UBS bank rejects concern about its K4 billion loan to PNG
03 July 2019
NEWS DESK | Finews.com | Edited
ZURICH - UBS Group AG, Switzerland's largest bank, has commented on the K4 billion loan granted to Papua New Guinea that contributed to political upheaval still resonating today.
The multinational investment bank and financial services company has a presence in all major financial centres has issued a brief statement outlining its view of the case.
Five years ago, UBS granted a loan worth US$1.2 billion (K4 billion) to PNG, which used the money to buy a stake in petroleum company Oil Search.
The deal went wrong as the oil price fell, forcing the PNG government to sell the shareholding at a loss.
Since PNG’s prime minister Peter O’Neill was replaced two months ago, his successor James Marape has ordered a thorough review of the case.
UBS said it welcomed Marape’s move to establish a commission of inquiry into the loan.
The bank said this will provide a welcome opportunity to independently evaluate PNG’s strategic investments.
UBS added that a report by the country's ombudsman had revealed nothing untoward on the part of either the bank or its employees.
It said the loan had been granted in 2014 in accordance with local rules and regulations.
UBS said an experienced local law firm, Ashurst, had been part of the negotiations at the time.
The government had also received further assistance from KPMG and Norton Rose Fulbright, a global law firm.
UBS points out that the loan was made according to the relevant laws and in conformance with normal business and banking practice.
To the best of my knowledge, no-one is accusing UBS of acting unlawfully (at least, not yet).
The real point at issue here is that UBS essentially facilitated a K4 Billion bet by the O'Neill government that the price of oil and gas and hence the value of its investment, would go up not down.
I and many other critics of the decision to buy shares in Oil Search using public funds pointed out that the price of oil and gas was at historic highs at that time and thus inflating the price of the shares being purchased to a level that did not reflect their underlying long term value.
We also pointed out that the downside risks of such a manifestly speculative investment in the volatile energy market were very high, so the likelihood of PNG losing a lot of money was also very high.
Now, 6 years later, the critics have been proved correct and PNG has lost money that it should never have lost.
As a class, politicians are generally crap at making business decisions. This has been demonstrated repeatedly across the world and PNG's politicians are no exception to the rule.
The proposed inquiry will reveal this basic fact and, very probably, confirm that UBS acted lawfully at all times.
However, whether there were any "facilitators" involved in brokering the deal, what they were paid and where the money eventually ended up will be a matter of interest.
Posted by: Chris Overland | 03 July 2019 at 11:26 PM