Category: Private sector

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The GT&T share sale (Conclusion) and the New Building Society

Introduction
In today’s Business Page I conclude the discussion started last week on the announcement by Dr Roger Luncheon that the government has sold the country’s 20% shareholding in the telecommunication company Guyana Telephone and Telegraph Company Limited (GT&T) to an unknown Chinese entity. The announcement came a few days after the 2012 Budget Speech which contained no mention of the sale negotiated by NICIL of which the Finance Minister is the Chairman.

Well we now know that the Chinese company is Datang, less known for its connection with the Chinese Liberation Army than for its development, production and sale of electronic information systems and equipment. Incredibly the company appears to have not had a formal meeting with the 80% shareholder, Atlantic Tele-Network of the USA and it will certainly be interesting to learn how the usually sceptical US Government will view a partnership of their company with the Chinese who do not have a good record as a respecter of intellectual property or confidentiality of information.

Under the Companies Act 1991, the ownership of the shares in the company will pass to Datang on the delivery to them of the transfer form and the share certificate. At that point, except that the government is the government, it would cease to have any interest in GT&T. Interestingly, at that point, the Government of Guyana’s rights under the 1991 agreement with ATN in relation to any share-ownership right shall cease. Datang will no doubt soon present itself to the GT&T management with the share certificate and transfer form in their hand for what will no doubt be a very useful exchange.

Last week we were told that the government is selling its interest for US$30 million of which US$25 million is to be paid immediately and the balance paid later. Meanwhile in a couple of weeks Datang will participate in an AGM at which dividends will be on the agenda. Unfortunately Mr Winston Brassington seems to have negotiated an agreement under which dividends that ought to come to the government will go to Datang! How eerily does history have a way of repeating itself! A not too dissimilar situation arose when the PNC administration sold Guyana Telecommunications Corporation with a bundle of cash in the bank. I wonder what those who then accused the PNC of being either careless or stupid would think of the Privatisation Board and the Cabinet for giving away US$2 million.

But that is not the only give-away. At US$30 million, the price for the shares is a significant markdown on what the shares are worth. GT&T is not a public company and its shares are not traded anywhere for their value to be determined. There are then two options. The first is to take all relevant factors into account, project the income of the company into the future and discount these into present day value. The alternative is to take a price earnings ratio (a vital tool used by investors) of the shares in a similar entity and, making adjustment for specific factors, apply a P/E ratio to the earnings of the company. Using that method I have arrived at a price of approximately US$40 million.

So we – or rather Drs Luncheon and Singh and other ministers along with Brassington have given away some US$12 million of the taxpayers’ money. They did the same when they waived some G$400 million of interest and preference dividend in the Berbice Bridge Company Inc so that the private sector entities could receive theirs.

The question why these gentlemen would have acted so recklessly and secretively probably has to do with the diversion of public funds from the Consolidated Fund to the illegally operating NICIL, all the directors on the Board of which are Cabinet members. That is unheard of anywhere in any self-respecting country, but is easily explainable as the creation of an illegal fund from which Cabinet can do as it pleases: pay over price for goods and services, divert, build white elephants, etc – all in complete violation of Articles 216 and 217 of the constitution. And to add some veneer of legality and acceptability to the saga, Dr Singh the Finance Minister, had the decision passed through the Privatisation Board of which Dr Singh is the Chairman!

These bright gentlemen have decided to bypass the constitution and do through the backdoor what they are not allowed to do through the front door.

On the Line: 2011 Annual Report of New Building Society
The editor reminded me that it is that time of the year when annual reports for companies and entities with a December 31 year end become available. Starting today with the 2011 Annual Report of the New Building Society (NBS) Business Page will review those reports well aware that other national economic issues will not wait. The page will try to offer a balance between the two.

The annual general meeting (AGM) of the NBS is slated for Saturday April 28 and will be held in the Society’s new head office in North Road, to which the Society moved a few weeks ago. It is to the credit of the institution that the move appears to have gone off quite smoothly, at least so far as the customers were concerned.

Readers will recall that the Society was brought under the Financial Institutions Act in August 2010 and the results for 2011 would have been the first full year since the new status. Surprisingly, however, there was only a passing reference to the impact of this is in the Chairman’s report: “It is also to be noted that notwithstanding the Society is currently governed under the New Building Society’s Act, Chapter 36:21, the Supervision by the Bank of Guyana, must be seen as a positive sign.” I am sure members would have liked to know the full impact, if any, the FIA has had on the Society in the absence of which the directors should have indicated whether they intend to take the full four years to come into full compliance with the provisions of the Financial Institutions Act.

