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AFW CU DEVELOPM ENT BANK
UPDATE OF
TlIE PORTFO LIO REVW W OF- TM EOUITY PARTICV ATION
IN SIG LTER.AFRIOUE
COUNTRY DEPARM NT EAST REGION, OCDE.4 September, 1997. t f r @ *'
CIX RENCY EOO ALENTS (June 1997) Currency Unit = United States dollar (USD) 1 UA = USD 1.39179
LIST O F ABBREVG TIONS
ADB - African Developm ent Bank Africa-Re - Africa Reinsurance Corporation CDC - Com monwealth Developm ent Corporation EADB - East African Development Bank GDP - Gross Domestic Product IM F - International M onetary Fund 1.m OR lxmdon Inter-Bnnk Offered Rate OPEC - Organization of Petroleum Exporting Countries PTA Bnnk East and Southern Africa Trade and Development Bank ROE - Remrn on Equity RO1 Return on Inves% ent Shelter-Afrique - n e company for H abitat and Housing in Africa UNDP - Urtited Nations Developm ent Programm e U SD United States Dollar U A Unit of Account
The Bank African Development Bank (Group) n e compu y - Shelter-Afrique '
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1 TABLE O F CONTENTS l I PG RODUCTION AND BACKG ROUND 1 1 1 . 1 lqtroduction 1 1.2 Ba'ckground 2 1 2. PROGRESS O N CAPITAL- SUBSCRH IONS 4
3. REVW W OF TIV OPEM TIONR PERFOG ANCE 5 i l 4. FUNDIN)G ANALYSIS Ae RESOURCE MOG IZATION 6
FINANC,IAL PERFORM ANCE 8
6. ADB'S INVESTG NT 10 1 1 I . 7. CON CLUSIONS AN D RECOM M ENDATIONS 11 l . t
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LIST OF ANNEU S
Annex No. Title
1 M ap of Africa Shelter-Afrique M ember States
2 . Capital Subscription as at 31/12 - 95, 96, 07/97) Project Ixan Portfolio as at 30/06/97 4. Historical Income Statements (95 - 96 - 06/97)
5. Historical Balance Sheet Statements (95 - 96 - 06/97)
6. Summ ary of the m ain recom mendation of the Price W aterhouse study
7. ADB President's docum ent ADB/BD/W P/96/99/Add.1 PG RODUCTION AND BACKGROUND
lntroduction 1. 1.1 ln September 1996, Mannjement submitted to the Board of Directors a report on the Portfolio Review of n e Equity Partlcipation in Shelter-Afrique. Following the discussion of that report, it was decided that the Bank will review its equity participation after one year. n is report is in response to that decision, and updates the one presented to the Board last year.
1.1.2 The Board of Directors will recall that during the discussion of the last report, it expressed concerns that Shelter-Afrique was finding it diftk ult to raise adequate resources for its operations due to the slow pace at which cotmtlies were meetinq their share subscription obligations. As a result, the company ability to flnance projects was llmited in spite of the fact that it had a large pipeline of projects. n e Board also took note of the fact that the projects fmanced by Shelter-Afrique had lim ited econom ic impact on the m acroeconom ic level due to their reduced sizes and the project-by-project approach adopted by the company to make up for its lim ited resources.
1. 1.3 n e Board expressed further concerns about the weakened financial position of the company as a result of the projected loss of it,s deposits with the Meridien Bank Group currently under liquidation. n e company's aggregate loss of US$ 6.52 million in 1994 and 1995 did not only wipe out its reserves but also reduced the equity capital from US$ 24.30 million in 1993 to US$ 20.66 million in 1995.
1.1.4 Looking forward, the Board took note of the new' package of reform measures initiated by the new M anagement team wllich aims at restoring prudent and efficient financial controls and mnnngement, and other positive measures being tnken including: (i) a review of the invesc ent guideline, (ii) formulation of fmancialpolicies, (iii) strengthening of internal controls, and @ (iv) carrying out a management audit. The Board also noted with interest that Shelter- Afrique has developed some techn.lcal capacity to identify, appraise and implement projects in its member countries and that the Bank Group's inves% ent has provided significant benefits to Shelter-Afrique since its inception. This inves% ent nm ounts to about 22-25% of the total paid-up capital of the com pany and remains crucial for the com pany's s'urvival. Finally, the Board felt that much m ore rem ains to be done particularly in term: of action on further arrears, both on capiul subscriptions and loans, and on portfolio pedbrmance. Against this background, the Board approved the m ain recom mendations put forward by M anagem ent as follows:
a. m aintainq, for the time being, its equity pm icipation in Shelter-Afrique;
b. monitors cl.osely Shelter-Afrique, pm icularly through the Banks Board representative, as well as through sem i-nnnual reports;
C. provides technical assistance for internal capacity development (especially in areas of project analysis and fmancial management and controls); and
d assists Shelter-Afrique to obtain resources from bilateral sources for financing housing development in the company's m ember countries. x W-. '='< / : vv '. ' !
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1. 1.5 In addition to the above recomm endations, the Board called on the shareholders of shelter-Afrique, who have not done so, to urgently pay the callçd up part of the capital in order to give crt'dibility to the company and to tlw onjà'. ing resttucturing exercise. In this regard,
M anagement infbrmed the Board that it would com:mlljnjçate, iss concern : to t, he âuthorities of the member countrjes of Shelter-Afrique. A copy of ihij èejmmtlnication conmined in a letter dated 11 December 1996 and addressed to the Bnnk's Govttho'rs in Shelter-Afrique's member states was circulàted to a11 Board members (copy of the létfèr is âttached as Annex.7). 1.1.6 Mased on the foregoing, Mnnngemèht is hereby subm itting a progress report reviewing the bank's participation in the equity of llièlter-Afrique,cbvering the period ending 30 June 1997 ! .
1.2 Background
1.2.1 Shelter-Afrique was form ed in 1982, as the culmination of several years of inyensive internàtional consultations and tec:hnical hwestigations on the need to cpnfront the ' . escalatinj problems of urbnnl' zation and homei yssnessIn Africa. n e intention was éfat a self- sustaining and âutonomous intergovernmenul agepFy be created to look for resoutceà and apply them to invesl ents in the housing sector in member countries. Assistance was also to be given 1 to governm ents in formulating and executing apprqpriaye policies and in establishiqg the necessary finan8ial and tichnical instimtions. A peetiùj Qf the f'ounding shâreholders took place in Lusakalïh 19181 at which time a constituent cha/et esublishi,ng :, 1e cômpany in terms of its stamtes, jtzridicql personality, legal stams, administrétive and legislative ftnmeworks was signed. 1.2.2 n e company was form ally itlcorporated in Kenya under the Shelter Afrique-Act of 1985 of the llnws of Kenya wllich was asspm ed to have a retrospective effect from 1982, Whçn the first lGeneral Meeting of the company 4a: 'held in Nairùbi. The Act ratified the constiment chaher signed in Znmbia in 1981. In order to complete the formâ' tio'ù of the company, shelt! er-Afrique and the Govemment of Kenya signed, in 1984,uz jj j- adqum ef s agreement un Jg r which certaln privileges were ekténdbd io Shelter-Afriqùe by tl.le host Govçrnment. skbsequently, the company begàn to put hi plpce the necessary àdminiseative frnm ework, whi1 ch 1ed to the com mencem ent of operatiönal activities in 1986. ! '
1.2.3 lhelter-Afrique was formed as the first Pan-A' frican Eousing instimtionto mobilize resources and pj romote inve'*s% ent in the htp sing sector, as well as aslisting governm ents in
policy formulai:ion and implementation. 1ts origihnl objectives were: (i) to prômote inves% ent in the housing sector and. viable housing institutions;
(ii) to provide tecbpical aisistance to m ember States, especially for establishing housing dévklöpment and finnncial instimtions; and (iii) to provide technical assi,kstance to governments in housing pblicy fonnulation and implemeitation.
