HAS CHANG LENG BANKRUPTED THE COUNTRY?

Governor of Central, Francis Chang LengA major financial scandal has suddenly come to light involving the Governor of the Central Bank. The emerging scandal was already known to this newspaper, although the extent of its international implication was not evident until now.

The scandal surrounds a large amount of financial paper or government of Seychelles securities (54.5 million euros or 85.3 million US dollars) which, it now appears, was “illegally” issued by the Central Bank but taken up in any event by international investors on a private placement basis at the recommendation and behest of one of the largest investment banks in the world, Lehman Brothers. The role of the representative of Lehman Brothers and the Governor of the Central Bank in the affair is bound to develop into an international scandal. At the time of writing, there are moves by the Opposition in the National Assembly to get a recall of the National Assembly in order to hear an explanation from the Minister of Finance.

The scandal came to light after international investors, who had been enticed by Lehman Brothers to buy the new government debt, despite the fact that Seychelles is already heavily indebted with US$230 million Seychelles Treasury bonds (albeit rated), posted a notice in the Financial Times of London on July 31, informing the investment community around the world that Seychelles Government had been unable to pay interest and principal due on July 1 on the new debts, and therefore was technically in default. Immediately, the ratings agency Standard and Poor’s downgraded Seychelles foreign currency rating from “BB” to “CCC”, described as 8 points below investment grade. BB was already 5 points below investment grade for Seychelles foreign currency debt instruments.

When it became obvious by the beginning of August that funds were not forthcoming from the Seychelles to cover the arrears, the international financial press was alerted by the investors, one of whom was a journalist with the Financial Times, who was the chairperson of the “Seychelles Note Holders committee”.  Bloomberg, the world’s largest financial information company, tried to contact the Central Bank in Seychelles, as well as the Ministry of Finance but no one, it appears, was available to take their calls, according to a news item posted by Bloomberg on August 4. According to Bloomberg, one of the investors who bought the rated bonds a year ago as a personal investment told them, “There’s been no information, there was absolutely nothing I could find out about the default’’.  Lehman Brothers, too, suddenly became mute. 

Meanwhile, on the international financial markets Seychelles rated bonds could not be bought or sold when the market opened on Tuesday August 5th. No prices were quoted by the time the London market closed that day. However, the next day, Bloomberg quoted the Seychelles Ministry of Finance Principal Secretary, Ahmed Afif, as saying in  an email “The government has received a copy of the notice and we are seeking advice on the way forward’’, but refused to elaborate. As the market opened in London, the following day investors started dumping the Seychelles rated bonds which caused its price to suddenly plummet. What investors originally thought was a “good enough” investment was now being considered worthless pieces of paper which nobody wanted. At 7 pm Seychelles time on Thursday August 7th, Standard & Poor’s (the ratings agency) downgraded the Seychelles international credit rating from “CCC” to “SD”, which stands for selective default. “Since the private placement note is already in default, there is high risk they will default on the global bond,” David Beers, S&P head of global sovereign ratings group told Reuters.

Meanwhile, here in Seychelles rumours started circulating early in the week with a Google Web Alert news story arriving in everyone’s email inbox about the default and the ratings downgrade.  It was only on Thursday evening that the government wheeled out someone to break the news to the population. But this only happened when State House received word from Printec Press Holdings, the printer of the Independent weekly newspaper, late in the afternoon, that the latter was carrying an international news agency report about the default.  Ahmed Afif appeared on the prime time news on television that night to reveal a non-story, as far as SBC was concerned, that the government had indeed defaulted on its international debt but only because it had noticed some “irregularities” in the issuance of the bonds.   

Indeed, no one in Seychelles was aware that the Central Bank had issued new treasury bonds in Euro currency. However, an anonymous email received by this newspaper some months ago alerted us to that fact but claimed that neither the Minister of Finance nor the President of the Republic was aware of them too.  It appears that the Minister of Finance only got to know about it when he was asked by the Central Bank to Gazette the new debts, which the investors wanted in order to ensure that the bonds were guaranteed by Seychelles Government. Faced with a fait accomplit, Faure went to the President to complain and insisted that he would not put his signature to any guarantee, which is needed under the law. When confronted by the President, our anonymous sources say, Chang-Leng is reported to have arrogantly challenged the President to sack him, which under the law cannot happen anyway unless there is proof of corrupt practices.

We have subsequently learnt, however, that the term “irregularity” uttered by Ahmed Afif was government speak for “illegality”, in the sense that the Central Bank has no power to issue international debt instruments or any debt instrument of longer duration than three months and only for monetary policy purposes. Under the Central Bank Act, the institution is permitted to issue treasury bills as a way to mop up liquidity.  However, it appears that the Central Bank used the euro proceeds of these “illegal” securities to assist two commercial companies to repatriate funds which have been stuck in Seychelles for the last 15 years. There are allegations that someone may have received a kickback paid in an overseas bank account.

The role of Lehman Brothers in the saga also needs investigating. Lehman Brothers is not just an investment banker to the Central Bank, it also owns the Indian Ocean Tuna processing factory. According to our anonymous email, no expenses are spared to make the stay of the Lehman Brothers investment bank representative’s in Seychelles a memorable one to the extent that the expenditure of the Central Bank in 2007 increased by R8 million. Indeed, the audited financial statement of the Bank does show increased expenditures of R 8 million compared to 2006.     

Has Francis Chang Leng precipitated the bankruptcy of the Republic of Seychelles?

August 15, 2008
Copyright 2007: Seychelles Weekly, Victoria, Mahe, Seychelles