Republic Financial Holdings Ltd isn’t too concerned that the governance structure of the country’s largest commercial bank will be much affected by the redistribution of shares from its third biggest listed shareholder, Clico Investment Bank (CIB), managing director Nigel Baptiste has said. But, he noted, the board and management are having internal discussions to try to understand the implications of it, particularly from the perspective of the Financial Institutions Act.
“We haven’t done anything so far in going after legal advice (as had been reported). It’s purely internal. We are trying to satisfy ourselves that there has been no internal impact,” Baptiste told the Business Day last Thursday at his Park Street office.
In 2009, when Clico, then the country’s biggest insurer, required a massive government bailout to prevent it from going belly up as a consequence of the global financial crisis, there was some concern about the impact on Republic, he admitted, but “that was dealt with” and fears were allayed, he said. Since then there’s never been any impact: “Whatever different challenges, whatever impact restricting whatever was being done with the Clico shares then, it’s the same thing now,” he said.
Earlier this month, the government and several of its subsidiaries, received a little over 42.5 million shares of Republic Bank, worth about $4.3 billion, as part of a debt repayment from CIB, which is now in court-mandated liquidation. The government has to date spent $23 billion to bail out Clico. The divestment represents 26 percent of Republic’s market capitalisation.
Baptiste attempted to break down the new dynamic of Republic’s shareholding, after the redistribution. “There’s only really been two changes in the annual report — it’s largely remained the same with the exception of CIB, First Company and Colonial Life Insurance Company (Clico),” he said. (See table for Republic shareholding).
“CIB now has zero, and those shares are now gone to Clico. The First Company shares are now shared among five entities including the government (Corporation Sole), with about five percent,” Baptiste said. Clico, which is under the administration of the Central Bank, now has 17 per cent.
The total shareholding, however, will ultimately be transferred to the government, according to Finance Minister Colm Imbert in his mid-year Budget review. The government already controls the Clico Investment Fund (CIF) — the largest individual Republic shareholder with 25 per cent, but as part of the declaration of trust (section 11.1) all voting rights attached to those shares remain with Republic. The government does, however, maintain voting rights for the CIB shares.
The government, then, does have a significant grasp on Republic, but Baptiste isn’t too worried that investors will be swayed by this because of the bank’s corporate government structure.
“When you look at the corporate governance at Republic, there are a lot of layers that really start at the management level, then executives, and then board. What has given our investors and clients satisfaction is the fact that those layers are quite discrete. We anticipate that once someone looks at the corporate governance structure, that won’t be a cause for worry,” he said.
Come next month, though, the CIB shares will underpin the National Investment Fund (NIF) as an investment option for the wider public, but also as an opportunity to raise revenue.
“I don’t really have a view on it,” Baptiste said of the NIF, adding that the government hasn’t approached the bank.
“They don’t have to talk to us when it’s being set up. We were aware when the CIF was being set up and we are aware of the NIF but because these shares are already in the hands of third parties already the real organisation is between the government and the Securities and Exchange Commission, and others, so the bank will be advised on what is happening but the government doesn’t have to talk to us about what they are doing. It would be nice but they don’t have to,” Baptiste said.