A, tlu' u : .œ = . 2
J 3 e
1.2.4 Initially, em phasis w as put on Shelter-Afrique's social-oriented operations. Thus, th ecompany started by focusing on low-income households as the target group. Projects financed at the beginning had som e social im pact built into them and included squatter upgrading, sites and services schemes, and constx ction of low-cost houses. This approach was not successful and therefore could not be sustained. This was because, since the projec? were to be fmanced with long-term concessionary loans, and, since Shelter-Afrique did not have the necessary resources to conthme this kind of program me, it was unable to m ake any significant im pact. This 1ed to tlle creation of tlle Africa Houqing Fund (M 1F) in 1988, and tlw nmendment of the compu y's stam tes to enable Shelter-Afrique's operations to be com mercially oriented. n e Fund w as designed to deal with the special problem s of the absolute poor in the areas of shelter and livelihood.
1.2.5 Due to the inadequacy of resources, tlie company's shareholders, in their first extra-ordinary m eeting held in 1988, approved the increase of the share capital from U SD 40 m illion to USD 300 m illion. H alf of the capital was to be subscribed by existing m ember counz es and the rest by non-m ember countries, regional and non-regional orgnnizationj. One third of the USD 150 m illion to be subscribed by m ember countries, that is USD 50 m illion, was called-in, while the rem ainder is callable. The called portion of capital was to be paid in three eqllnl nnnual instalm ents beginning from August 1988. n e capital increase was initiated to render the company fm ancially strong and enable it to com mence sizeable lending operatioM .
1.2.6 Until losses started to occur in 1994, operations have been funded from reserves built up over the last few years, the overriding consideration being to preserve inuct shareholders' funds. W hile this policy has been pursued, Shelter-Afrique has found it extremely diftk ult to raise funds in the internntional capiul m arkets. This factor, coupled with the extremely slow pace at which cotmtries are m eeting their share subscription obligations, has resulted in a simation where fumre investment and development activities are put in jeopardy by lack of resources. ln a bid to avoid disruption of operations and to m eet the expanding volume of requests for assistance from shareholders, the company decided in 1991 that a proportion of the share capital could be used for project funding, provided that at least 70 per cent of the capital remains intact at any tim e. This measure did not yield suftk ient funds to fnance the com pany's investment progrnm me for 1992-96.
1.2.7 lt was against the background of operational difficulties, coupled with fmancial m anagement problem s, that Shelter-Afrique comm issioned a study to review the com pany's structure and operations. The report was completed in April 1996 and discussed by the company's General Assembly in May 1996. A summary of the main recommendations of the report are attached as an armex to thls report.
1.2.8 n e Bank participated in the company's equity capital in an amount of UA 15.0 million, of which UA 5.0 million was paid and UA 10.0 million is callable. n e main objective of participating in the equity capital of Shelter-Afrique was to play a catalytic role in the launching of a newly established fm ancial instimtion. The aim was also to encourage other fresh institutional hwestors to join the company, which have, so far, included Africa-Re and CDC. Other objectives included exerting policy-mnking influence through the company's Board of D irectors and, at the snme time, contribute to the strengthening of its capital base. nY
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2 1 PROGRESS ON CAPITA 1,., SUBSE RIN IO NS
2.1 One. of the main issues higrhlighted in last year's report, related to the eqpity participation in Shelter-Afrique, w as the failukte of m einb er states to m eet th eif fm ancial l . obligations t'o the organlzation. This lack of cotnmitment was' de.monstrated by the hi/h' level of arrears with1 res'p>' ect tothe called up capital pai.d 'b qy', . member :t' a't:s. As at 31 December 1995, paid up capltal stood at U SD 21.8 m illion cotrespond ihg to 44.6% of the called tlp capiu l, out of which m ember state shareholders paid USD' 14:3 millioà ô' r 33.6 % of ih, é nmoùht d ue from I - . , '; - them while non-member state shareholders (ADB', Afrita-lu and CDC) paid USD 7.5 mill.ion equivalent to! 100% of nmount due. It should' be 'm ezritioned that called up capital was to be fully paid in threeI equal instalments by 1991. 1 r2e.c2o mmenda$ tiolnt s ics onagtaineqdt itnh itsh eb laacskt greröpuonrtd, ct'.altlzlt'4 t>lbt. è1i . tBkoea srhd a, reinho lidneer sw oift ,h Shtehlete nMAéfnraitgueme, ewnht'os ch. oamvem nio%t yeent l dtoo nthe es or, gtaon ul.zrgateinotnl ya pnda yt ob yg itkhde tehael lneèd-i '#jpè. 'dT èaret do' ifb it'lhietyir tcoa apli ltOawl i nc oomrdp eâ.çn yto tsoh aotwt. a itnh eitisr
developmentl objectives of financing the hoùsing kecter ih Africa. ln this respect, the President of the Bank !in a letter dated 11 December 1996,. dtin' vèye'd 'to' m em ber statés tql e concerns of the Bank on thel issue of subscription arrears. n. Te .lettér also outlined the conditioi necessary for the Bank's c'l ontinued presence in the capitpl of joe'këliter-Afrique. These conditions inkludèd a proof of tangible progress in the paym ent. ',o1 f su'b. #è..: .i ptiti n àr rears within one year and the settlem ent M1f all arrears in two years. i l
y2e.3a r's reportj toT athbel e s2im. 1a tbioenlo pwr ecvoamilipnagr eass thofe 3s0im Jautpioé n1 o99f 7s.ubscriptions afrears covered in last l l Table 2.1$ Yeàr # ihareholders Called up Capiol (USD Mill'1öJlj1.', Paid up Capiul (USD M'iiliohs) ' '%'t',of Arrears l - -r - ' . 31/12/95 34 50.0 21 .8 r 56.4 ' I 30/06/97 3k 50.0 23.9 52.2 ! 2.4 It is clear from the foregoing tab 1ç thé't the simation of su'bscription arrears, albeit . ./r . ' . a decrease ofI USD 2. 1 milli. on, ?h as imptovéd very 1. i.?t ile in t'en. hs of percentage of. arrears which came down from a little over 56% to 52 % . I't is h S'wevér eèfleourazinc to know over kâlf of the arrears repaid! (USD 1.2 million) came withl. n a four ,ptà..nthws' sp. an fo<-' llo*'w' ing the Bank Presidens ,s letter, urging member states to settle their arrearj. Untortunately, the momenttlm has not been sustained thdreafter. ' l . 2O.5 l In response to the recomm. endatiohs. of the stu dy on ''Review of the Struettlre and perations of Shelter-Afrique'', shareholders d uri.hj<'the yeàf 'àdopted various. poficiis to'instittlte ( ' l a minlmum paid up capital by each category of m. ' ir k ljç,r s.t ,a te . lh, ;. addition it has been' agyeed that the structurel of the class ''A'' or member stéfé shraréboldèiis bé. reclassified into three. groups. Below are m'ain features of the resolutions passed 'duriilg the General A ssembly of the shareholders m eeting held in N iamey, Niger in M 'ay 1997.