Highlights

Source: 2011 audited financial statements

As the table above shows interest income from mortgages and other assets fell by 5% but interest paid on deposits declined by a dramatic 26% with the result that the net interest income increased by $229 million. Loss on exchange has again raised its ugly head after the directors resiled from a members’ decision to repatriate the moneys held in the UK and as a consequence the Society lost some $26 million following a $7 million loss in 2010.

Dr Nanda Gopaul, who has signalled his intent not to continue as Chairman of the Society following his appointment as a minister of the government, in his report announced a “record profit of $772M being made, an increase of 34% over the previous year.” According to Dr Gopaul this “was achieved despite reducing our mortgage rates for lower, middle and higher income mortgagors at the beginning of the year from 4.75%, 6.95% and 7.95% to 4.25%, 6.25% and 7.45% respectively.” That was only half the truth since the reduction in interest income was only $123 million. The real reason is obvious from the graph below that shows that while the returns on loans have declined from 7.3% in 2009 to 6.7% in 2011, the average interest paid to depositors declined dramatically from 4% to 2.7%!

It would have been helpful if either the Chairman or the CEO gave an explanation for the significant reduction in the Society’s deposit rates rather than have members speculate on whether the Society is carried away by the misnomer “profits” rather than surplus, or is seeking to discourage persons putting money into the Society which it is then unable to on-lend.

Returns on Loans, investments and deposits

Source: 2008 to 2011 audited financial statements

Assets and their returns

Source: 2010 and 2011 audited financial statements

The Society has increased its loan limit to $15 million subject to ministerial approval, which it says the Society is working towards making a reality, so that its financial resources can be more beneficially utilised to the advantage of members and customers.

In 2011, there was a net increase in the number of mortgage accounts of 276 while the Society disbursed mortgage advances for the year totalling $4.2B, another record, which was 43% higher than the previous year. At year end, the mortgage portfolio was 52% of Assets or 61% of Total Investors’ balances.

The Society continues to record its satisfaction in its investment in the Berbice Bridge Company Inc, which earned the Society a healthy return during the year and some 32% cumulatively. The Berbice Bridge commuters’ pain is the NBS’s members gain. While the financial logic of the decision to make the investment cannot be faulted, the amendment to the Act permitting the investment and the financial structure of the bridge transaction by the Jagdeo-Brassington team is one costly venture for the country’s taxpayers who have had to finance substantial tax concessions benefiting the bridge investors.

Statutory breach

Source: 2009 to 2011 audited financial statements

Two years ago, Business Page highlighted the breach of the proviso to section 7 (d) of the New Building Society Act. Despite this, the situation has deteriorated and the shortfall in mortgage assets has increased by 58%.

Next week, I will review the annual report of Demerara Distillers Limited, whose annual general meeting will be held on April 27, 2012.

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Corporate lawlessness

Introduction
Over the past couple of weeks I have had cause to try obtaining some information on particular companies, information that those companies are required to file with the Registrar of Companies. Alas, in a number of cases, companies simply ignore the law, failing for several years to file what the Companies Act refers to as the Annual Return. Section 153 of the Act says that every company, at least once in every year, must file such a return in the prescribed form, made up to the date of the Annual General Meeting (AGM), and containing the particulars set out on the fifth schedule to the Act. The annual return must be signed by a director or the secretary of the company, must be accompanied by the company’s audited financial statements and must be submitted within forty-two days of the AGM.

My experience is that these violations are not limited to the small, family company but also involve some very prominent entities, some of which are connected with public companies. And it is not that the violation is about a period of weeks or months. Some of them have never filed any return, quite a courageous feat that has somehow managed to escape the Registrar’s attention.

The Registrar of Companies is the officer responsible for the regulation of companies and that office in turn reports to the Attorney General and Minister of Legal Affairs. During 2011 the Registrar of Companies in fact caused to be published in the Official Gazette seven Notices, striking off from the register of companies several for non-filing. That is indeed commendable, but how the Registrar has missed striking off NICIL, the 100% state-owned entity whose board of directors, chaired by the Finance Minister and dominated by senior ministers of the government, is a mystery.

