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Shaw challenges Mark Golding again on NIBJ "sweet heart deal"
Friday, June 03, 2011
MINISTER of Finance Audley Shaw has taken issue with Senator Mark Golding's response to the imbroglio concerning "sweet heart deals" concerning the NIBJ and Runaway Bay Development Limited. Below is his full statement.
I wish to respond to the material comments made by Senator Mark Golding in a statement dated May 18, 2011, on the investment made by the National Investment Bank of Jamaica (NIBJ) in Runaway Bay Development Limited (RBDL). The facts are as follows:
Audley Shaw and Mark Golding
1) Mr Golding claimed that NIBJ's investment in Runaway Bay Development Limited was made in 1997 and not 1996 as stated by me. It is a fact that the NIBJ approved and committed itself to providing equity financing of US$7 million on February 22, 1996 on the basis "that construction would commence before March 1996", as recorded in the Minutes of Board of Directors Meeting dated February 22, 1996, and Board Submission of the same date.
2) The equity investment was approved on the basis that disbursements were made if the following conditions were met:
a) That the investments (debt and equity) of the other investors were made before the NIBJ disbursement was made. The fact is, however, that the NIBJ disbursement did not occur until eighteen (18) months later. Was this delay due to challenges that the promoters were experiencing in raising the financing on a timely basis?
b) That the NIBJ be given board representation. This did not happen until 2001.
3) Mr Golding claims that the NIBJ's assumption of the US$4 million liability in 2001 (assumed by the Development Bank of Jamaica in 2004) was to protect its investment. It is difficult to see how this could be the case when NIBJ would already have suffered a loss of US$13 million, the investment made before the assumption of this US$4 million debt. It should be noted that a significant portion of the US$4 million will be difficult to collect, hence the final estimation of losses of over US$15 million, from a total investment of US$18.1 million by NIBJ..
4) Mr Golding stated that the initial project cost was US$35.8 million. Again, Mr. Golding is wrong. The initial project cost was US$26 million, of which construction costs were expected to total US$15 million, and land acquisition US$4 million. The project ended up costing US$43 million, an overrun of US$17 million, making the cost per room an astonishing US$191,000.
5) Contrary to Mr Golding's statement, I have never asserted that Nevalco was the contractor. Rather, I stated that they were the Project Managers for Hedonism 3 and Sandals Whitehouse. It should be noted that although NIBJ's management had concerns about the project manager's experience, and despite its initial recommendation that NIBJ's investment be capped at US$3.1 million, the total investment approved by the NIBJ Board Directors was US$18.1 million.
6) Finally, Mr Golding stated that the NIBJ was an 'investment bank' and that there was nothing unusual about it taking the kind of equity position it did in RBDL. He further asserted that it was not unusual that NIBJ did not require personal guarantees from RBDL's promoters. I challenge both statements. It was, in fact, unusual for NIBJ to take the major equity stake in a project which had very little economic or national strategic importance, especially where US$14 million of its US$18 million investment was unsecured.
7) In respect of personal guarantees, as most borrowers from the NIBJ/DBJ know, this is a normal requirement for borrowers/promoters. In fact, NIBJ/DBJ's credit policy not only lists personal guarantees as an acceptable form of collateral/security, but they require them in their normal course of lending.
I maintain, therefore, that this was a "sweet heart deal" - one which very few Jamaican companies could successfully negotiate with a State entity, especially in the midst of a financial crisis. The question must be asked: Why was NIBJ's Board of Directors so motivated to break its own investment rules for RBDL and Dehring Bunting & Golding leaving the taxpayers of Jamaica to hug-up losses of J$1.3 billion?
This money could have been used to build two (2) new high schools or three (3) primary schools to make thousands of our children have a more comfortable learning experience.
Read more: http://www.jamaicaobserver.com/busin...#ixzz1ODCuSatI
Friday, June 03, 2011
MINISTER of Finance Audley Shaw has taken issue with Senator Mark Golding's response to the imbroglio concerning "sweet heart deals" concerning the NIBJ and Runaway Bay Development Limited. Below is his full statement.
I wish to respond to the material comments made by Senator Mark Golding in a statement dated May 18, 2011, on the investment made by the National Investment Bank of Jamaica (NIBJ) in Runaway Bay Development Limited (RBDL). The facts are as follows:
Audley Shaw and Mark Golding
1) Mr Golding claimed that NIBJ's investment in Runaway Bay Development Limited was made in 1997 and not 1996 as stated by me. It is a fact that the NIBJ approved and committed itself to providing equity financing of US$7 million on February 22, 1996 on the basis "that construction would commence before March 1996", as recorded in the Minutes of Board of Directors Meeting dated February 22, 1996, and Board Submission of the same date.
2) The equity investment was approved on the basis that disbursements were made if the following conditions were met:
a) That the investments (debt and equity) of the other investors were made before the NIBJ disbursement was made. The fact is, however, that the NIBJ disbursement did not occur until eighteen (18) months later. Was this delay due to challenges that the promoters were experiencing in raising the financing on a timely basis?
b) That the NIBJ be given board representation. This did not happen until 2001.
3) Mr Golding claims that the NIBJ's assumption of the US$4 million liability in 2001 (assumed by the Development Bank of Jamaica in 2004) was to protect its investment. It is difficult to see how this could be the case when NIBJ would already have suffered a loss of US$13 million, the investment made before the assumption of this US$4 million debt. It should be noted that a significant portion of the US$4 million will be difficult to collect, hence the final estimation of losses of over US$15 million, from a total investment of US$18.1 million by NIBJ..
4) Mr Golding stated that the initial project cost was US$35.8 million. Again, Mr. Golding is wrong. The initial project cost was US$26 million, of which construction costs were expected to total US$15 million, and land acquisition US$4 million. The project ended up costing US$43 million, an overrun of US$17 million, making the cost per room an astonishing US$191,000.
5) Contrary to Mr Golding's statement, I have never asserted that Nevalco was the contractor. Rather, I stated that they were the Project Managers for Hedonism 3 and Sandals Whitehouse. It should be noted that although NIBJ's management had concerns about the project manager's experience, and despite its initial recommendation that NIBJ's investment be capped at US$3.1 million, the total investment approved by the NIBJ Board Directors was US$18.1 million.
6) Finally, Mr Golding stated that the NIBJ was an 'investment bank' and that there was nothing unusual about it taking the kind of equity position it did in RBDL. He further asserted that it was not unusual that NIBJ did not require personal guarantees from RBDL's promoters. I challenge both statements. It was, in fact, unusual for NIBJ to take the major equity stake in a project which had very little economic or national strategic importance, especially where US$14 million of its US$18 million investment was unsecured.
7) In respect of personal guarantees, as most borrowers from the NIBJ/DBJ know, this is a normal requirement for borrowers/promoters. In fact, NIBJ/DBJ's credit policy not only lists personal guarantees as an acceptable form of collateral/security, but they require them in their normal course of lending.
I maintain, therefore, that this was a "sweet heart deal" - one which very few Jamaican companies could successfully negotiate with a State entity, especially in the midst of a financial crisis. The question must be asked: Why was NIBJ's Board of Directors so motivated to break its own investment rules for RBDL and Dehring Bunting & Golding leaving the taxpayers of Jamaica to hug-up losses of J$1.3 billion?
This money could have been used to build two (2) new high schools or three (3) primary schools to make thousands of our children have a more comfortable learning experience.
Read more: http://www.jamaicaobserver.com/busin...#ixzz1ODCuSatI
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