The Turmoil of Infinity BPO
In the context of the economic recession which hit the west in 2008, the previous government had set up a Stimulus Package which was later followed by an Additional Stimulus Package. The aim was to support local private enterprises affected by the recession in the west with a view to safeguarding employment. This scheme has been renewed by the present government under the new appellation of Economic Restructuring and Competitiveness Programme (ERCP), a programme which is managed jointly by the State Investment Corporation of the government and the Joint Economic Council of the private sector.
Some local enterprises have so far received support in this regard under either the Stimulus package or the ERCP or both. Among them, Infinity BPO, a call centre, is one. Mr Jean Suzanne, an adviser on IT development until lately to the Prime Minister, is the principal owner of the firm. The firm apparently ran into serious financial difficulties in 2009. Funds were accordingly provided to it under the above-stated arrangements, on 28 November 2009 (Rs 102 million, including Rs 12 million from the main shareholder) and on 1 April 2010 (Rs 340 million) through the acquisition of its building under construction by the National Real Estate Ltd (NREL), a government entity. The latter amount was employed to repay: loans owed to the company’s bank Barclays (Rs 200 million); additional funding made available to it in November 2009 by the State Investment Corporation and the company’s bank (a total of Rs 90 million) under the above-stated Stimulus Package; unsecured creditors (Rs 25 million); cost of completion of the building (Rs 17.4 million), and rental (Rs 7.6 million) paid in advance to NREL, the new owner of the company’s building.
It will be noted that only months separate the disbursement of the first facility and the second disbursement on April Fools’ Day 2010. In this interval, the company’s banker got repaid all the facilities it had granted to the company, including an additional amount of Rs 45 million it had conceded under the Stimulus Package on 28 November 2009. A bank gets its facilities repaid in this manner when it is uncertain of the future viability of the borrower. The company’s pre-existing debts have consequently been picked up by the government or its agencies.
It is one week now since Infinity BPO’s employees (some 470 0f them) have gone on strike to protest the non-payment of their remuneration. Some of them have even gone on hunger strike at the company’s headquarters in Ebene Cybercity. All this may look like an ordinary matter in the life and death of companies. But there is more to it than meets the eye.
First, the Business Process Outsourcing (BPO) sector, in which the company is engaged, has not been particularly hit by the depressed international economic conditions since the recession began in the west. Together with construction, the BPO sector has in fact been one of the major sustainers of employment in Mauritius during all this time in these past years. There are unfilled vacancies currently in the sector. If this holds, there was little ground for the Stimulus Package to get into the picture as its stated objective was to sustain employment in those enterprises that were affected by the western recession. The BPO sector does not appear to command this kind of intervention.
If anything, therefore, the company must have found itself in this situation due to internal problems relating to excesses, such as weak management or weak controls over outlay of funds, or both. This is the job specifically of bankers: they bring back an undisciplined company to its senses by tightening its access to borrowing before it tilts over into irreparable territory of being so riddled with debts as not to be able to meet its day-to-day obligations. In the present case, it is observed however that the banker decided rather to back out of facilities it had granted to the company barely 4 months ago under the so-called Stimulus Package. It also got its past loans repaid from the sale proceeds of the company’s building to a government entity. In other words, the company was not “bankable” but this was so for reasons not associated with the international economic recession.
Second, it has to be questioned as to the quality of the analysis of the fundamentals of the company carried out by the Independent Financial Advisers (IFAs) of the ERCP/Stimulus Package. It is to be noted that this analysis by the IFAs was endorsed by the ERCP/Stimulus Package authorities, leading to disbursement of substantial funds by the public sector to salvage the company from the only alternative route left to it, namely going into receivership at the hands of unsatisfied creditors. Did the analysis of November 2009 foresee that the company would have to sell off its incomplete building four months afterwards to overcome an otherwise untenable financial situation? Or that it would not be in a position to honour its obligations towards its employees in November 2010, except by leaning on money set aside for meeting its rental obligations towards the NREL, which is the new owner of its former building? In that case, how did they arrive at the future sustainability of the company, making it a fit candidate to be salvaged? It is clear that errors of judgement and decision are lying strewn along this path.
An objective assessment of the real viability of companies facing financial difficulties would not have landed so much public money into a private company that has failed on more than one count within a short period. This kind of stringent test of objectivity would have been severe towards prospective borrowers trying to help themselves to obtain money belonging to the public. That, in turn, would have required clear demarcation lines to be established on the distinct roles of the private and public sectors, which is essential to public governance. There are conflicting positions when you mix up the two of them without applying the required amount of rigour.
The distinction also appears to have become blurred in the case under consideration. Having participated in the financing of the failing company, the government has become a concerned party. This kind of involvement impairs its effectiveness in its role as overall regulator of the system. This case shows that the government has to weigh the consequences carefully when stepping in as financier of private sector entities looking for money. It can engage taxpayer money when there is an overwhelming case in the public interest to do so. The question in the case under consideration is: how quickly will the NREL get new tenants into the building it recently acquired not only to recoup its investment? It also has to get a rate of return representing a fair deal to the taxpaying public, quite apart from pursuing the basic objective of protecting economic growth and employment.
Following the path of rigour and rectitude is the inescapable price we have to pay if ever we wanted to join the league of the likes of Singapore. The house needs to be put in order first before we can aspire to rise above our current station.