Offences
The Companies Act prescribes many specific offences provisions as well as general offence provisions. It is the largest statute on the books and the offences provisions can be found throughout the Act. The general offence provision is found in section 522 and provides that contravention of a provision of the Act or regulations made under the Act for which no punishment is otherwise provided for that offence is liable on summary conviction to a fine of ten thousand dollars.

Contravention of specific provisions is an offence punishable on summary conviction to a fine of ten thousand dollars and imprisonment for six months. Here are some of the specific provision offences provided for under the Act:

1. failure to prevent falsification, loss or destruction of the records of the company, or to facilitate detection and correction of inaccuracies in those records;
2. misuse of the list of shareholders or debenture holders obtained from the company;
3. prohibited solicitation and failure to send management proxy circular to the Registrar;
4. failure to provide the information required by the Registrar in connection with insider trading, share registrants and proxies;
5. failure by a proxy holder to comply with the directions of the shareholder appointing him;
6. failure by a registrant to vote without having received instructions;
7. failure by an auditor to attend a meeting for which he was notified by a shareholder that his attendance was required to answer questions; and
8. failure by a director or officer of a company to act on information coming to his attention that a mistake has been detected in the financial statements previously reported on by the auditor.

If the offence is committed by a company, which is of course not a natural person, any director or officer of the company who either permitted or acquiesced in the act or omission to act, is liable to the same penalties as the company.

In the following cases the company is liable on summary conviction to a fine of $10,000:
1. failure by the company to send a form of proxy along to the notice sent to shareholders; and
2. failure to give proper notice to shareholders.

Other offences
The above are considered regulatory offences under the Companies Act. Other legislation which also provides for offences include the Anti-Money Laundering and Preventing the Financing of Terrorism Act, the Insurance Act, the Securities Industry Act and the Financial Institutions Act. The Criminal Law (Offences) Act and the Summary Jurisdiction (Offences) Act also provide for certain offences by officers of companies including fraudulent accounts, destruction of documents and fraudulent statements.

It is not that there are not many companies which have been complying with the requirements of the Act in relation to the filing of annual returns. But there are others who file an annual return without the audited financial statements, or with very limited financial statements. An explanation I have heard in justification of this limited submission is one of an interpretation which lawyers – grossly incorrectly in my view – put on the language of the relevant section of the Act. I have also heard criticisms of the annual filing requirement that the law is intrusive and that filing audited financial statements is giving away competitive information. That view seems very shortsighted and completely ill-informed about what being an incorporated entity means.

Benefits, but also obligations
As I said in last week’s column, a very important benefit of incorporation is that it creates an entity entirely separate from its shareholders. Even in a one-person company, the liabilities of the company are for the company alone and unless the shareholder or director has guaranteed any liability, the shareholder or director is insulated from suit for those debts. And that is not the only benefit of the company; there is perpetual succession, shares in companies are transferrable, and even the tax laws, or at least some of them, are more favourable to the corporate rather than the personal form.

But in return for those benefits, the promoters, directors and shareholders of the company implicitly recognise and agree to abide with the statutory obligations. Apart from the obligation to file returns annually, there are requirements to have audited financial statements, to maintain statutory records, to hold meetings, etc. No one denies that these carry with them both financial and non-financial costs. But having chosen the corporate form to obtain its considerable benefits, the directors cannot then elect to ignore the attendant obligations.

Our Companies Act is largely a one-size-fits-all model, based largely on the Canadian Business Corporations Act. And while subsequent to the introduction of the Act in 1995, the country passed legislation specific to banking, insurance and public companies, the 542-section Companies Act is still formidable for the small private company. They have a choice: de-incorporate or comply.

New AG
The new Attorney General Mr Anil Nandalall has brought some refreshing energy to his office. He needs to turn his attention to the Deeds Registry, the place where the annual returns are lodged and which by law are public records. I am sure that Mr Nandalall is aware of the several letters appearing in the press expressing serious concerns about the lawless state of the Deeds Registry, which I hasten to add has more to do with the political failings and hubris of his predecessor than with the staff of the Registry working under some challenging conditions.