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1 (i) a minimum subscription of USD 300,000 for African countries seeking membership of Shelter-Afrique (the minimum applies to countries which are experiencing difficult economic situations). (ii) that the existing capital structure be reviewed and that three groups of countries within Class A (member states only) shareholders be defined as follows: @ Group 1 : to include countries whose paid up subscriptions are equal to or above USD 1 m illion;
@ Group 2 : to include countries whose paid up subscriptions are more than U SD 0.5 m illion but less t11= USD 1 m illion;
@ Group 3 : countries whose performance has been effected by their economic simation, as well as countries that joined Shelter-Afrique after M ay 1988 with a subscription of less than USD 300,000. The m inimum payment for this group would be USD 300,000.
(iii) incentive policy whereby any intervention in a member country would be contingent upon payment of the country's minimum subscription as agreed between Shelter-Afnque and the m ember country.
(iv) sanctions policy whereby Shelter-Afrique shall reserve the right to suspend its assistance to any m ember state which does not adhere to the agreed paym ent schedule.
2.6 W 1 1st the adoption of the above policy m easures are a step in the right direction, the true measure of shreholder com m i% ent will be the actual capital subscription paym ents by member states as the com pany's long term sustainability is inextricably linked to them . At present, it is too early to judge the impact of the new policy measures which have only been adopted in M ay 1997. On the other hand, AD B President's lètter to the m ember States at the end of 1996 called for the settlement of al1 subscription arrears within two yers. Based on the current level of paym en? and the fact that m em ber States have opted for a five-year payment schedule to clear their arrears, it is unlikely that arrears will be cleared by next year which coincides with the end of the two year period proposed by the Bank and recom mended by the consultants sm dy.
3. RX VIEW O F THE OPEM TIONAL PERFORM ANCE
3.1. Shelter-Afrique's level of ilw estm ent rem ains very low . As at end of D ecember 1995, the period covered by the last report, Shelter-Afrique had 26 projects at various stages of realization compared to 28 projects in 18 member countries as at the end of June 1997; fourteen (14) of thest projects were under implemenution, ten (10) were completed and four (4) were under negotiation or loan agreement stage. n ese projects covered a wide spectrum of activities, ranging from squatter upgrading, through cement jroduction, housing fmancial instimtions, sites and services schemes to lines of credit. Below ls a summ ary of the stam s of the com pany's project operations as at 31 December 1995 and as at 30 June 1997: ' '< 'v- r j
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Table 3..1 I 31/12,95 30/06/97 P I rojects coppleted 8 10 U I nder implgmentation 13 14 U I nder negqtiation/loan agrèement 5 4 Total l 26 28 Di I sbursed qnd outstanding loaas (USD millions) 10.56 12.6 J 3.2 As indicated earlier, a major ob. stâcle facing Shelter-Afrique has been access to adequate resources. For this reasoh, the company' ha$ been able to finance only a few projects
to tl. ate. As of June 30 1997, the company topl sput ojects had USD 12.6 million disbursed and . ) : y outstnnding compared to USD 10.56 million' ak af t,h e end of December 1995. n e 1ow level of . . . . : ' disbursemen1 ts is mainl'vR due to dela*v s in lotn sign.lng and fulfilment of conditions of effectiveness, in addition to diftkulties encouniefid. in obtailiing loan guarantees. Cumulative disbursemenl? as at the end of June 1997 stood at USD 14 .9 m illion which, on an average,
rAepfrrieqsueen hteajs bleesesn t hina ne xUisStDen c0e.5. Cmoinllsieoqnu penetrl ym, etmheb ecro mstpataen yo'vse rim thpea c1t 5c ayne abre pceorniosidd ethreadt Stoh ehlatevre- been inqigni fkant both in absolute terms and in re' lation to t1.1 e level demand for housing in its m elnber states.
3.3 n e quality of Shelter-Afrique's portfolio is poor. This is demonstrated by (i) the number of projec? with arrears in the portfölio (ii) the level of provisionirig against loan losses, and (iii) tV Iincreasing level of arrears as a percentagt of the total portfolio. As at 30 June 1997, 56% or 9 ojut of 16 projects for which funds havq been disbursed had acears wltile the level of loan loss pjovisionlng for the first six months of 1997 was USD 313,917 or equivaleht to 59% of income fIrom project loansk On the nther hand, total arrears went up from USD 1.3 million or 12% ofI outstnnding portfolio as at the end of 1995 to USD 2 million or 16% of the outstandin g' portfolio as at 30 June 1997.
4. W G ANALYSIS AN D REQSOU RCE M O BK IZATION-
4.1 Inadequate m sources still remains a mâjor impediment to Shelter-Afriquç in realizing adk equately its objective of providing housisng development finance to its member states. .; n is need ls higM ighted by the fact that alm ost 86% of Shelter-Afrique , s portfolio js snanced ' i l n resources .. from it.s ow . One of the m ain factors affecting SheltervAfrique's efförts to m obilize ' resources h1 as been the lack of shareholder com m. itment to pay their capital subscriptio. ns. ,1
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4.2 Shelter-Afrique has not been abl: to m obilize add, itional resources during the p,*4 period under review. Currently, the company's 'resources, apnrt from its paid up. capital, are .,$1 lFim ited to l two lines of credit nmounting to .US. D 27 million from Merryl Lynch Bank. t,@..!q Ulrthermo r'I e, theise lines can only be drawndown with, on average, 130% collateral cover. As j a result, the avalable funds for drawdown under w is facility as at the end of June 1997 is ,J . j , . . . xy'r j).j y! . . ' t y:l'i . '' jk estim ated at USD 4.9 m illion. Furtherm ore, the facility is priced at a spread of 170 basis points over LIBOR which seem s very expensive for a fully collateralized lending. ln our view , Shelter- Afrique could have looked for a m ore reasonably priced deal i.e. using the repo m arket -- considering that the bulk of its collateral was in the form of U .S. governm ent bonds. H owever, this would have required a better in-house capital markets skills which the company does not have at present. 4.3 A recent strategy adogted by Shelter-Afrique has been exploring the prospects of issuing local currency debt bonds ln m em ber states where there is a m arket for such debt instruments. Towards this objective, the board of Shelter-Afrique approved in May 1997, a m u agement proposal to pursue a Kenyan Shilling 250 million bond issue in the Kenyan m arket. n e proceeds of the bonds are intended for financing of housing projects in Kenya. It has been indicated that Shelter-Afrique will use its headquarters building in Nairobi as part of the guarantee for the debt issue.
