Category: Private sector

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NIS annual report does not provide any evidence of a guarantee of the $5.7B CLICO investment

Dr. Ashni Singh, Senior Minister of Finance last week tabled in the National Assembly the annual reports and accounts of the National Insurance Scheme for the years 2008 and 2009, late to extremely late under the law but quite normal for this Minister.

Business Page in this coming Sunday Stabroek will place these reports under the microscope but for now there is one egregious matter which I think deserves the widest exposure and that is risk to the Scheme of losing $5.8 billion invested by the NIS in the failed CLICO Life and General Insurance Co (S.A.) Limited. At December 31, 2009 the NIS had invested in CLICO’s so-called annuities the sum of $5.748 billion, in addition to $90 million of income earned but not yet received from CLICO. The reality is that because of this reckless and possibly unlawful investment by the board in a Jagdeo-favoured company, 20% or $1 of every $5 of the accumulated fund of workers’ contributions in NIS is now at grave risk, earning nothing in income. The board and its auditors TSD Lal & Co. do not seem particularly concerned.

Perhaps the board and the auditors, which by an unfortunate coincidence are/were also the auditors of CLICO, did not consider the investment bad or doubtful. TSD Lal & Co refers unambiguously in their audit report to a guarantee by the government of the NIS’s investment in CLICO and directs the reader to Note 22 in which the directors too, refer to a guarantee, but in looser language but which appears to have escaped notice by the auditors. The further information provided in note 22 does not by a long stretch provide any evidence of a guarantee but rather proof of a clear conflict of interest between Roger Luncheon, M.D. Chairman of the NIS Board and his position as Head of the Presidential Secretariat, a conflict that would put any careful auditor to great care and, in the circumstances of CLICO to extreme notice. Instead, the auditors and the Board were so impressed and reassured by a mix of quasi-legal/accounting “Luncheonese” that they accepted the following as constituting a guarantee.

“The Chairman of the National Insurance Scheme who is also the Head of the Presidential Secretariat at the Office of the President made the following representation in a letter dated 10th. August 2009:

“The Board of the National Insurance Scheme wishes to advise that it has noted the undertakings made by the President concerning the recovery of NIS investments in CLICO. The Board is also mindful of the unanimous Parliamentary Resolution guaranteeing state support for recovery (emphasis mine) by NIS of its investments in CLICO. As such, the Board has the utmost confidence that the undertaking would be honoured and the investments of NIS in CLICO will be recovered.”

Had the Board not included long-serving and experienced directors like Maurice Solomon FCCA and Paul Cheong, a top director of the Beharry Group, I would have said that it was a case of Luncheon taking the workers of Guyana for a $5.8 billion dollar ride. That he managed to take others along with him is a feat that only a Luncheon would contrive and succeed with.

Other than in note 22 – not Catch 22 – the directors did not even bother to refer to its CLICO exposure in their annual report. A serious Minister of Finance should have referred the report and its undated transmittal letter back to the Board for major revision. Dr. Singh accepted it.

If the investment is not recovered in the very near future, it will be drastically discounted (reduced) by the actuaries in the periodic evaluation on the viability of the Scheme due later this year, with the workers as contributors, bearing the cost. And if it is “recovered” from the public purse, the workers will still bear the cost, this time as taxpayers. In either case, that would leave President Jagdeo, Ms. Gita Singh-Knight of CLICO, Drs. Luncheon and Singh, the entire board of the NIS and its auditors, with varying quantities of red ink indelibly oozing from their hands, without having to bear any other responsibility for the consequences.

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Making the Stock Exchange work – Part 2

Introduction
Today I continue the discussion on the Guyana Stock Exchange and what we might do to make it work. I believe that a vibrant stock exchange is an important vehicle to promote growth in the economy and to enable the small investor to share in the national economic pie.

This discussion on making our stock exchange work is more than some abstract financial concept, and relates to some useful initiatives in Jamaica which has one of the oldest exchanges in the region but which up to a couple of years ago had seen trading slowed to a crawl.

If we look at the banking statistics we realise how difficult it is for small and medium-sized enterprises (SME) to raise capital through commercial loans, both because they lack the necessary security to support their loan applications and because they have to pay rates of interest that are often beyond their reach.

The most recent Bank of Guyana report shows the prime lending rate by the commercial banks of 15.06% although a number of borrowers have been negotiating for much lower rates under the threat of taking their business elsewhere.

On the other hand the majority of savings deposit account holders receive interest of less than 3% per annum which is lower than the rate of inflation, even if we ignore the withholding tax of 20%. Part of this dichotomy lies in an examination of some other banking statistics. Table 2.14 of the Banking Statistics at December 31, 2010 shows under ‘Commercial Banks: Liquid Assets’ treasury bills of $64,401.1M, even though this conflicts with Table 2.17 which shows ‘Commercial Banks Holdings of Treasury Bills’ of $65,514.2M.