Guyana continues to earn very poor ratings among the 183 countries in the World Bank annual assessment, the 2012 report of which has the sub-title Doing Business in a more transparent world. We need to lift ourselves from the lowly position of 114 and at least stand beside, if not ahead of, our Caribbean counterparts. To do so we need to fix a few things immediately. At this stage the Registry is without a Registrar, the position being held by an acting appointee. The entity needs to address a resource deficit including someone with the capacity to ensure that what is in fact filed meets fully the requirements of the law set out above. My experience suggests that the Registry has no accounting capability to assess whether proper financial statements have been submitted.

Mr Nandalall needs to raise his voice in Cabinet and let his colleagues know that the Deeds Registry will be applying the law without fear or favour and that NICIL, arguably the country’s most serious violator of the Companies Act, will be placed in the firing line. Neither he nor the President should accept a situation whereby a publicly-owned company that annually handles untold millions of public funds should be allowed to get away with such lawlessness.

The penalties for offences under the Companies Act are far too low and even if the law was enforced, they would hardly be a deterrent. They need to be increased substantially but also to be enforced vigorously. It seems desirable that the penalties be made automatic, like the penalties under the tax laws, without the rigmarole of court hearing which would be more costly than the fines collected. It is both an opportunity and a challenge.

Conclusion
But NICIL is only part of a wider, sicker culture. There are many other state-owned entities and statutory bodies that have consistently failed to meet their obligations under the Companies Act, or to have their annual accounts and reports laid before the National Assembly as required by law. Hopefully with a new Speaker of the National Assembly, the Clerk will find the courage to write those ministers who are required to lay reports in the National Assembly. The list of those entities is long and several ministers are guilty of non-compliance.

The violation of the country’s laws by ministers, state companies and statutory bodies tells the rest of the nation that if you can get away with non-compliance then good luck to you. Our private sector, so conditioned to anarchy, needs little encouragement to continue their lawless ways.

Sadly, I have to admit that the accounting and legal professions come close to aiding and abetting when it comes to their clients’ non-compliance with the law.

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Half-yearly reports show increased turnover

Introduction
Caribbean Containers Inc, a public company in the paper recycling business has reported turnover for the first half of 2011 increasing by 9.3% over the same period last year. This follows a 10.3% reported turnover increase by the DDL Group of Companies and a 13.8% increase in the Banks DIH Group, the only one of the three with a September 30 year-end while CCI and DDL have a December 31 year end. The increases in turnover are of course considerably higher than the rates of inflation in the economy. Banks DIH in explaining its improved performance cited higher dollar sales, a term usually used in contradistinction from volume sales.

Caribbean Containers Inc.

CCI reported a gross profit increase over 2010 of 14.3% but its losses before tax increased from $21.8 million to $23.8 million. The report shows Earnings before depreciation as having declined in the first half of the year by 31.3% and that margins were severely affected by the rapid escalation in global fuel prices which resulted in the company’s fuel bill going up by some 40%.

The company’s performance in the third quarter ended September 30, 2011 improved strongly with an 18.3% growth in Earnings before depreciation compared with third quarter 2010. The result was a modest profit before tax of $2.7 million compared with a loss of $10.2 million for the third quarter of 2010. The overall result was a sharp decline in loss before tax for the nine months from $32 million in 2010 to $21million in 2011. The report explained that over the last four years, sales in the second half of the year averaged 13% more than in the first half.

CCI has had its fair share of financial problems over the years with a number of ownership changes and substantial debt restructuring. As at June 30, the company had liabilities of $365 million including trade and other payables of $116 million and loans repayable within a year amounting to $69 million. Cash resources amounted to $37 million but this had gone down to $25 million three months later.

In what can be described as Guyana’s principal LCDS private sector company, survival is still the challenge as the company’s aging technology has high running and maintenance cost, placing cash management at the centre of management focus.

Yet the company deserved commendation for being the only private sector company other than Republic Bank (Guyana) Limited to publish quarterly financial reports. The Bank of Guyana had published and recently withdrew Guideline # 10 requiring all banks to publish quarterly statements.

Banks DIH Limited

The half-yearly report is a consolidated report of the food and beverage giant and its subsidiary Citizens Bank Guyana Inc. Given the disparate nature of the operations and business of the two entities such a consolidated report does not allow any easy informed analysis of the two businesses.

The company had unaudited profit after tax in the half-year of $689.5 million compared to $594.1 million in 2010, an increase of $95.4 million or 16%. Chairman and Chief Executive of the group explained in the report that the improved results came mainly from increased dollar sales, efficiencies derived from Plant and Machinery upgrades and the benefits obtained from the installation of Capital Equipment.

