Solving Ghana’s Liquidity Problems with the Oil Securitization Transaction: A Case Study

The securitization transaction could be defined as the act of converting an asset into transferable securities, usually in order to obtain cash.

The concept is based on international market practices that involve financial transactions in which a company pools assets, mostly accounts receivable, and is then transferred to a special purpose entity or vehicle, which finances the acquisition by issuing values.

Securitization is usually an enhancement to the financing of existing business operations.

Securitization transactions are very popular with mortgage-backed securities; There are currently more types of nonfinancial assets and future cash flows. The following are examples of assets that can generally be securitized.

Aircraft leases, auto loans (prime and subprime), auto leases, boat loans, credit card receivables, equipment leases, home equity loans, manufactured home contracts, container and marine chassis leases, morgages (residential and commercial). leases, real estate, RV loans, royalty streams, stranded utility costs, commercial accounts receivable, train car leases, truck loans, oil exploration, and other future receivables.

The Ghana School Finance Service is Ghana’s first official “securitization transaction”. It is a structured risk-sharing service that covers the initial long-term loan portfolio in local currency of a local bank associated with the schools. The goal was to help local banks learn how to earn money and contribute to the development of the country as well.

The International Finance Corporation (IFC) provides advisory services to banks to process and monitor school loans, while also assisting local schools with management training and strategic planning to enable schools to operate more like sustainable businesses. This helped improve their credit risk profile with banks.

IFC established a $ 2.1 million joint venture with Trust Bank Ltd of Ghana, complemented by advisory services from IFC and African Development Bank to Trust Bank and its client schools.

The Trust Bank is expected to increase its size and funding for private schools, implement a cost-effective alternative funding mechanism for schools. It will also provide the bank with an opportunity to prepare for the securitization transaction when the market is ready.

The following is an idea of ​​an industry for a possible securitization transaction in Ghana.

Ghana has a modest upstream oil industry with one sedimentary basin on land and five offshore. The main driver of the oil and gas industry in Ghana is the need to reduce the country’s dependence and dependence on hydropower.

The authorities often target a “primary” budget surplus to reduce the overall budget deficit and domestic debt. Oil subsidies have been cut, but public sector wages have been increased. However, the recent computerization of customs should increase tax and public sector revenues and contain the overall budget deficit.

Various initiatives to boost cassava, textiles, and palm oil should increase non-traditional exports, while high cocoa and gold prices should generate higher export earnings. High oil prices continue to hurt Ghana. Oil imports are estimated to represent more than 20% of the total import bill, leaving the economy vulnerable to large price swings. Large transfers, IFI loans, donor support, and generous debt relief from the Paris Club have brought external current account deficits to more manageable levels.

Schemes and reforms, such as the increase in low electricity rates towards international levels. Since the mid-1980s, the Government of Ghana has been financing projects using small levies on petroleum products. The US $ 250,000 raised annually is put into an Energy Fund and used to promote renewable energy and energy efficiency projects.

In Ghana, oil operations are governed by the Petroleum Act 1984, which empowers the GNPC to operate in all open areas of the country on its own or in association with foreign partners.

Smaller businesses find it easier to explore in Ghana than in some of its West African neighbors. This is partly due to the advantageous terms of the contract that include the following elements: No upfront payments, such as bonuses for signing or production; negotiable royalties and income tax (currently 35%); No limit on cost recovery, low rent payments, no restrictions on repatriation of funds, and no import duties on exploration and production equipment and materials …

With securitization, the GNPC can securitize its rights to receive payments for crude oil sold to other oil refineries. The agreements representing these accounts receivable should be drafted in such a way that the anti-assignment clauses in favor of the refineries, for example, are beneficial but should not be enforced, since by doing so the securitization cannot continue. gold.

Reference:

1.Africa -Ghana organizing in the informal sector (online) (accessed 29 April 2006)

2.Ghana Chamber of Commerce Bulletin

3.Ghana Self-Assessment (online) available at ghanaembassy.dk/tax/asp.cata.org.my/Ghana1 accessed on 06/21/07

4.Ghana Private Sector Development Strategy (online) available at dfid.gov.uk/pubs/files/ghana/priv-sect-dev-strategy/ accessed 06/21/07

5.Annual report of the Securities Exchange Commission (online) available at secghana.org/publications/annualreport/ accessed 06/21/07