4.4 'rhe indicative term sheet shows that the issue has a tenor of 3 years and priced at 150 basis points over the Kenya Governm ent 91 day treasury bill. H owever, it should be pointed out that the three year tenor of the proposed bond issue does not m atch the m uch longer maturity strucmre of Shelter-Afrique's projects which vary between five to ten years. Given its delicate financial situation and the lack of depth in the Kenyan market Shelter-Afrique's risk of being unable to refinance either at reasonable rates or at a11 is very real. lf such a scenario was to m aterialle, it could lead to call on the shareholders equity including ADB's. ln this case, the Bank's exposure will be USD 10 m illion which represents its callable capital in Shelter-Afrique. lt should be recalled that Shelter-Afrique has a statutory requirement which does allow the use of more than 30 % of its paid in capital, plus retained enlmings and borrowings to financing projects. This requirement has not been fulfilled by the company as illustrated in the following mble 4. 1.
Table 4.1 (In M illions of USD) 31/12/1995 31/12/1996 30/06/1997
Outstanding Disburscments 10.6 12.0 12.3 Less: Bnrrowings 3.0 3.2 3.2 Capital used for loan financing 7.6 8.8 9.1 Capital authorized for loan financing (30% of Paid Up capital) 5.1 6.1 6.4 Amount over the statutory limit of paid uj capital 2.5 2.7 2.7
4.5 Shelter-Afrique is at a critical point whereby to restore reasonable profitability. it will need to expand the scale of its operations while maintaining its present cost strucm re. 'Fhis will require signitk ant additional capital, which so far, has not been forthcoming from its shareholders while past efforts to mobilize resources from the market has not been successful. M oreover, Shelter-Afrique has already a significant funding gap which m ust be covered, before it can contemplate sourcing new funds for expanding its operations. ' j . n' Lœ I 'pv!-'U OW:Y 'V ICGXN ; Y=C ' MRYN'N . ;î ?. 4'1' L* .,
y : . ,.iy'.,y, y ,y ',yqy. ,)y 1 ft i R ' $ r 'h' i!. 4 I kjt . 4.6I l An analysis of the fundinc cap in table 4.1 shows that Shelter-Afrinue's managementj and board- have been approvhv- l-, na*n s Fithout paying due regard to the compa-n y ,s I J of comlmittment capacity .leve. . As a result, SheltprrAfrique's current com m i> ents are ,higher 1 I . than the resources they have available, thereby. expœsing the company to liquidity .l'ijk. Titis risk is Iestimated! at Uso 10.5 million as at the end 63. June 1997. As a result, sheltçr-Afrique's sh'areholder s' could face a call on their capital if th e company is unable to raise neF resources to ctwer the gaj in its funding. This scenario looks real. 1 Taue 4.1 t Analv- sis of Shelter-Afrique's Fup'd,lnc-ctR.,s.rq M' irîments (I!l milliolqof USD) . ' ' I l 3i/12/1pksy. 31/12/1vvs 3(,/(,6/1997 .;jj l I . . Fesourcu Available from . . I l p0'% of Pai4 Up Capital (a) 6.5 6.7 7.1 1j lte 1 . .tahzed FmrInlngs (1.5) (0.7) (0.7) ILines of Crrl dit (b) 7.8 7.7 8.l I-rcptal Resolrces Available for Disbursements , 12.9 13.8 14.4 Itass: Raolt rca usedmequired for loutstandingl Disbursements (c) 10.6 13.0 12.3 lundisbursepl Commitments (d) 8.1 10.0 12.7 l Gap in Fuql ding Requirements . (5.8) (8.2). (10y5) . t ag jt lxllrr-Arlqy k w swlutg'y requlrecnt lo j. o In.1 yp caplta ln lqty lyy )A t aVal à k u l ls = Ixzlts Necurllle.s wl Mbrtj '#K a 1 alrcu! @NK1k (c)TY dishr' senxnw lus rerqylems. (d) Urdisbltre- Hlz= (m xtstarxliu IYrw + qrdisb=e4 armnls on sigred 1= .
5l . FWANCIAL PERFORMANCE i:
5I .1 As indicated in the preyious. report, up to 1993, Shelter-Afrique was m aking ti. poderate profits with return on equity ranying between 2.5 .and 5.0 per cent. However, due tb Y e lack of jproper financial guidelines in credit énd' liquidity management, the fi nancial viability , jf the co m'1n- any- was weakened by the loss of its deposi? (USD 6 million) witli the. Meridien Ballk Group. n e company ,s Board of D irectors decided to m ake a provision for losses of U SD 4l.0 millioll in 1994 and USD 2.0 million in 1995,k Furthermore, during 1995 Shelter-Afrique
1lp ceurrarteindg ap jlroosfsi t offo rU tShDe y1e.a4r7 wmaisl liUonS Do n0 .i4ts7 pmoritlfloiol' nio, wofh bicohn dw ahsw reesdtumceendt st. o 'la'h en eçto lmospsa noyf 'Us SnDet 3I .0 milliok, after provisions. 'Ihis net loss was equivalent to 13.6% of the paid-up capital. ' 5.2 Although the operating enyironm ent of Shelter-Afrique rem ains difficult, it was l c nevertheless able to record a sm all net profit of USD 0.78 m illion in 1996, following two ' ql oinsecutivIg years of loss mnkl.ng . Gross income i.ncreased by 17% to reach USD 2.41 m illion
il n 1996. T1I 11s increase is larc*''elv*'' attributable.to. h iglner hwome derived from project lonnK (43% of gross i n'1come), which for the first time stfpassq.d income derived from investment of surplus ! @ i
( 1 l . . .i. . . . -, .- u. .:. .,:. . . . . -. -,' .:a-. . .- - . t
funds, as the largest conlibutor to the total incom e. n ere was also a USD 0.5 m illion write back to the income against provisions made during the previous years as some of the projects repaid their arrears. Finally, the com pany was able to reduce its adm inistrative expenses which still remains very high at over 107% of incom e from loans.
5.3 n e sm all gain realized in the financial results of 1996 has not been sustained during the first half of this year as reflected in SheltenAfrique's financial simation for the period ending 30 June 1997. During this tim e, Shelter-Afrique declared a net loss of USD 0.06 m illion while gross income nmounted to 0.98 million of which 54 % was derived from project loan incom e. On the other hand there was a m arginal reduction in adm inistrative expenses to 102 % of income from loans which is still considered very high.
