Thursday, June 20, 2013

TOR debt not a threat to GCB Bank

The Tema Oil Refinery (TOR) is still reeling under heavy debt and operational difficulties that is making it difficult to operate.

TOR is feared to have lost more than US$63 million since July 2012 as a result of its inability to process and refine crude because of broken equipment.

The country’s only state-run refinery has been operationally idle since July last year due to the breakdown of critical equipment. The plant's shutdown was due to lack of feedstock.

Although the Managing Director, Mr Ato Ampiah told Reuters the plant was expected to restart in November 2012 as new supplies became available, the refinery is still idle.

Reports reaching the Graphic Business indicate that many experienced workers at TOR have been poached to work in other refineries in other parts of the world, especially in the Middle East and Gulf States.

Germaine to the refinery’s woes is the inability of the company to pay its debts running into hundreds of millions of dollars.

Until recently, the Ghana Commercial Bank (GCB) bore the brunt of debts owed by TOR, a situation that threatened to collapse both the bank and the refinery. GCB was only able to survive the heat because the government took steps to retire a greater chunk of the debt.

The government intervened and paid GH¢445 million out of the over GH¢1 billion debt owed the Ghana Commercial Bank (GCB) in cash in 2010.

In 2011, the government issued a three-year bond valued at GH¢522 million to further retire the over debt TOR owed the GCB.

These developments helped the listed bank to turn around its fortunes, returning as much as 343 per cent profit before tax amounting to GH¢91.3 million for 2010 over the GH¢20.6 million recorded in 2009.

The bank, thus, recorded a net interest income of GH¢259.9 million in 2010, 57 per cent over the 2009 figure of GH¢165.8 million.

The trend has continued since the government’s salvaging efforts. Last year, the bank’s profit before tax went up by 520 per cent from GH¢31.1 million in 2011 to GH¢192.9 million; net profit up from GH¢18 million in 2011 to GH¢143 million, representing 695 per cent rise.

The Managing Director of GCB, Mr Simon Dornoo, told the bank’s 19th annual general meeting on May 30 that what was left of the TOR debt on its books was about US$50 million (about GH¢100 million) which did not pose as any risk to the bank as before.

“Steps are being taken to recover the rest of the debt from TOR. I don’t think this is a big deal for now but we are sure it will be settled in due course,” Mr Dornoo said, but declined to give specific timelines on when the bank and the oil refinery will bring closure to the issue Industry watchers have told the GRAPHIC BUSINESS that besides the debt overhung are operational challenges that is stifling the company’s operations, including the right equipment and machinery.

The industry players said even with the three per cent increment on petroleum prices announced on May 31 will mean nothing to TOR because pricing was per se not the challenge for the company.

Currently, the country’s fuel needs are supplied by bulk oil companies which bring in products for distribution by filling stations across the country.

The Volta River Authority (VRA), which generates electricity for the national grid, also brings in crude oil on its own to power its thermal plants at about US$3 million a day, leaving the Tema Oil Refinery (TOR) standing as a white elephant.

In September 2012, the then Energy Minister, Dr Oteng Adjei, announced that the TOR debt had been reduced to GH¢610 million from the December 2008 total of GH¢1.6 billion.

Last year, the oil refinery secured some US$900 million in financing from banks BNP Paribas and Standard Chartered to help it clear its debt backlog and purchase crude oil supplies.

It was the second multi-million dollar bailout since 2010 for the 45,000 barrel-per-day plant, which has run only intermittently for years due to trouble securing credit to line up a steady supply of crude shipments.

Mr Ampiah said BNP Paribas would provide US$750 million in financing, US$450 million of which would be used to pay off debts, while Standard Chartered would provide US$150 million.

While TOR struggles with operational challenges, analysts have questioned whether the company would get back on track so as to retire its debts, such as the US$50 million owed GCB.

Although GCB has reduced its exposure to TOR, it still has about GH¢404 million in advances and loans to government departments, public institutions and public enterprises. The figure increased from GH¢207.4 million in 2011.

That notwithstanding, GCB made impressive progress with its financial position, recording 48 per cent return on equity to post total income of GH¢418 million in 2012 from the 2011 figure of GH¢289 million.

This 45 per cent increase in incomes resulted in profit before tax of GH¢192.9 million in 2012. The corresponding GH¢143 million profit after tax was also 695 per cent higher than the GH¢18 million the bank recorded in 2011.

These results mean that investors in GCB shares made a whopping 671 per cent more return on their stocks in 2012, as the earnings per share increased from GH¢0.07 per share in 2011 to GH¢0.54 per share in the year under review.

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