Minister of Finance asks further questions...

[Karl]

Minister of Finance asks further questions of Bunting and Golding

Friday, May 20, 2011


Below is Minister of Finance, Audley Shaw's full statement concerning Peter Bunting and Mark Golding's involvement in Runaway Bay Development Limited.


I wish to set the record straight on an assertion made by Senator Mark Golding in respect of the further injection of US$11 million made by the National Investment Bank of Jamaica (NIBJ) in Runaway Bay Development Limited (RBDL) after its initial investment in 1996 of US$7 million investment in their Runaway Bay hotel project (known as Hedonism 3). Mr Golding is quoted as saying: "Mr Shaw's statement that NIBJ injected a further US$11 million between 2000 and 2004 is simply untrue".


Shaw… DBG received sweetheart deal from former Government
BUNTING… was not required to provide security, even though it is customary for lending institutions




The facts are:-
1) In 1996, in the midst of the financial crisis, the Government of Jamaica through NIBJ made an equity investment in RBDL of US$7 million. At that time, the promoters — Mr Peter Bunting, Mr Mark Golding, and partners — invested US$5 million, comprising, cash of US$1 million and property re-valued at US$4 million, up from its 1993 purchase price of US$2.5 million.

2) The investment was approved by the NIBJ Board of Directors and overruled a management recommendation that the investment should be capped at US$3.1 million. The Board was advised by management that the investment was in breach of the investment policy of the NIBJ, a policy which normally requires Cabinet approval.

3) Contrary to Mr Golding's assertion, the NIBJ did, in fact, increase its investment in Runaway Bay Development Limited by US$11 million in four
(4) separate instances, two of which included debt re-structuring exercises for the promoters — Mr Bunting, Mr Golding, and their partners. See table below.
(i) In 1997, the NIBJ increased its exposure in RBDL by investing a further US$6 million. Curiously, US$4.07 million of this amount was an unsecured loan, with the remaining US$1.93 million representing equity.

(ii) In 2000, the NIBJ facilitated the restructuring of the promoter's debts by capitalising interest on conversion of US$8.9 million preference shares into ordinary shares.

(iii) In 2004, the NIBJ facilitated a second debt-restructuring exercise for the promoters, by acquired the non-performing debts of two local commercial banks for US$4 million, plus interest of US$15,000.

(iv) In 2006, the NIBJ paid US$223,000 to the project's contractor, Nevalco. Note, the over-run on the project was approximately US$18 million.

4) To date, the total investment by NIBJ is US$18.238 million, of which only $3.8 million is secured. On the other hand, the investment by the promoters is US$14 million, of which $9 million is secured. Notwithstanding the difference in equity and exposure, the NIBJ had no board representation until 2000, while Mr Bunting remained a board director until 2006.

5) Simply put, the promoter is likely to recover 65 percent of its initial investment, while NIBJ is only likely to recover 20 percent of its investment. This is likely to result in a J$1.3 billion write-off of tax-payers' money.

I challenge Mr Golding to refute the accuracy of these details and to provide reasonable explanations for the following questions:-
1) Why did NIBJ inject a further US$11.238 million in a project which was under capitalised from the beginning and heavily indebted? (As at 2000, NIBJ's investment in the project was US$14 million, all of which was unsecured).

2) Was it not unusual that the only cash investment made by Mr Bunting, Mr Golding et al, in the project is US$1 million? (Lands which they acquired in 1993 for approximately US$2.5 million and re-valued to US$4 million were also contributed. They subsequently injected US$9 million as secured debt).

3) As part of the restructuring exercise, why were Mr Bunting, Mr Golding et al, not required to improve their equity contribution to the project rather than injecting secured debt?

4) Why were Mr Bunting, Mr Golding et al, not required to provide security, even though it is customary for lending institutions, including the NIBJ, to require personal guarantees and other pledges?

5) Why was the NIBJ board so motivated to breach its own investment policy at a time when many in the financial sector were being accused of making bad investments in the hotel and agriculture sectors?

6) Why did the NIBJ Board find it necessary to make such a large investment in a fairly developed part of the north coast, i.e., an area not considered a green-field area?

7) Why was no GCT paid by Runaway Bay Development Limited?