5.4 'rhe financial resources of Shelter-Afrique are dom inated by shareholders funds which amounted to USD 23.2 million or 86% of its total resources while borrowings (drawdown on the line of credit) represented USD 3.2 million or 12% of the total resources. The strucmre of tlx resources shows the company's dependence on shareholder equity as the m ain source of funding its activities on one hand, and its lack of success in tapping the capital markets, on the other. 0n the deployment side, 46% or USD 12.3 m illion the com pany's resources are used for project lending whereas 43 % or USD 11.7 million are kept in deposits and investments in securities. Overall, the financial sim ation of Shelter-Afrique rem ains weak despite the slight im provement registered in 1996. n e Financial statements of the com pany are presented in Annexes 4 and 5, a plmmary is highlighted in the following Table 5.1.
Table 5. 1 Financial Indicam rs :31/12/1994 - 30/06/97) 1994 1995 1996 30/6/97
Gross Revenue 2.13 2.06 2.41 0.98 Operatlg expenses 1 .38 1 .37 1.43 0.73 Admin. Expenses 1.15 1 .23 1. 1 1 0.55 K ovision for losses 4.4 1 2.17 0.2 1 0.31 Net optrating income/tloss) 0.75 0.69 0.99 0.26 Net Profit (loss) (3.66) (1. 18) 0.78 (0.06) Project lonnq portfolio 6.53 10.56 12.0 12.3 Financial investments 16.53 10.27 10.41 10.8 Total Msets 25.19 23.86 25.59 26.9
Authorized capital 300.0 300.0 300.0 300.0 Issued and allotted 150.0 150.0 150 .0 150.0 Called-uy capital 50.0 50.0 50.0 50.0 Paid capltal 20.9 21.8 22.5 23.7 Accumulated profit/lloss) 1 .5 (1 .5) (0.7) (0.7) ' Total equity 22.8 20.6 22.01 23.2
Current ratio 3.5 1.0 2.12 1 .4 Total Debtfrotal Assetstl) 9.3 13.6 14.0 12.0 Return tot.assets (ROA) (14.5) (12.4) 3.0 (0.2) Retum on equity (ROE) (16.0) (14.3) 3.5 (0.2) Admin Expenses/c an Income (%) 217 168 107 102 Admin.Expenses/Total Expeases (%) 83 60 46 56 ' 7 '. = - '! 7 * : V 'F i $ i 10
6. ADB'S- - STM ENT
6.1 As at the end of June 1997, ADB'S sqbscribed share capital of USD 15 million was equiwtlent to 7.8% of the total subscribed sh afé canitgl, wllile its paid in capital of USD 5 million : repj( esented 11I % of the total paid in capiul. Ta'*. 'bl' (: -6.1 below recapimlates the evolution of ' ' hare in book value Shelter-Afrique s s . l ( Table 6.1 , l 1 . lpps 19:6 nsm, ' I 1 l -ox) 21 . p#d up capit: (net in -799 22.498 23,708 A! 1 , 6) çcum. profitj/llossl+ Reserves ( 000) (1 , 186) (489) (54 1 1 'ooo) 20 Tqtal Shareholpers Funds ( ,613 22,0:9 23, 162 Nqi mber of Pail d uo Shares 21 . l * . ,799 22,498 23,708 B l' l ' opk value pej Shares 946 978 977 ! 6.2 The book value of Shelter-Afrique's shares as at fkhe end of June 1997 was USD
977 or 2.3% b! elow its par value of USD 1,U00, ppid by the Bntnk. The current value is an im pro1 vement ojIv er the book value of USD 946 as At th e end of 1995. n e sm all improvement is due tljo tàe dec jease in accumulated losses of SheltermAfrique over the past one and half years. H owever, it can be concluded that, in general, the Bnn, k , s investm ent has pedbrme( j poorj y yoyjj in terl ms of sharleholder value and ROE . l . 6.3 Shelter-Afrique's shares are not listed, and therefore have no m arket value or
slicqeuniaqhitoy . stTinhuisl al'tleimd iutsn dtheer tBhaen kst'asm oeps tiofn sS hine lter-mAsf roiqfu ex, iot thmeerc hthaannis mou. trling hfta' clitq, utihdea tioonnl yo fe xthiset l '* company whichl requires approval by 2/3rds màjority, is through share tram fer/sale to a third
aP asrhtya ljehn otlhdee rc oinld tihteio cno tmhapta tnhye. mTahjios rist yc ofn tsrhaarryi htèo lpdoelrisc ideès eisn nsoimt oilbajre cint stofi tsuuticohn as tshuicrhd apsa rtthye bPeTinAg Bfank lol' the EAI DB, whereby members other than-' the member states (i.e. ADB) can withdraw rom $ (.) capitalt with a share buy back ojtion. On the other hand, neither Sheltçr-Afrique's past pedb nlnance re jord nor its present financtal sitttation makçs the company an attradive investmeny. Thus,lit is lzigllly' unlikely that the Bank will be ablé' to firïd à buyer for its shares, should it decide to wi draw froln the company's capital. 6 l . 4 The laçk of a realistic exit mechnp ism has other implications fùr the Bank. There is a significant n1sk associated w ith the callable capital a: long as the Bank continues to be equity holdej in the coml! pany. nis exposur' e, nmounting. .tT:ù US..D 10 mi'llion, is far more impom. nt than the USD 5 million paid-in capital. Shelter-Afrique h'as klready statted the process of asg s j gung pau of thisl callable clapital by an over commitment on jtà loan' : (hmding gap) and implicitly through th8 issu'es the Kejyan Shilling Bonds. lt is to be ni, jtè. d tthat the investors in such a case would first look tol tlle callable capiul of the most creditwoe. . y jlzareholder; w'kich. in the case of Shelter- Afriqule ltre ADB' ,CDC and Africa- Re, and togeti e.r have a combiqeà callable capital of USD 15 m illion' . M oreovel r, the proceeds of the bond issue wil' 1 have no im pact on the size of Shelter-
Afriquj e's curren1t funding gap as this is likely to. ' . hlas not yelt been signed and i erefore not takfienna ninq:to haocucsoiungnt d, indv deelorpivminegn t hleo agnasp to Kenya which ! . I l 1 i . -ielz ils -' ., ? - i'h' M-kl h' *,-*-1:/. '-7 -' .' ' ' Lî' ï.Lî''ï' '- :' -' A 11
CONCLU SIO NS ANlà RECOM M ENDATIONS
7.1 Since the last equity review , there has been very little progress in Shelter-Afrique's simation both in financial and operational term s. M ember countries have yet to show the com m i% ent needed to im prove the company's operational effectiveness and fm ancial viability. M ost of the mem ber states have significant portion of their called up capital in arrears despite repeated pledges to pay and calls from both its m anagem ent as well as the ADB to do so. It should be recalled that called up capital was to be fully paid by 1991. This has had profound implications for Shelter-Afrkue's ability to mobilize resources, and more importantly, has put the company in a situation whereby it faces a signitk ant lack of resources both to m eet approved loans or to commit new ones. As indicated earlier, Shelter-Afrique's funding gap as at the end of June 1997 is estim ated at USD 10.2 m illion.
