans ratio is 9.28 per
cent for 2013 which is a slight improvement
over the 2012 number of 11.98 per cent.
10% of bank's total
capital to finance
Ghana share puchase
We think the price being paid is fair when you look at the long-term
prospects: 26 million people, a burgeoning middle class, foreign direct
investment in the oil and gas sector.
Republic Bank's Nigel Baptiste reveals...
SBG6 | NEWS
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt APRIL 27 • 2014
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