The subsidiary Citizens Bank achieved an unaudited profit after taxation of $364.6 million compared to $261.0 million in 2010.

Total group profit after taxation for the half year was $1,025 million compared with $836 million, an increase of some 22% and a resulting increase in Earnings per Share from $0.71 per share to $0.85 per share.

A meaningful cash flow commentary is not possible as the cash and bank resources of the company cannot be distinguished from those of the banking subsidiary. Inventories, the bulk of which would be for the company stood at $4,367 million, increasing from $4,069 million one year earlier. For the type and nature of the operations this seems reasonable, particularly when compared with DDL to which we now turn attention.

Demerara Distillers Limited

This group comprises several local and overseas companies in the region, North America and Europe as well as a joint venture in India and associated companies in Guyana and Jamaica. In his Chairman’s Statement Dr. Yesu Persaud reported that the group’s pre-tax profit for the half-year of $769 million had increased by 6.4% over 2011, attributed to the performances of the European subsidiary, Demerara Shipping Company Limited and Distribution Services Limited.

When account is taken of increases in the fair value of investments and exchange differences on consolidation, the total comprehensive income for the year – a measure of the sum total of all operating and financial events that have changed the value of an owner’s interest in a business – is $627 million compared with $437 million in 2010. The group may have a challenge however in exceeding the full year reported profits for 2010 of $1,139 million. The profits for that year were augmented by a $151 million “share of profit of associated company.” In the first six months of 2011 this profit was only $8.4 million compared with $3.4 million in 2010 half-year, suggesting some major development in the second half of that year.

Earnings per share (EPS) have increased from $0.65 in half-year 2010 to $0.69 in 2011.

The balance sheet continues to be fair with current assets exceeding current liabilities by a ratio of nearly 2:1. The problem lies however in the composition of the two balance sheet components. Trade payables have climbed to $4 billion, bank overdraft is $2.8 billion and loans repayable in the next twelve months is close to half a billion dollars.

Share prices
None of the reports bother to speak of one of the most important issues for shareholders and that is the performance of the companies’ shares on the Stock Exchange. A comparison of recent prices is shown below:

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Berbice Bridge Company Inc. – Not really a profit

Introduction
At long last, the Berbice Bridge Company Inc. (BBCI) has decided to file annual returns and financial statements with the Registrar of Companies. The law requires that such returns and accounts be filed no later than around mid-August of each year for companies with a December 31 year-end. Why BBCI chose to file some years and not others is for speculation but one thing is certain: the return and the financial statements for 2010 make for very interesting reading or indeed for some serious concerns.

On the face of it the company did very well in 2010. Its revenue for 2010 is $1,115 million, up 17% over 2009, the company’s first full year of operations. Total non-interest expenditure was $287 million, up 16% over the previous year. Included in non-interest expenditure is a depreciation charge of $140 million, a small increase over the preceding year. And that is where the questions begin to arise. But before that important digression, let us continue the brief income statement analysis. Interest expense has risen from $694 million to $715 million, thus accounting for 64% of the company’s revenue. Because of its tax-exempt status the company was able to record a net profit of $137 million compared with $5 million in 2009.

More borrowings
The Balance sheet shows the company as having $8,865 million of fixed assets compared with $8,965 million in 2009, the entire reduction being attributable to depreciation charge in 2010. The more easily realisable current assets have declined in value from $161 million in 2009 to $24 million in 2010, with cash resources reducing from $152 million in 2009 to $24 million in 2010! Current liabilities which are amounts that are payable at the balance sheet date or within twelve months thereof amounted to $205 million, a significant decrease in such liabilities over 2009 as the company paid out $450 million in subordinated loan stock interest and returned some $130 million in corporate bonds.

This reduction in short term liabilities came at the expense of increases in long-term loans. The Beharry Group added to their investment in the company some $325 million through the Guyana Bank of Trade and Industry ($250 million) and North American Life and Fire companies ($75 million). Hand-in-Hand Life increased its investment in the Bridge Company by $70 million while its Trust Company reduced its investment by $25 million. Meanwhile the New GPC Inc. a member of a group that has earned some investing notoriety in Guyana took out its entire $35 million in loan stock in the company.