7.2 n e im pact of Shelter-Afrique's operations rem ain insignificant. Accum ulated disbursements to m ember states over its fifteen years of existence stood at USD 14.9 million as at end of June 1997 which, on an average, represents less than USD 0.5 m illion per m ember state. This is very 1ow both in absolute terms and in term s of the dem and for the developm ent of housing in the member states. Furthennore, the quality of the few projects financed by the company so far is deemed unsatisfactory. This is reflected in (i) the number of projects with arrears as at the end of June 1997 (56% or 9 out of 16 projects) (ii) the level of loan loss provisioning (USD 0.31 million or 59% of the income from project loans). and (iii) the increasing level of the overall arrears (USD 2 million or 16% of the total outstanding loans). 7.3 Shelter-Afrique's financial viability does not look good. The scale of its current operations carmot support i? actual cost strucmre. Adm iMstrative experlses are presently at 102% of the income the com pany earns on its total loan portfolio. I'he financial simation of Shelter- Afrique is at a critical point whereby to restore profitability it w ill need to expand the scale of its opérations while m aintaining its present cost structure. This will require significant additional capital which so far has not been forthcom ing from its shareholders while past efforts to mobilize resources from the markets have been largely unsuccessful. Coujled with the funding gap, the company's urgent need for resources is m ore im portant to its contmued survival, than it has been ever before. Overall, it does not appear that there will be much change in the company's current financial simation. 'Fhe risk of a call on the shareholders is real in the short to medium term horizon if additional resources are not found to cover the funding gap in Shelter-Afrique's IXSOUICCS.
7.4 As investment, the Bank y s equity in Shelter-Afrique has pedbrm ed pöorly'. In the fifteen years that the Bank has been an equity holder, not only has Shelter-Afrique failed to create shareholder value but it also failed to m aintain the original value of the equity. Consequently, the current book value of the Bank's investment is below its purchase price.
7.5 In light of the foregoing, it is clear that the Bank's continued involvement in Shelter-Afrique is not justified. M ore impolantly, the company's financial viability is doubtful and therefore calls for the Bank to adopt measures to safeguard its investment. However, as explained in paragraph 7.4 and 7.5, this usk is complicated by the lack of clear exit m echanism available to the Bank, other than an outright sale or transfer of shares. At present, the sale option does not appear to be feasible as both Shelter-Afrique's current financial situation and its historical perform ance is not adequate to secure investor interest. '
' ' . -:'t#L. -.:k:. ', & . j 7- . .,- j2 . 1, ' .y . e y 12 C'. y y a,., : . . 7.6 n erefore, in the absence of clq,ar exit mechanism, it is recommended that a .L j'3b- .!;q#tL.'j mangement taVsk force should be created to look into the most feasible and advantageous way for '!) the jBank to pj tect its investment in Shelter-Afriquw The ta, sk force will,y nmong other things, 9') have lZe responsibility to negotiate with the Sk. e'lter-Afrique s m anagem ea arz sjjarajjoyiars ou y 1 k . . k , t , vanous optionl s including but not llmited to (i) al.lym.'.jti1zg? the Bnn' s exposure o is.pajd up capiul, ,: f equity into secured lending, o'r 'prbèrerence sh'ares , s(hiia) rl ceohnovldeerrssio ytIo ob uy the Bnnk's shares (even if it m.ày lvblve a disacnodu (nitii) . àuppwr ofcamchd' iinngg so tahnedr' 'j recqmmendatiom of the task force will be submiaed. to the Board for consideration and approval .! by June 1998 't . ' . ,j .) L 7.7 n e Board of Dkectors is hereby invited to consider the present docum ent and t approve the re1c ommendations therein. ?s!
l
I h 1 1 1
-j (
#
axr , . .-+. Gc 2K:-'l.'' à '. '' ' '' ' '1*' 'k'Y#Y*d*>'W P'-* W ' AXNEX 1
M elllber Countries of the Collnpany for #. H abitat and H ousing in Africa (Shelter-Afrique)
' d
C.a. *Ia.?w 'mvomxàu ., è>J ,x- ç. o. ' >-z. $: s.YW . e %Q .'k*. k' z Y'm :A # C'' bvr'b%tD .z'.* +Wg' .X yybw'n : *> ?:..0. sefmv. . Q: .. 'v..w xo . . 8* s. <. 4. . . .- ,k#. . . ; . . jk(y . . *. % . . œ ... o.v .... t/k. , '.6i: r. & K tis ?.tz. ua.yz).b.,k:.sf jjtvç. ;a. YAgG. jl :w. y'. .%W') .'p ïî* .)2< ' . Q' è' . . . ' .d' %J!fj(: . ' > rtr% 9:y e;u. '. t ;. xw > . s. . . x .w.R 41. m) 4y. . 0 . a t . $* e-lvrvœ v?fh. . . . u . .. w.e g:A*ù. >AA(Jl*'if* . . .4-.,. < ad > 15 CJ . . ''> ..'.sk.z . . - jj j(* j:jV (jk. . '.t' jgrd' ytk<.>y1);:e .Ta ' ..+: 4;.:1h G u 1 nea . C' ' *.k
teotb $'q
ANNG 3 > SHELTER AFRIQUE LONG TERM LOANS AGE ANALYSIS O F OUTSTANDING BILLINGS AS AT 30TH JUNE, 1997