Add to that the sums of money held by the commercial banks with the Bank of Guyana as “Commercial Banks: Minimum Reserve Requirements”. This stands at $45,101.9Mn compared to a required level of $29,335.0Mn at December 31, 2010, an excess of $15,766.9M. So at the end of 2010 the commercial banks had invested in the government through Treasury Bills and reserve requirements close to $110 billion out of total deposits with them of $248 billion.

It is as if the banks are raising money for the government rather than intermediating funds within the private and business sector to which loans and advances at December 31, 2010 amounted to $76 billion.

In other words, of the deposits received by the commercial banks, the government holds Treasury Bills attracting interest of between 2.67% and 3.78% per annum while the Bank of Guyana holds funds from the banks as reserve requirements another $45 billion which attract no interest at all. On the other hand households and the business sector are loaned $75 billion with a prime rate of 15%! Of course there is small business and low cost housing lending which are at lower rates subsidised by the general tax laws.

I mentioned last week the mindless and costly policy of the government when it comes to managing the financial sector, and am again reminded that the commercial banks are caught between Scylla and Charybdis – the BoG has imposed such onerous lending and provisioning requirements and restrictions on the commercial banks as to discourage lending. These statistics require a separate study outside the scope of a newspaper column.

A viable option
The point is that if we could have an active stock exchange not only would bank depositors have an alternative and possibly better vehicle for their savings, but businesses would be able to access funds at a much lower cost of capital, a term that is common in financial management.

Of course, not all companies and particularly the start-ups are ready for the big time on the stock exchange, and they would not be able to compete with the bigger players. And that is the point about the junior stock exchange that has been working so successfully in Jamaica.

Down Jamaica way
But even the Jamaicans will tell you that they did not initiate the concept, and in their own preparations noted the success of the London Stock Exchange junior market – the Alternative Investment Market (AIM) and the Toronto Stock Exchange junior market – Venture X.

These junior markets allow investors to put capital into legitimate small and medium-sized companies that are listed. Experience from those exchanges has shown how the fundraising and development activities of the listed investment securities have been able to grow the local economy by creating established and transparent businesses, jobs and ultimately, economic confidence.

The Jamaican experience followed the same pattern. Within two years there were some nine companies listed on the junior market in Jamaica across the manufacturing, retail, tourism and finance sectors, and there are reportedly ten other companies preparing to enter the market.

For them the major attraction was lowering their cost of funds.

After only a couple of years Jamaica now has an active junior stock exchange with clear rules of entry and engagement, which despite a 92-page document are nothing too onerous.

In order to be admitted to the exchange a company must issue voting shares by way of an initial public offering, subject to a prospectus seeking a minimum subscription of new shares (or allotment of existing shares) of not less than J$50 million and not more than J$500 million only.

The exchange rate of the US dollar to the Jamaican dollar is approximately 85:1. If a company exceeds its maximum market capitalization of J$500 million, it will be required to list on the main JSE Board.

For the purpose of transparency, annual statutory audit, quarterly and annual reports are required in keeping with the submission requirements of the main exchange. The company must appoint to its board a mentor who is approved as ‘Fit & Proper’ by the Financial Services Commission, the equivalent of our Securities Council.

Companies which are not allowed to list on the junior exchange include a company which is wholly or partially a subsidiary of a registered entity on a recognized stock exchange and one which had been listed on the main board of the exchange.

Attracting SMEs to the exchange
It was recognised that SMEs would be attracted to the Junior Market based on the level of support which will be provided to them. Not all of the assistance was financial or fiscal. They could benefit from the Private Sector Development Programme, a technical assistance programme implemented jointly by the European Union and the Government of Jamaica.

Fiscal incentives included a tax incentive for a period not exceeding ten years from the date of listing on the JSE Junior Market as follows:

i. a full income tax holiday for five years after listing and a half income tax holiday for the remaining years;

ii. exemption from tax on dividends or other distributions by Junior Markets;

iii. exemption from transfer tax and stamp duty on transfers of shares in JSE Junior Market companies.

If the company de-lists within 15 years of being listed on the combined exchanges, it will be required to repay to the government the tax benefits enjoyed during this period.

An SME will enjoy the benefits of any approved tax incentive while on the Junior Market during the allowed incentive period. At the end of the allowed incentive period, the SME will be obligated to move to the main board of the JSE. If the SME decides after the period in which the tax holiday was granted not to list on the main board or to delist without compelling reasons, the SME must reimburse the government for the tax incentive provided.

Conclusion
The big challenge in Guyana to get private companies to bring in outside shareholders has to do with transparency, accountability, governance and tax issues. We have already noted that the lion’s share of corporation tax is paid by a handful of companies.

