Maldives to issue Sovereign Guarantees for a fee

The entrance to the Finance Ministry building where the Maldives Inland Revenue Authority office is located. MIHAARU PHOTO

The entrance to the Finance Ministry building where the Maldives Inland Revenue Authority office is located. MIHAARU PHOTO

The Maldives government on Wednesday gazetted its new policy on releasing Sovereign Guarantees for a fee.

Compiled by the Ministry of Finance and Treasury, the policy states that Sovereign Guarantees will be issued only to companies that have government shares or are registered in the Maldives. The Sovereign Guarantees will be granted only for projects in the tourism sector, social housing that meets government conditions, and state authorised development projects. The interest rates of the loans guaranteed by the state must also be less than four percent.

Firms that apply for the Sovereign Guarantee must submit several documents to be eligible, including details of company operations, board resolution, financial statements of the past three years, details on pending debts, research on the company’s finance conducted by a party authorised by the Finance Ministry, the feasibility report of the project to be funded as well as the loan details.

The ministry’s policy stipulates certain fees the companies owe the state for Sovereign Guarantees. They include one percent of the total guarantee (loan), 0.25 percent of the loan annually as the administration fee, and the evaluation expenses for the guarantee proposal.

The government has already issued a number of Sovereign Guarantees to foreign firms. Recently, it had issued a guarantee of USD 328 million to a Turkish firm that proposed to develop 5,000 housing units in reclaimed suburb Hulhumale. The government will receive at least USD 4.1 million (MVR 63 million) for a guarantee of that scale sans the annual fee and evaluation expenses.

The policy on Sovereign Guarantees also prohibits companies that receive the guarantee from certain actions without the explicit written permission of the government. They include taking additional loans, mortgaging a company security for an additional loan, abolishing a company security or asset, and transferring company stakes to others.

Monitoring the issued guarantees falls under the liability of the Finance Ministry. The company which received the guarantee and the bank that issued the loan under the government’s guarantee are to send updates to the ministry regarding the loan’s balance and loan servicing every four months. The company must also send updates on the project’s progress to the ministry every four months while the Finance Ministry will appoint a party to visit and personally oversee the project biannually.

According to the policy, the Sovereign Guarantee will be used as the last resort should the company fail to pay back the loan to the bank. The guarantee will also cover only the loan balance remaining after the company’s mortgage. The amount covered by the government to the bank will instead change to a loan the company owes the government, and is to be repaid in a procedure as ordered by the state.

The policy adds that the Finance Ministry must publicise the total number of loans it will guarantee over the year as well as the details of the Sovereign Guarantees to the public.

The current Finance Act states that the government is not obligated to submit Sovereign Guarantees to the parliament for approval prior to being issued. However, the state is mandated to forward the documentations on the guarantee to the parliament for the members’ information.

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