M R dng RA- a M e dhg *o nt + Ca - nt M ' t5$ lnvete e . DueDate œ $ M a W Pre ' lnlere Ft* e a Total 1. LVG AIFM .YS 1M,5D.* * 1 m A 2W= 7 ' 1&.572.* M R IV DAYS 1M.572.* :*1572.* 1M,572.* Q.X 0.X Q.œ 1&,572.œ Z C* R& 4*.98 GAM> IF& 3 31/W * 314.07 CNER 1K DA> 314.07 314.07 CA WKANIF/OIM 3W11/O 1D.31 M R IK DAYS 1&.31 1a.31 C%AM> FM S 31* 7 a.* CSJRV NT a.œ a.K 4% 9: 4&.98 Q.X 0.œ û.* 4*.gô 1 NG RNF> 37:.794.* NIWABUW M (/1/IWH V,239.% X R 1 YFM *,239.% *,D 9.% NIWAKDNPII M.m ?œ 0,235.K CNEH 1 YEM *.235.D 0,235.K NIWABte I4 31/1a 115.0*9.71 M R 1K Dm R.235.K a,K54.41 1:5,0*.71 NIWAGDW 5 :K/W 97 127.2K.* CtlIQvvr Mm D5.K N.41 6.57 12.57:.% 127.2K.* 37:.794.46 312.945.% *,270.* 0,œ $2,57:.a 37:,794.* 4. LraR NO IM )G a.W k**W N+ k1/1:6 31/11* m.1 1 M R 1K Dm Y.11 m.11 U* MU417 31* 7 9.7: CIJG Sr 9.76 9.76 a.8T *.Wl 0.X 0.œ 0.œ *.87 5. Gtze 1&.6a.2$ GUI< IMW- 31/1a M,6*.* X R 1K om 45.* 3.71 5,= .* 4 344.61 M œ 0.% GUI GIMQM * 7 1=77. 69*M.:%1 CURXG *44.91 51.œK *K,a*4Z.* 7i1W'r.19.M15 0.œ 1VFF'963a:.2D1 & DJlW l œ.œ1.V DJIW TFM TW o rrhm *.œ 4 YEW œ.œ *.œ DJIW FK TM 3$/1a 4,-7.% M R 3YF.a 3,7K .* 1;*7.26 4,-7.% DJIW FK TM txMo 4.642.* 3 YEW 3.7* .* * .6Q 4.Cp42.* DJIW rFU /IQ 31/12* 4.*7.40 CNER 27M 3.7* .* *7.40 4:*7.* DJIW FM T/II > 4,*2.* 2 YF.R 3,7K .* * 6Q 4.* .* DJIW FU r/mZ 31/12* 4,*7.* CNEB 1 YFM 3,7œ .* = .40 4.*7.* DJIW FM T&I: M#+* 4- 7.53 1 YFM 3.7K .* 07.53 4.647.0 DJIW FM TR 4 31/1% 4.*7.* œ E; SK DAYS 3,7* .* K.w7 4: 41*7.* DJIV TFM T&IS ** 7 .,6>3.* CURXNT 3,7* .* = 60 :.* .44 :,2A3.- 39491.0 K.œ0.œ 7.451.41 0.œ 1.* .*4 % .œ1.V T. C* Q.œ CklRX MT & MCW-RG M S FRO + ,219.21 MC#M S !Rœ > > 211,50.37 CNEH 1 YFM 1*,6*.* 44,87:.71 211,543.37 NIWM S PR()PO 31/1a 219,737.* W ER 1K DAm $*,6r*.% 53,070.74 21:1737.* RIWM S PRY O 31= 7 114.917.19 M q K DAn &3.% 3.33 m,K 1.> 1Q,782.* 114,9î7.1: MWM S F< :3/4%7 :4Mm 7 11qp21.H GURX NF 13,333.33 ZIIBZ9; 13.* 4.* 11ëQ21.% + .219.1 + .9*.* 139,7œ.% Q,œ 24,436.97 * ,219.m 9. Mu wl 1WA71.M MAX IFY :
11. SEX CGLIGFWY YA i) & ,757.% SEK RYCFF! 1> 2 31/1a 9.94 M R 1Y DAm 9.94 9.94 SEN/GRYCFFIIM : K/W 97 + 747.91 L'UG NT m9,Qœ.œ 7:.747.9$ & 747.91 #/ LW .K5 219.0*.94 711747.91 0.X Q,* & .757.15 IZ CM ERCKJN Q.* GuG < 13. Ce 75.4-.* CA C LCrA> > 7 75.*4.* cuG vr 42,*ô.* 33,425.27 75,4:4.* 14. SEX CGMGIIK YCFF I 1W.3D.* SEN/GRYY'F 1m 31/$2* 10.12 M q IK IMYS 10.12 10.12 SEG iRYCFF 1/010 * .m ..M7 1 W? 3*.97 CuG vr œ.K ;.* 44,*6.97 107 3*.97 # 1 07 .3N .œ e2,510.12 44,*6.97 0.X 0,œ IW .,377.* 1s PTA Bm FK IMJW ER 31.74 IN'Y w /97 31.74 CURXNF 33:.74 31,74 :e F.AB.S. G A Q,* cklqx Mr 17. M RCAN - lV Al*.p1D I 31/12* CURIV-NF
TOTM 2.1K5,:*:.% 1 445 >2.11 478,01:.* 43 112.œ *.655.* ac 328.% # M)TE: Thet@tal ewrMze i)g - td k5$ 3% 134.94 was re't 'M tm :7> X
AN NEX 4 Page 1 of 2
SHELTER-AFRIQUE INCOM E AND EXPENDITURE STATEM ENT FOR THE PERIO D ENDED 30 JUNE 1997
Actual
INCO M E US$ lnvestment of Surplus Funds Project Loans Realized exchc ge Gain/tLoss) H/Q Building/ Service Charge Other lncom e
G PENDITURE ADMINISTM TIVE: General M eeting Board Meetings Office of the Managing Director Com pany Secretary's DepM m ent Finance DepM ment Operations depadment
OTHER G PENSES H/Q Building & Maintenance / Expenses Depreciation Finance Charges TOTAL G PENSES BEFORE PROVISION OPEM TING PROFIT BEFORE PROVISIONS LESS : PROVISIONS SURPLUS / (DEFICID ACCUMULM ED RW ENUE RESERVE B/F ACCUMUM TED RW ENUE RESERVE C/F ! j l A NNEX 4 ) Page 2 of 2 l SHELTER-AFRIQUE ASB AATL A3N0C JINU ANHEIe E1T997 ! l !
àHARE C/kP/TAL R. ESERVlES
FQUITY t j R' j ' epresenlted By ,'j NET F/XD ASSETS
#ao l . l Jsc T LoANs t' l ! j lNFFSTyFNTS j C URREN TASSETS 1 . 1 (CURREN r LIABILITIES NET. CU1 RRE J NTASSETS
2 TOTAL ACRSSTS 1 l
!
l 1 l l d * A NNEX 5 Page 1 ôf 2 F
THE CO M PANY FO R HA BITAT AND HOUSING IN A FRICA (SHELTER - AFRIQUE) INCO M E AND EXPENDITURE ACCOUNT FO R THE YEAR ENDED 31 DECEM BR
IN COM E lnterest on Sup lus Funds lnvested Realized Exchange Gains Interest on Long Te= Loans Head Quaders Building Income
St/ndly Incom e
EXPENDITURE Directors' Fees A uditors' Rem uneration and Expenses
Interest on shod Term Loan Adm inistration Expenses Provision for Doubtful Loans Provision from Doubtful Deposits and lnterest thereon Realized Capital Loss on Sale of Bonds Headquarters Building expenses Depreciation
SURPLUSRDEFICIT) FOR THE YEYR l ANNEX 5 ! Page 2 of 2 i
THE COMlPANY FOR HABITAT AND HOUSING IN AFRICA 4 (SHELTER - AFRIQU*) Il l BALANCE SHEET / zl DECEMBER l ) 1996 1995 US$ US$ FiXED ASSETS 2,380,049 1,961,437 rCR OJEC)! LOANS 12,002,301 10,562,371 IN!VESTMENTS 3 l I ,624,137 8,246,652 CURRENT ASSETS i Deposits 6,786,123 2,023,251 7 Debtors 558,494 642,744 $ Cash and Bank 234,992 425,101 ,I 7,579,609 3,091,096 JURREN IulAB1uITIEs S1 hort Term'l Loans. 3,200.000 3,000,000 I . Creditors 377,497 248.567 I 3,577,497 3,248,567 kET CURRENTASSETS 4,002,112 (157,471) 1 : 22,008,599 20,612,989 kINANCED éY : l qAID UP CAPITAL 22,497,552 21,799,020 ! CAPITAL RESERVE 200 . ,000 200,000 'l seAo ouI /kRmuRsI BuluolNo RssERvs aa,29s kccuuul LAazo oluolclv (ea8,:sa) (1,469,,a2e) ( 22 l oo8 ,s99 20,612,989 l
I l 1 . .k-..- -- ts ..-. . :.-. - z'!- ,. 515.;)-.'.1a.: -J .-- -.k. - .- - . -.- i .-' -cu â #
ANNEX 6 Page 1 of 3
SHELTER-AM OUE
1. SJJ> ARY OF 'FHE M AIN RECOM MEND ATI-QNS OF THE STUDY
Capital Requirements
a) Existing sbareholders should pay their capiul arrears over a period of 2 years. b) Implem ent sanctions policy for delinquent members. c) Additionnl equity contributions of $25 million payable in local currency or in land.