Capital Structure and concealment
The company has an interesting capital structure. Its share capital is $400 million shared between six shareholders with four of them – NIS, New GPC, CLICO and Secure International Finance Company – having $80 million each, and two – Hand-in-Hand and Demerara Contractors – sharing the remaining $80 million. But then the ubiquitous NICIL has a special $1 share which gives it a veto power over any major decision of the company.

If the financial statements are taken at face value it may seem that that is the extent of NICIL’s investment in the company. A closer look indicates that a single investor has some $950 million in preference shares in the company earning a rate of dividend of 11% per annum or $104.5 million per annum. It is a requirement of the law that the persons holding shares in the company be listed in the Annual Return. This has not been done and to that extent the annual return signed by Mr. Winston Brassington, the CEO of NICIL should have been rejected. But then again, the Registrar was probably thankful that the company filed any return after six years.

The concealment gets worse. Note 10 to the financial statements tells the reader that the dividends paid on the preference shares are cumulative, i.e. if they are not paid in one year they are carried forward to the next period for payment at an increased rate of 12%! Forget for a moment that unhelpful use of language. What is striking is that the company owed the preference shareholder at December 31, 2010 more than $600 million but that shareholder is reported in the 2010 financial statements as waiving “dividend and interest on dividend due up to December 31, 2010”.

It does not take a genius to realise that that investor is NICIL or one of its many satellites through which it can funnel money that should otherwise have passed through the Consolidated Fund and voted on by the National Assembly. In fact NICIL’s satellite for the billion dollar investment and which waived the hundreds of millions of dollars was a company called Aroaima Mining Company Inc. which is no longer in operation. Even if there is a real company called Aroaima Mining Company Inc. its controlling parent is NICIL headed by Dr. Ashni Singh among several Cabinet members who are also NICIL’s directors. That such a stellar collection of responsible men could make such as decision and then try to conceal it from the taxpayers is reprehensible.

It would seem as well that under the Financial Management and Accountability Act NICIL has no authority to waive any such sums and that its Board including the Minister of Finance and the Cabinet Secretary are guilty of misfeasance in public office.

Wrong treatment
Then there is the question of the fudging of the depreciation versus amortization. Depreciation is the annual charge to write off the cost of a long-term tangible asset over its useful life. Amortization is the systematic allocation of the depreciable amount of an intangible asset over its useful life. I am aware that someone closely connected with the company had been calling around asking whether or not there was a need to charge any depreciation on the Bridge. Clearly fudging was being considered at some level. On being told of the query, I thought it was some junior not familiar with even basic bookkeeping. I should not have been so dismissive.

In fact it is clear to me that the entire treatment of the cost of the Bridge is wrong. The company does not own the Bridge as confirmed by the special share and its own note to the financial statements. Under a Concession Agreement that the law setting up the statutory framework for the Bridge has made so secret, the company has the right to operate the Bridge for a period of twenty-one years. Indeed note 1 to the financial statements described the principal business activities of the company as the construction and operation of a floating bridge. This is the classical Build-Operate-Transfer arrangement and gives the company not ownership of the public asset but a right to operate the Bridge. Such a right is an intangible asset subject to amortisation over the period of the right.

Arbitrary and self-serving
I would think that the treatment as a tangible fixed asset is more than simple unfamiliarity with the relevant International Financial Reporting Interpretations Committee (IFRIC) guidance on the matter. So what did the Board featuring Ms. Gita Singh-Knight and Mr. Winston Brassington choose to do? They chose a write-off period of thirty-eight years under the reducing balance basis. If this is converted to the more common straight-line basis the Board is assuming a useful life of the Bridge of more than one hundred years! And to compound the grey areas they estimate that at the end of its so-called estimated useful life the Bridge would have a residual value of more than four billion dollars.

But the absurdity of it all comes from the company’s own financial statements. As the system implies, under the reducing balance method the depreciation charge declines each year so that if there is a $100 investment in an asset with a useful life of 10 years the depreciation in the first year will be $10 ($100/10), the second year would be $9 ([$100-10]/10) etc. The magicians at the Bridge Company claim to be using the reducing balance but end with straight-line depreciation charges!

Responsibility
Just who are responsible for the type of fudging that is taking place with the Annual Report’s omission, the mistaken application of tangible versus intangible asset and the fiddling of depreciation? To start with the Board is headed by Ms. Gita Singh-Knight of CLICO infamy. Ms. Singh-Knight was the CEO responsible for shipping billions of dollars of NIS and other funds for her boss Duprey who then squandered it abroad. Ms. Singh-Knight is an accountant by training and indeed is the only professional accountant on board.