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[Karl]

More distortions from Mr Shaw

More distortions from Mr Shaw

Friday, May 20, 2011

Here is Mark Golding's response to the Minister of Finance, Audley Shaw's statement.

SINCE the 2008 Budget Debate when Peter Bunting criticised Audley Shaw's statements, as then Opposition Spokesman on Finance, supporting Ponzi schemes such as Olint, Mr Shaw has been on a campaign to smear DB&G and by extension two of its former directors, Peter Bunting and I, Mark Golding.

His 2008 accusations of sweetheart deals were the subject of a two year investigation by the Contractor General, whose report found no evidence of any sweetheart deal. Notwithstanding this finding, Mr Shaw then diverted the resources of Ministries and agencies of Government to search their records for any transaction with DB&G for the previous ten years, in a futile quest to unearth some impropriety.


GOLDING… his media release last night contains a number of inaccuracies



GOLDING… his media release last night contains a number of inaccuracies

Finding no impropriety, Mr Shaw has now engaged in another round of political mudslinging, based on twisting and mischaracterising the history of a hotel project executed by Runaway Bay Developments Limited (RBDL). His media release last night contains a number of inaccuracies, which need to be corrected publicly given that those inaccuracies impugn my reputation and integrity.

1. Mr Shaw states — "In 1996, in the midst of the financial crisis, the Government of Jamaica through NIBJ made an equity investment in RBDL of US$7 million. At that time, the promoters — Mr Peter Bunting, Mr Mark Golding, and partners - invested US$5 million, comprising, cash of US$1 million and property re-valued at US$4 million, up from its 1993 purchase price of US$2.5 million."

This is full of inaccuracies. In fact:
* NIBJ's investment in RBDL commenced after September 1997, not in 1996.

* NIBJ's investment in RBDL at that time, disbursed during the 1997-1999 period of construction of the 225-room Hedonism III hotel in Runaway Bay, was US$13,000,000, comprising US$8,930,000 in preference shares and US$4,070,000 in a debenture.

* Peter Bunting and I were not promoters of the project. The project was executed by RBDL, the company which had bought the property. DB&G was only one of several private sector shareholders in RBDL. DB&G itself is a public company with thousands of shareholders.

2. In his closing budget presentation last week Wednesday, Mr Shaw stated that NIBJ injected a further US$11 million between 2000 and 2004.
That statement was incorrect and untrue. This is borne out by the shift in his position in his media release last night:
* Mr Shaw states that "In 1997, the NIBJ increased its exposure in RBDL by investing a further US$6 million." This is incorrect and misleading. Prior to 1997, NIBJ had no investment in RBDL.

* Furthermore, the figures in his media release are again incorrect. He stated that NIBJ invested US$6 million in 1997. As indicated above, NIBJ's initial investment was in fact US$13 million, which was injected between 1997 and 1999 during the period of construction of the hotel.

* The figures in his media release state that NIBJ "increased its exposure" by US$5.238 million from 2000 onwards. This is a drastic departure from his untrue statement in Parliament that US$11 million was injected by NIBJ between 200 and 2004.

* US$4.015 million was expended by NIBJ in 2001 (not 2004, as stated by Mr Shaw) to take over the loans of two local banks (NCB and RBTT). NIBJ's decision to acquire the loans of the two local banks in 2001 was to protect its own investment position, and had nothing to do with DB&G.

NIBJ stepped into those two banks' shoes, and became a secured creditor for the US$4.015 million. It was not an "injection" by NIBJ in RBDL, as it was the two local banks (not RBDL) which received the US$4.015 million from NIBJ.

* Mr Shaw states that in 2006 NIBJ paid US$223,000 to the project's contractor, Nevalco. This is incorrect. The project's contractor was CFC Construction (Engineers) Limited (not Nevalco). The payment was made to CFC to settle an arbitration claim dating back to 1999. DB&G also contributed to the payment to CFC, on a proportionate basis.

* He speaks of the "cash investment made by Mr Bunting, Mr Golding et al, in the project". Mr Bunting and I were not investors in the project. DB&G, of which we were minority shareholders together with less than 15% of the shares, was an investor in the project.

* Mr Shaw says that "the overrun on the project was approximately US$18 million". This is false. The overrun on the project was in fact just under US$7 million (the total development cost was US$42.892 million, which is US$6.992 million over the original project cost of US$35.8 million).