The names of several of our hardware suppliers, contractors and the politically connected or protected simply do not appear anywhere close.

They are busy gobbling up state assets and are oozing with liquidity.

They seem always bent on ensuring that everything is kept in the family. Governance for them applies only to the government and most of them do not bother with annual general meetings or filing annual returns, and they know that the GRA has only limited capacity to do a good audit.

Still a few of them willing to be pioneers and offering say 25% of their shares to the public could be enough to get a junior exchange started.

All the features of the Jamaican model may not be appropriate to us in Guyana. However they offer a template that could be modified to suit our peculiar needs and to attract entrants.

To continue to do nothing is hardly an option. It is time the government shows some interest in our Stock Exchange.

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Making the Stock Exchange work

Introduction
We have not heard much from or about it recently. Passing its offices at High and Robb Streets it is hard to believe that this is the institution that was set up with much hype, expectations and hope that it will make access to capital easier and cheaper, widen shareholder ownership and raise the bar of corporate governance. The Guyana Stock Exchange, or to use its more formal name the Guyana Association of Securities Companies and Intermediaries Inc, was incorporated on June 4, 2001 after several studies with the principal aim of encouraging companies to “go public,” a term generally used to mean companies offering their shares to the public. To encourage such companies the government offered them favourable tax treatment including waiver of duties payable on the transfer of shares in quoted companies and exemption from Capital Gains Tax on gains made on the disposal of shares in public companies.

The Stock Exchange has had only limited success, being largely ignored by the government and failing to attract any attention from this Finance Minister. With a private sector body that seems to have a view only if prompted by the government, its chief spokespersons in the Private Sector Commission have been similarly silent. In fact I find it hard to believe from any of their utterances that they even remember that the exchange exists.

Access to capital
This column has constantly proclaimed the importance and possibilities of a vibrant and functioning stock exchange to a market economy. Real interest rates, ie, the rate charged over the rate of inflation is still extremely high and actually discourages borrowings by the business community since the cost of funds make many investments unattractive ab initio. Then we have the government’s endless policy of mopping up liquidity that costs the taxpayers billions of dollars in interest payments. This policy encourages the financial intermediaries to make their money by charging high rates of interest on one class of lending – its borrowings group – thereby making it financially justifiable to invest the rest in government securities at rates that are less than the rate of inflation. But since the government does not see this, the private sector is automatically handicapped.

This in no ways suggests that the commercial banks should open their vaults to all and sundry or indeed that it is sensible to do so. Financed mainly by customers’ deposits, banks and other deposit taking financial institutions operate like trustees, and it takes only a couple of their larger loans to go bad to create havoc with their financial results and balance sheets. More recently the Anti-Money Laundering and Countering the Financing of Terrorism Act 2009 has added to the challenges and risks facing such entities, since the act requires lenders to have the most intimate detail about their customers.

‘Well done, Mr Minister’
Dr Ashni Singh wrapped up the debate on the 2011 budget by sweeping and disparaging remarks about the parliamentary opposition’s poor contribution during the debate. Yet, his budget speeches are themselves devoid of any real underlying vision or philosophy, more rhetoric than substance, and even in budget measures there was clearly a failure to apply any intellect or effort at analysis. It is disrespectful and arrogant of Dr Singh to believe that he alone has the capacity to speak or think through a proper national budget. In fact had it not been for the annual stealing of VAT from the people of this country, the ineptitude of the President and his successive Finance Ministers would have been on national display.

In none of his four budget speeches has Dr Singh shown any understanding of the role of a stock exchange or concern about its failure to take off, or to explore and exploit the opportunities and possibilities which a stock exchange can bring. Has the PSC not seen this or the National Competitiveness Council or the Chamber of Commerce or anyone else? Would Dr Singh include them as part of that group that makes no constructive contribution to the budget, or is their endorsement, “Well done Mr Minister,” what he considers constructive criticism?

If only we were more imaginative and innovative, if only we understand that there is trading in government paper all year round, if only we really believed that the private sector is the engine of growth and a functioning capital market its fuel, GPS and steering system, we will still be able to bring the stock exchange back to life.

As the stock exchange enters its eighth year of operation, policy holders may wish to look at the steps taken by Jamaica, where its exchange too had slowed almost to a crawl. Jamaica’s answer was the creation of a Junior Stock Exchange that within a couple of years has seen eight companies entering the market with another ten lined up for listing in 2011.

A brief history
The Exchange began trading on July 8, 2003 at which time the market value of the shares of companies to be traded was approximately $17.7 billion. At December 31, 2010, this had increased to $69.4 billion. Trading on the Exchange has been slow not only because the concept of public ownership of shares is still not strongly promoted or embraced, but also because many of the country’s public companies are controlled companies and the number of shares available for trading is therefore limited. Yet, the total value of trades on the Exchange since its inception has exceeded two billion dollars with four companies accounting for 83% – Banks DIH, (50%); DEMTOCO (13.2%), DDL (10.8%); and GBTI (10.7%).