Other members of the Board include Hand-in-Hand executive Keith Evelyn, Beharry Group executive Paul Cheong, engineer Edward Carter, Attorney-at-law Paul Fredericks and former jurist Cecil Kennard. The annual return should state the business occupation and particulars of other directorships. None is stated. The only other person with any claim to some amount of accounting knowledge is Mr. Winston Brassington whose role in prevailing upon entities like the National Insurance Scheme and the New Building Society for investments in the Bridge has been addressed before in this Page.

The political dimension
While the Government stoutly resists claims that its decision to bypass and in the process practically kill New Amsterdam as a commercial centre in favour of the Corentyne Coast, it was forced to have a skewed consultant report to justify its decision. But economics has a way of trumping race and politics. Having sited the bridge at D’Edward Village instead of Everton it must now contrive all forms of financial and other shenanigans to make the Bridge seem viable. Competition has been frustrated if not ruled out while the company, its investors, sub-contractors and everyone else connected with it enjoy a range of tax concessions that would make even the Ramroop Group green with envy.

Conclusion
Had it not been for some admirable creative financing and accounting the Berbice Bridge Company would not only have recorded continuing and significant losses but it would have been unable to meet the generous interest and dividend obligations to its investors. The public needs to be reminded that the President Jagdeo–Singh-Knight combination has placed a six billion dollars hole in the balance sheet of the NIS. And as a result of the Brassington– Luncheon work on the NIS, the Scheme had at December 31 2010 over $1.5B invested in the Berbice Bridge. Let us hope that the group combination will not cause the company to sink.

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Another corporate governance code for Guyana

Introduction
The Council of the Private Sector Commission (PSC) of Guyana on April 7, 2011 accepted a Code on Corporate Governance which could have some transformational effect on the way Guyana companies are managed. The code has its origins in the National Competitiveness Council and was identified among eight priority matters at a meeting in 2007. The indications are that organisations representing attorneys-at-law, bankers, accountants, internal auditors, the Deeds Registry and the Guyana Securities Council participated in the preparation of the draft led by an “expert on Corporate Governance.” There is no indication whether the public companies were consulted by way of a draft for discussion or participation in any forum.

There is no effective date for the code suggesting that its principals assume that it is to take immediate effect. Perhaps its authors are unaware that compliance will require some companies to amend their existing by-laws. The sixteen page document contains three sections and an introductory part referred to as the ‘Basis for the Code.’ Not quite correctly, the code describes itself as the “first version” of a Corporate Governance Code for Guyana.

Securities Council
In fact, many years ago, the Securities Council published in 2004 Recommendations for a Code of Corporate Governance in Securities Markets. Unfortunately, those recommendations were ignored by many public companies and the Securities Council was never able to translate the recommendations into a binding code. But not only were the recommendations ignored by many but they were actually challenged by a senior executive of Demerara Tobacco Company Limited, Mr Chandradat Chintamani, now a director of Demerara Distillers Limited, one of Guyana’s premier public companies. Mr Chintamani, echoing the public sentiments of his then boss Mr Michael Harris, wrote in 2004 that he was “unaware of the requirement for a public company to provide a statement on Corporate Governance.”

Bank of Guyana
More recently, the Bank of Guyana, acting under the authority of the Financial Institutions Act of 1995 (FIA) and the Bank of Guyana Act issued Supervision Guideline 8 – Corporate Governance. That guideline which came into effect on January 14, 2008 covers a variety of governance related issues.

I do not recall any occasion on which the Bank of Guyana has expressed concerns about non-compliance with the guideline, no doubt because both bank and non-bank financial institutions require a licence from the Bank of Guyana in order to operate. This is a very useful if coercive tool that almost certainly guarantees full compliance.

Banks, DEMTOCO and DDL
The Chairman of the PSC is Mr Ramesh Dookhoo, who is also an executive of Banks DIH while Mr Chintamani is, (or was up to recently), a member of the executive of the PSC. Would Mr Dookhoo and Mr Chintamani ensure that the companies with which they are associated comply with the code they now recommend? This question is relevant because the PSC’s code does not constitute mandatory or enforceable principles. As the code itself says, it provides a list of the main principles of what is commonly agreed to be good corporate governance practice. Ironically, the PSC code has no more authority than the Securities Council’s recommendations, and it would be interesting to see whether the PSC’s leading members, acting in their company capacity, will take their new code seriously.