* Mr Shaw describes NIBJ as a lending institution, and suggests that it should have taken security. However NIBJ, as its name suggests, is an investment bank. It provides capital in a variety of forms to projects it considers worthy of support. In this case, the debt requirements of the project were fully committed, and NIBJ was approached to provide the remaining required capital in the form quasi-equity (in the form of preference shares and an unsecured debenture), without which the project would not have commenced. It is worth noting that NIBJ has also provided unsecured quasi-equity to other hotel projects, such as the Ritz Carlton. By its very nature, quasi-equity is unsecured.

As regards financial sacrifices for the project, in 1999 DB&G made a major additional investment in the project when it financed the overrun by injecting over US$6 million in additional funding, without any further contribution from NIBJ or the other stakeholders. If DB&G had not done this, the project would have stalled, the hotel would not have opened, and the NIBJ and the other investors would have been left with an unfinished construction site.

The hotel's opening years were beset by a barrage of external negative events, beginning with 1999 Gas Riots just two months before the hotel opened, followed by the Y2K scare and an industry-wide slump. The hotel's recovery from that initial setback was stymied by the events of September 11, 2001 and the serious downturn that followed. This necessitated a restructuring of the finances of RBDL. As part of that restructuring, NIBJ converted its preference shares into ordinary shares, assuming a controlling interest in RBDL of over 50%. SuperClubs' management contract was converted into a long-term lease with 10-years of guaranteed minimum rent designed to cover interest payments on RBDL's debt. DB&G waived interest on US$2.3 million of its loans to RBDL. DB&G also subsequently wrote off its equity.

As regards GCT, during the initial period when the hotel was operated by SuperClubs as agent under a management contract, our understanding, based on advice from Queen's Counsel, was that liability to charge GCT did not arise because hotel revenues from short-term guests were exempt from GCT under paragraph 4 of Part II of the Third Schedule to the GCT Act. In 2000, after management contract was replaced by a long-term lease to SuperClubs and NIBJ assumed voting control of RBDL by converting their preference shares into ordinary shares, NIBJ took over the administration of RBDL's affairs. Any questions relating to GCT after 2000 should be directed to NIBJ.

Mr Shaw has also repeated a number of allegations impugning the integrity of NIBJ's internal approval process. I have no knowledge of, and cannot comment on, those allegations. However, what I do say in that regard is that is the due diligence process which NIBJ's professional management went through before recommending the investment in the project were both thorough and businesslike, as were their negotiations around the terms and conditions of their investment. NIBJ's approval process was no less exacting to those undertaken by the other institutional investors in the project (Caribbean Development Bank, NCB, TDB, etc). It is therefore insulting to those management professionals, and to all the directors of NIBJ who ultimately approved the investment, to describe its investment in the project as a "sweetheart deal".

I wish to reiterate that the hotel project has employed hundred of Jamaican workers, both during construction and after the hotel opened. It has earned tend of million of US dollars for Jamaica. The initial equity investors, including DB&G and NIBJ, have suffered losses, not because of a lack of the commercial good faith best efforts of all involved, but because the commercial environment in which the hotel has operated has not enabled it to generate adequate revenues.



Read more: http://www.jamaicaobserver.com/busin...#ixzz1N0yP2b94

[Muadib]

Is this another Bad Management ting Karl ?

[Karl]

Could decisions have been taken by management to mitigate losses?

I contend that is always so...therefore there were deficiencies in managing the property.

*Maudib: It is simple, businesses operate in the climate as is. It is the job of managers to so act that the businesses remain viable and indeed be profitable.

It matters not if I am the manager or I have nothing to do with the business...I do not want to hear about what the external factors were, unless it is about how within that climate the business was or businesses were operated profitably.

It is a nonsense position to take of putting forward claims on the business climate caused failure. The only position for those who wish the business or businesses to remain viable is, whatever the circumstance plan and act to ensure profitability.

It is the ninnies that fail who blame the failure on the business environment rather than looking in the mirror and saying what was done...the management style was not good enough. If that outlook of ascribing blame elsewhere is the position from which you operate a business - sell out...get out of the business. You were a failure even before you started.

It is the manager's or managers' job to ensure success. Therefore it is the manager's or managers' job to make the decisions and take the actions that ensure same.

[Muadib]

pity dem leave poor people to pay dat bill...