Gov’t to give up ‘Golden Shares’ in GCB

Rumors are rife in media circles about government’s intended decision to sell off a significant portion of its stake in the Ghana Commercial Bank (GCB),to allow for partnership with a strategic investor and to raise badly needed revenue..

The move is also expected to offer the bank full autonomy to run its operations and to shore up the bank’s operations for increased profitability. By this, Government is likely to reduce its holdings of 56,608,613 shares (constituting 21.36% of total outstanding shares) held on its behalf by the Ministry of Finance and Economic Planning(MOFEP) to a much lower stake.

Together with a number of key government institutions that have stakes in the bank, with SSNIT holding 79,000,000 shares(29.81%) of total) government still holds on to a a significant parcel of shares that enabled it influence decisions at the bank since the state entity was privatized in 1996. A Financial Intelligence source close to government relates that the issue of the proposed admission of a strategic investor has been topical within cabinet, and has come up for discussion at the Economic Advisory Council level.

Even though the Finance Minister tells the FI there is no such intention, with Professor Kofi Afful, a member of the Economic Advisory Council denying any knowledge of this intent in an interview, evidence keeps mounting in support of the anticipated move.

Recent price appreciations in and intense activity in GCB shares on the Ghana Stock Exchange (GSE) has raised eye brows that some insiders may be privy to some privileged information.

From an all-year low of GH¢ 0.48, that resulted from the challenges at the equity market front the price of GCB led a pack of recoveries in the past two weeks hitting GH¢ 0.82 before receding to GH¢ 0.79 at the close of trade last Friday. The stock has also been one of the most actively traded. Whilst analysts say they expect such recoveries from the stock that traded well below its book value they appear to be amazed at the speed of recovery in the stock. Book value per share of GCB was GH¢0.7840 as at December 2008. Another pointer to a possible attempt by government reengineer the operations of GCB has been the attempt to clean up the debt sheet of Tema Oil Refinery (TOR). This is expected to clean GCB’s loan portfolio of huge TOR debt to prepare the grounds for the intended offloading.

As to the entry strategy, e capital markets expect who is also an investment lawyer tells FI that the strategic partner could acquire a significant stake in the bank making direct offers to individuals shareholders.

“Government might also sell off portions of its stake in bits or in block to the entity”, he stated.

Despite the stipulation for the regulator’s approval before acquisitions in excess of 10% of total holdings are executed in financial stocks, the expert explained that with government’s support the potential partner can easily receive approval from the Bank of Ghana for an eventual takeover. “The situation then serves as a big test case for the central Bank’s independence from government”, he contended.

As to the sale strategy, it has been speculated that government will trade off its stake in bits; in order not to violate the stipulation for the regulator’s approval before such trades in excess of 10% of total holdings are executed.

Even though the bank is touted as the country’s most widely networked bank with over 152 branches and agencies dotted all over the country, it has not returned much to its shareholders. The company recorded a profit margin of 20.69% in 200, which was 3.92 percentage points below the industry average for listed banks. GCB’s return on total assets was a low 3% of the same period. Established in 1953as a premiere commercial banking institution, GCB was listed on the GSE in 1996 under the ticker, GCB and the bank remains one of the most capitalized on the local bourse. It is amongst the first to meet the regulator’s new capital recquirement of GH¢ 60 million.

Whilst government business continues to be one critical source of secured investment income, the bank has constantly suffered from government interference that might not be necessarily prudent under market conditions, such as providing cheaper financing for governmental institutions.

It is expected that the entry of an international financial institution could change the situation, and strengthen management for enhanced profitability. The experience of job cuts and excessive repatriation of profit that has been experienced under earlier withdrawals of state control from hither-to State Owned Enterprises (SOEs) continue to raise serious concerns within civil society about the social effects of such decisions.