The code encourages companies to report on how they apply relevant corporate governance principles in practice, and also to be responsible enough to give an explanation to the shareholders of the reason(s) if they deviate from the code. This is sometimes referred to as ‘comply or explain.’ The code also calls on companies to provide information on their corporate governance policies and principles at the request of shareholders for further evaluation, the very things DEMTOCO said they would only provide if the law so required it.

The PSC code
Let us now look at some of the code’s main provisions that appear to warrant attention.

Section I: The Board of Directors
This section contains eight principles and runs to eight pages.

Principle 1 paraphrases the provisions of the Companies Act 1991 with respect to the powers, functions and duties of the directors. One new and interesting feature is the requirement that the annual report “set out the number of meetings of the board and those committees and individual attendance by directors.”

Principle 2 boldly calls for a clear division of responsibilities at the head of the company and makes it mandatory that the Chairman and Chief Executive Officer (“CEO”) be separate persons. It also requires that the division of responsibilities between the Chairman and CEO be clearly established, be set out in writing, and be agreed by the Board.

This separation of the CEO and the Chairperson has been widely discussed in these columns before. The ‘big man’ culture in Guyana is for a unification of these functions into one holder. Guyana has larger-than-life incumbents in these positions at Banks DIH and DDL, but with the lead persons in the PSC directly associated with those two companies it seems reasonable to assume that those companies are in agreement with the rule.

Interesting too is Principle 3 ‘Board Balance and Independence’ which distinguishes between executive, non-executive and independent directors. In fact the code suggests that there is a rebuttable presumption of non-independence in several circumstances including if the director has been an employee of the company or group within the last five years; participates in the company’s share option or a performance-related pay scheme, or is a member of the company’s pension scheme; has close family ties with any of the company’s advisers, directors or senior employees; holds cross-directorships or has significant links with other directors through involvement in other companies or bodies; represents a significant shareholder; or has served on the board for more than nine years from the date of their first election.

Reinforcing these stringent conditions, the code requires that at least half the board, excluding the chairman, shall comprise non-executive directors determined by the board to be independent, applying the tests and conditions set out. If applied strictly, this is revolutionary.

Appointments to the Board must be done by way of an Appointments Committee which itself must make available its terms of reference, explaining its role and the authority delegated to it by the board. The terms and conditions of appointment of non-executive directors shall be made available for inspection. The letter of appointment shall set out the expected time commitment.

Principle 5: ‘Information and professional development’ requires among other things that the Board ensure that directors, especially non-executive directors, have access to independent professional advice at the company’s expense where they judge it necessary to discharge their responsibilities as directors.

Principle 6: ‘Performance Evaluation’ is no less important. This principle requires the board to undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors. At least every three years, this evaluation should be externally facilitated.

Principle 8: ‘The Level and Make-up of Remuneration’ requires that a significant proportion of executive directors’ remuneration shall be structured so as to link rewards to corporate and individual performance. Of course the risk here is the manipulation of results to earn higher levels of remuneration.

Interestingly, the code does not address the issue of disclosure so that shareholders will have to assume that everything is alright.

Section II: Disclosure and Accountability
Just when the code was heading in the direction of becoming truly progressive, it begins a dramatic downward slide. Much of what is stated under this section – except for a mandatory Audit Committee – is required by the Companies Act. The section is a misnomer since none of the three principles under the section addresses disclosure. In fact, they address financial reporting, internal control, and audit committees and auditors (barely).

Section III: The Relationship with Shareholders
This section contains three principles: communications with shareholders, constructive use of the AGM and shareholder voting. The code superfluously requires non-executive directors to attend all shareholders’ meetings, a requirement of the Companies Act.

Conclusion
It is a pity that the bankers did not draw the code’s architects’ attention to Supervision Guideline 8. While there are some progressive principles in the PSC’s code, it is not mandatory and there are a number of major omissions from what would be considered a modern Corporate Governance Code.

In these days when everything is about the environment, it would have been encouraging to have seen some nodding acknowledgment to sustainable use of resources and respect for the environment. Risk management, compliance with the law and disclosure are areas which are under-addressed.

The PSC has not indicated whether it will monitor companies for compliance. It should.