The Belize Social Security Board (SSB) has agreed to take up an offer by the Belize Electricity Limited (BEL) to invest $15 million in the company. The Social Security Investment Fund already has substantial investments in Belize Electricity Limited.
The investment became official after the SSB directors approved the measure with one abstaining vote on Monday.
The money will arrive in two tranches: an investment of $5 million in debentures at 7% interest, and $10 million in preferred shares at $2 per share with a guaranteed 5% interest.
BEL has four series of outstanding debentures. This investment by the SSB is in the series one debentures, which would have matured in December.
At a press conference Wednesday afternoon in Belize City, SSB Chairman Doug Singh and the Chairman of the Board’s Investment Committee, Nestor Vasquez Sr., explained the finer points of the investment.
Singh was firm in saying there was no pressure of any kind on the SSB to make the investment, and he scoffed at the idea that BEL was “broke” and in need of a bail-out.
“They’ve increased the amount of money they wish to borrow… In return BEL is offering 5 million shares of preferred stock, and debentures with guaranteed returns of 5 percent over a life of three years, after which BEL will buy back those debentures,” Singh said.
Investment Chairman Nestor Vasquez explained that the promised returns of BEL are much better than those the SSB is currently receiving from the banks.
Vasquez explained that the SSB currently has in excess $130 million of assets which are in liquid reserves as savings and certificates of deposits. Over the past two years, interest rates at the banks have flattened to below 3%, so the offer from BEL will give the SSB a much better yield.”
Vasquez further elaborated: “BEL is a monopoly and has always been a successful company.
“In the recent past, I can recall where BEL has shown profits of $30 million… Only in the very recent past, whoever was managing the company was not reflecting in their books the true performance of that company. …
“This is a solid investment, a golden opportunity for SSB. We have money that is earning 1.25 and 2 percent interest. We have about $26M of that money. It’s easy for us to take $15 million of that and earn 7 percent on the debentures and 5% on the preferred shares…It cannot fail because neither this government or any (other) government will allow it to fail. It’s an essential service.”
As collateral for the $15 million BEL is using its real estate as backing. This, according to Singh, is not something unusual for the company, which has put up the same collateral for other loans that it has made.
Singh explained that the investment will be beneficial to BEL in two ways: “One, they’re reducing expensive debt, so in one sense they’re refinancing some of their existing loans, which to a great extent is impacting on the projection for the reduced debt servicing from $13 million to $5 million …
“The second is they are refinancing working capital debt with the commercial bank to run day-to-day operations. It is our understanding that the money from the preferred shares will be used in those operations.”
BEL has said it will be using some of its new capital to pay off its debt to customers who had been over-billed. The Public Utilities Commission has told BEL that it has to pay back that money.