Investments of the Social Security and National Insurance Trust (SSNIT) worth US$206 million have been locked up in four Joint Venture projects, the 2021 report of the Auditor-General has revealed.
Section 7 of the Public Financial Management Act, 2016 (Act 921) states that, a Principal Spending Officer of a covered entity shall ensure the regularity and proper use of money appropriated in that covered entity.
Also, Section 2 (2.64) of SSNIT’s Investment Policy and Guidelines (IPG) 2019 require sassets to be managed in relation to projected cash flows (i.e., liquidity), portfolio quality and avoidance of excessive exposure to a particular sector/companies.
“We reviewed the investment reports on Unlisted Companies 2021 and noted that the Trust has over US$206 million of its investible funds locked up in 4 joint ventures projects. Our reviews showed that, between 2008 and 2014, SSNIT and four other companies entered into a joint venture agreement to undertake projects in the real estate sector”, the A-G’s report said.
The projects included: RSS, Switchback, Trust F-Line and West Hills Ridge project. The Switchback Ltd project started in 2008, RSS started in 2009 while the Trust F-Line and West Hills Ridge commenced in 2014.
All the four projects were estimated to cost US$240 million.
“Our review of projects files and inspection of 3 of the projects disclosed that, they were at various stages of completion. We noted during our inspection that, phase 1 of RSS projects had completed whilst phases 2, 3 and 4 were halted. Our review of unlisted equities reports also showed that, SSNIT has so far spent US$ 206 million on RSS, F-Line and West Hill projects”, the report noted.
It said the amount of money spent on Switchback project and updated expenditure on RSS, FLine and West Hill Ridge were not provided by Trust to the team despite all efforts.
The report noted that the schedule officer-in-charge of Unlisted Equity disclosed to the audit team that, the projects have stalled due to lack of funds to complete them. He indicated that, starting the projects concurrently in 2008 and 2014 created financial challenges to the Trust.
The KPMG Value for Money Audit (VFM) conducted in 2018 also attributed the delay in completing RSS project for instance, to financial challenges.
The schedule officer-in-charge of Unlisted Equities further indicated that the projects started at a time when the real estate market showed signs of growth with high demand from prospective buyers, however, the unexpected economic crisis resulted in a decline in demand for real estate properties.
The audit team is of the view that, the management did not take due care and the Board did not exercise effective control over the Trust’s funds especially when the investment in the RSS and Trust F-Line have not been completed or yielded returns within 5 to 6 years, but the Trust still went ahead with similar investment with Switchback and West Hill Ridge Ltd in 2014.
The four projects, of which two started concurrently, have either been stalled or are in serious need of funds to continue.
“The JVCs are struggling to sell the completed apartments. Pension funds have been locked up in these projects, thereby aggravating the liquidity challenges of the Trust. It is uncertain when the funds already invested in these projects would be recouped to ensure sustainability of the Trust”, the report said.
It said: “Although the Board’s control over investment has improved lately, we recommended that the Trust takes steps to reduce its exposure on these projects. We also recommended that the Trust should avoid investing in multiplicity projects. We further urged the management to update the audit team with the various cost associated with the 4 projects, especially, Switch Back and West Hill projects”.
Management in their response stated that “As a general solution common to all four investments, SSNIT Management has put in place a new Investment Policy and Guidelines document to guide the Trust on such transactions in future that includes that, SSNIT shall not enter into any joint venture agreement where a partner in the JV will be the contractor for the project the JV is to undertake.
The real estate industry has been going through difficult times for the past four years and more. This is partly due to the oversupply of medium-to-high end properties, and economic downturns in the country and other parts of the world. Processes are almost complete for SSNIT to take over some of the assets of RSS to defray part of the loan owed SSNIT.
The strategy following the swap is to sell the apartments at current market rates which are much lower than the selling prices at the inception of the project. The Trust will also look to rent some of the properties in order to generate income and also to create greater visibility for the development in the market. The land that will be swapped will also be sold to attract more buyers to the development.
Trust F-Line Limited
Progress was limited from 2016 to 2019 due to the inability of the other partner, DVM Group, to secure its debt component for the completion of the project. SSNIT has provided additional finance by buying some of the units at a significant discount to help the company complete the project. It is expected that once the project is completed, the units would be quickly sold, due to the project’s location, quality, and competitive sale price of the apartments. Marketing and sale of the apartments are currently ongoing.
Switchback Developers Limited
Financing has become a challenge for this project as the first phase, Adinkra Heights is yet to be completed. SSNIT has purchased some of the land owned by the company and also, purchased some of the apartments at a significant discount to enable the company to have enough funds to complete the first phase. Marketing and sale of the apartments are ongoing. West Hills Ridge Company Ltd.
The SSNIT Management/Board conducted a value for money audit on the company. The audit led to the company saving US$30 million on the construction cost. SSNIT further stopped the continuation of the Phase 2 except for six blocks that construction was advanced and the Sports Centre, which is a very necessary complimentary facility. The project is steadily going on with sales ongoing for the completed units.”