d) M inimllm payment should be for at least 1 % of the called capita i.e. $5(X),4* inconvertible currency.
e) Elim inntion of the existing, different class of shares A,B,C,D , and replace them with one class of ordinary shares in Shelter Afrique.
9 Voting rights based on the value of the paid up shares.
2. Recommendations to be submitted to the Board's consideration
2.1 Stategic Option
Recommendation: W holesale Housing Finance lnqtim tion/'Development Bnnking'' .For the next coming five years, project fmancing will represent 80% of Shelter M rique's activities.
2.2 Gove> nce
a) Appoin% ent of the M anaging Director to the Board of Directors. b) Loan reques? under $5* ,(0 should be approved by a M anagement Com mittee.
c) Reduction of the number of directors to 7 with corresponding decrease in the number of alternates. ' x. ,.g. v<. w'<>m'% v . '' KYtN---v, '= v .'r m';=''
i 1 / ANNEX 6 Page 2 of 3 d) Allienates should not be allowed to the Board or other meetings when the sI ubsuntive Directors are present. ' f e) 1I 4,3% shareholders, entitles a group t' o a. board seat: group member according to their developm ent status or shareholde. t! ,interests. l 9 Ml ember cotmtries should encourage private sector participants to represent Aeir interests on the Board. g) n e appoin% ents should not 1he resz cted to African nationals only. h) The sitting allowance should be increased to $750 to ar act private sector psrticipants.
Oreanisation Structufe a) Recommended s% cture does not include the Corporate Secretary. The Secretmriat for the board and legal affairs are combined in a depaM ent called ''u gal and Adm iniskation'' b) Creation of a Unit: M arketing and new business development. c) Focus on treasury aspect at the Finance Department level.
Caoital Recuirements I l ntrodul ce a debt equity ratio of 2 to 1 Recomm endations to be coc idered bv . M anazement P l rojett l-ou Policies and Proee.dures a) Blend flnnncing b) Risk exposure limit.s on single lendini g, lending to a country, lending to a pm icular local currency bloc, and by 7co llateral type. Risk lim as for private and public sector.
c) Non-accmal policy l d) General provisioning e) Sanctions policy for recovering lonnq arrears. 1
1
i1 j 4.
ANNEX 6 Page 3 of 3
3.2 Inves% ent Policies and Procedures
Revision of Shelter Afrique's inves% ent policies and guidelines
3.3 Human Resource M anagem ent
a) Revision of staff performance evaluation
n e appraisf form should l)e redesigned
c) Job descriptions should be nmended to reflect the business objectives of the overall seategic plan.
3.4 Remuneration
Salaries of the local suff should be adjusted to current market rates. For a11 the above m entioned poinl, M nnngem ent will subm it recommendatiorls for the Board's approval. * j%.. #t ê ANNEX 7
Honourable Miniqer,
Canital Subscription in Shelter-Afrinue
M part of its review and monhoring of ADB'S equity pm icipation in other irkstitutions, the Bank's Board of Directors recently considered the Ponfolio Review of the Equity Participgtion in Shelter- Afrique. n e Review was prepared by our staff based on dx uments and information supplied by Shelter- Afrique.
As you are already aware, Shelter-Ahique was formed in 1982 as an intergovernmental agency nimed at providing flnnncial and teclmical csistance to the housing sector of memY r colmtries. During the p%t years. growth in oy rations of the instimtion has Y en seriotksly hamm red by the lack of flnancial resources necessary to hrst the hnpact of the organisation on the contincnt's hotlsing sector. For this reuon, a smdy wms commissioned from a reputable consulting flrm to provide shareholders with a comprehensive review of Shelter- Afrique's strucmre and om rations.
W hilst higblighting the low level of om rations, and the increasing arrears on loanq, the smdy concluded that the r* t cause of Shelter Ahique's problems is the failure of the meme r countries to pay their capital subscriptions. lndeed, as at 30 September 1996, out of the totai called-up capital of US$ 50 million, only 45 mrcent had Yen paid. As a result, despite its large pim line of projects. the Company has only been able to Gnnnce few oyrations. It also noted tlmt Shelter-Afrique's fmancial viability has been wenkened by the exm cted loss of its dem sits with the Meridian Bnnk Group currently under liquidation.
n e Board tx k note of the new package of reform meuures initiated by the Company's new M nnngement to restore prudent and efficient fmancial management. However, the Board also observed that mucb more remninq to be done. pm icularly in ternu of actiorks to control arrears on loans and capiml subscriptions. ln this regard, the decision made by colmtry shareholders at the 15th AImUaI General M eeting of Shelter-Afrique to remit their arrears within a time-frame of 5 years would only worsen the Company's financial simation.
M you are aware, the demand for housing in Ahica is very high, and Shelter-Afrique has a key role to play in reducing the Continent's housing detkit by promoting investment in the sector, as well as providing assistance to governmen? in m licy formttlation and implemtntation. It is on this basis that the Board approved M anagement's recommendation that the Bank mnintains, for the time Y ing, it.s equity pm icipation in Shelter-Afrique. n e Bank will contirme to closely monitor Shelter-Afrkue, pm icularly through its Board representative, and through semi-nnnual rem ns on tangible progress made in the implementation of the restrucmn'ng plan, as well as in the effort made by memY r cotmtries in discharging their obligations to Shelter- Afrique. .
The Bnnk will, by tlle end of 1997, review its m sition in tllt Company. Should no tangible prop ess 1x made in the area.s mentioned aY ve, tlle Bank will have no other option but to withdraw from the Company. It is, therefore, imm rative that cotmtry shareholders effect full payment of their capital subscription within the z-year time frame recommended by the study on Shelter-Afrkue's structure and om rations. To this end, I wish to call on the shareholders èf Shelter-Afrique, who have not yet done so, to urgently pay the callable capital in order to suppm the ongoing restrucmring exercise.
W hile lx king forward to a prompt and full settlement of subschption arrears vis-à-vis Shelter- Afrkue, please accept Hon. Minister, the assurance of my highest consideration. lrours sùzcerely,
Omar Kabbaj