FINSAC Annual Report 2001: Financing FINSAC & Exit Strategy

Financing FINSAC & Exit Strategy

Financing FINSAC: Basically FINSAC is being financed by the Government through borrowing in the domestic market. Funds are being raised through the sale of long-term Registered Stock, with coupon rate tied to the rate on Treasury Bills.

Exit Strategy For FINSAC: FINSAC is expected to have a life of about seven years. Support is provided to solvent companies on the basis of rehabilitation plans to be implemented in five years. FINSAC expects to be fully repaid by the end of the fifth year assuming successful work-outs of the existing problems. Interventions leading to the temporary acquisition of institutions will be short-lived. All the necessary interventions are likely to take place within the first year of FINSAC’s existence. Components which can be restored to viability will be rehabilitated and returned to private ownership within a year, while other components will be liquidated or sold for merger with other institutions as soon as possible.

Given the experience of other countries, liquidations and the sale of assets as well as the collection of debts can often be a lengthy process. The usual approach has been to set up facilities for handling these aspects, outside of the vehicle for rehabilitation. For example, real estate investment trusts have been used as a holding arrangement for the management and disposal of real estate; paper assets have been put in unit trusts and the units marketed; and non-performing loans have been sold to a central debt-collection agency. FINSAC will evaluate the option of setting up a real estate investment trust and other asset disposal approaches. This can be with the assistance of the Urban Development Corporation. These liquidation arrangements are likely to outlive FINSAC.

After the initial period of interventions and assistance activities, the role of FINSAC will be narrowed to primarily supervision and monitoring of work-out plans of institutions that have been financially assisted by FINSAC and the management of the investment portfolio arising out of assistance activities. Supervision and monitoring should end in six years as the work-out plan are completed. By year seven, FINSAC's only responsibility is expected to be the collection of repayments from assisted institutions.

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