WATCH Full Session | Commission of Inquiry into Union Bank of Switzerland Loan by the Government of Papua New Guinea.
UBS inquiry starts today, 30th March 2021.
After a long delay, the Royal Commission of Inquiry into the off-shore loan from the Union Bank of Switzerland (UBS) by the government, starts with its first public hearing today. Watch full session of the public hearing here https://youtu.be/noxFfmtnfu8
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By PNGiCentral – The Tokaut Blog | 17 Jul 2019.
In February 2014, Prime Minister Peter O’Neill committed the State to a disastrous purchase of a 10% stake in Oil Search Limited. That purchase was funded unlawfully says the country’s chief corruption watchdog, through a financially onerous loan from the Swiss-based banking group UBS.
Much has been written about the folly of the share purchase and the loan, the losses suffered by PNG as a result, and the unlawful actions of the then PM and others.
Much less attention has been paid to key beneficiaries: Oil Search Limited, UBS, and the middle-men – the lawyers, accountants and bankers who cooked up the deal and wrote the “massively controversial“ contracts that “stitched up” the PNG government.
In 2014 the government of Peter O’Neill borrowed A$1.239 billion from the Union Bank of Switzerland (UBS) to fund the purchase of 149,390,244 shares in Oil Search Limited. The Ombudsman Commission says the share purchase and the loan were unlawful.
The investment was very timely though for Oil Search with commentators saying it was vulnerable to a potential take over and wanted a large injection of cash so it could buy a stake in the new Elk-Antelope LNG project.
It was in this context that Oil Search CEO Peter Botten and PNG PM Peter O’Neill met at the Grand Papua Hotel in Port Moresby on 23 February, 2014. There, “over a cup of coffee” says the OC, the two men agreed the State should buy a newly issued tranche of shares in Oil Search Limited.
Oil Search maintains that it was an innocent party; that it was the PNG government which approached Oil Search wanting to buy a stake in the company. Either way though, as experienced operators in PNG, Oil Search and its CEO must have known the government was going to have to take out a new loan to finance the purchase and such a commitment would need whole of government endorsement.
Not only was that endorsement was never obtained, O’Neill and Acting Treasury Secretary Dairi Vele, by-passed all normal government procurement and tendering processes, according to the OC.
HOW THE DEAL WAS STRUCTURED
PNG borrowed more than A$1.2 billion from UBS to buy 149 million newly issued shares in Oil Search Limited at a price of $8.20 per share.
For a cash strapped, heavily indebted country, the deal made no financial sense.
Indeed, to ensure they would get paid, UBS insisted on a pretty remarkable guarantee. This involved the sequestration of the State’s income stream from the Exxon-Mobil LNG project which was to be paid direct to UBS.
Although UBS and the middle-men made a lot of money out of the share placement and the associated loans, for PNG the deal was a financial disaster.
UBS is thought to have made about A$120 million in fees and interest, while PNG was forced to sell off the Oil Search shares as their value plummeted. All up, says the Australian Financial Review, the deal is estimated to have cost PNG about A$420 million (K1 billion).
As well as the loan repayment and interest, PNG paid a further $10.9 million in fees to UBS, and a further $1.6 million to professional service firms Ashurst, Norton Rose Fulbright and KPMG.
The losses for PNG did not end there. UBS was also given the right to purchase 20% of the PNG government’s Oil Search shares for a price 10% below what the government paid for them, “guaranteeing a loss in the order of $18 million” for the State.
It has been reported that at a 2014 Christmas party UBS’ Australian bankers boasted about the firm’s success that year, largely due to profits made on the PNG loan, profits made at the expense of PNG taxpayers.
Was UBS gouging profits from its client?
Robert Wyld, co-chair of the International Bar Association and a leading Sydney lawyer, said in 2015 it was “extraordinary” that UBS would approve such a huge, complex and costly deal.
It is also reported, some firms, like the American Bank Merrill Lynch, refused to get involved in the whole affair, citing the political risks and potential reputational damage as reasons for forgoing the rich bounty on offer.
THE MIDDLE MEN
While the Ombudsman Commission was unable to directly investigate companies and private individuals, during its inquiry the conduct of the international and local law firms and financial service providers inevitably came within its purview.
The legal firm Norton Rose Fulbright was advising Dairi Vele, together with their local counsel Pacific Legal Group. According to Vele, Norton Rose were responsible for drafting the ‘necessary documents, approvals and permissions that would be needed’. Those documents allegedly ran to 28 volumes in total and included the draft NEC Policy Submission.
READ FULL STORY HERE UBS, OIL SEARCH AND THE FORGOTTEN MIDDLE MEN – THE SHORT VERSION.