That is confirmed by the following chart which shows the number of shares traded by year (the acronyms are expanded in the table following).

DIH – Banks DIH Limited
CCI – Caribbean Container Inc.
CBI – Citizens Bank Guyana Inc.
DBL – Demerara Bank Limited
DDL – Demerara Distillers Limited
DTC – Demerara Tobacco Company Limited
BTI – Guyana Bank for Trade and Industry Limited
PHI – Property Holdings Inc.
GSI – Guyana Stockfeeds Inc.
RBL – Republic Bank (Guyana) Limited
SPL – Sterling Products Limited

Source: Guyana Stock Exchange

Another expectation was that the Stock Exchange would have a positive impact on share prices. In the first couple of years the results exceeded expectations with substantial increases on the prices of almost every company with gains ranging from 29% to 500% in one extreme case. The market made adjustments for the shares in Demerara Tobacco Limited, the Guyana Bank for Trade and Industry and Republic Bank Limited, while a significant movement in the shares of Banks DIH Limited accompanied the interest in the take-over of that company by the Trinidad company Ansa McAl.

To be continued

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GT&T share sale line runs cold

Introduction
The deadline for submission of tenders for the purchase of the government’s 20 per cent stake in the Guyana Telephone and Telegraph (GT&T) company is fast approaching. Indications are that with the exception of workers’ groups, there is remarkably little interest in an investment that has produced for the government huge returns in dividends, fees, taxes and other income. At one and the same time, government’s shareholding in GT&T has been by far the most successful investment ever undertaken by the government and also the most criticised, controversial and in some quarters, most condemned.

Contrast this with bauxite, which is largely a net beneficiary from the state with all the concessions and remissions it receives, and Barama in forestry and Omai in gold, which never reached the threshold for the payment of corporate taxes, all of which have received far less attention and scrutiny. Indeed, but for the harm done to the industry by interventionist politicians, sugar, also the recipient of billions of dollars of state funds, might itself have attracted little public attention. In terms of public attention, scrutiny by the fiscal and industry regulators, presence in the courts and the object of political exchanges, GT&T is in a class of its own.

No huge interest
It might have been expected then that the decision by President Jagdeo that his government had decided to dispose of its shares in GT&T would have attracted huge interest. And that NICIL, which serves the government in so many and diverse ways, would have been more active in the exercise. Despite reservations in many quarters, President Jagdeo seemed determined to divest the shares, “[hoping] that the money that we can realize from this sale can go back to developing the ICT sector; that we can get more people access [to the internet]… we are trying to get more computers [and]… bring down the cost of bandwidth.”

Why has there been so little interest and how will Jagdeo now find money to deliver on his promises? Experience has taught us that Jagdeo’s financial management must not be under-estimated; that he has the ability to make money turn up from unknown and/or undisclosed sources, of which the unconstitutional lottery funds are only one of the better-known examples. It is therefore unclear what effect any delay on the sale of the shares will have on Jagdeo’s plan or how he will magically pull money from one of those hats to buy the computers and meet the other uses of the sale proceeds. Indeed a number of computers have been acquired and made ready for distribution, although the exact source of those funds has not been disclosed. If they were not included in the 2010 Budget, then it has to be assumed that it is not from the Consolidated Fund.

The reason for the lack of interest seems to have been driven by several factors, but for the present, the following are considered critical: 1. changes in technology and the marketplace; 2. the government’s direct participation in the sector; 3. the announced intention to liberalise the sector; and 4. a price for the shares.

Technology
Not only has the newcomer Digicel demonstrated its marketing capabilities but together with a limited opening up of the market, it (Digicel) has proved a worthy competitor and has challenged GT&T aggressively for market share. This means that GT&T is no longer a giant which prick it as you might, you could not harm or hurt. The advent of Digicel changed that. Compounding the challenge is new technology that allows subscribers to make international calls at a fraction of the cost charged by the company. It is a safe assumption that the medium of choice for a large share of international telephone calls is Skype, a US-based service that is used directly or indirectly by thousands of persons in Guyana.

The result is that the company’s international long-distance revenue has declined from $10.1 billion in 2007 to $7.9 billion in 2009, a drop of more than 20% in two years. Partly in response to this challenge, the company entered into a joint venture with Telesur of Suriname to link Suriname and Guyana through a state-of-the-art 1,200 kilometre (700 mile) submarine fibre optic cable connected to a worldwide network of similar cables through a landing station in Trinidad. The new cable offers 3,000 to 4,000 times more bandwidth than is currently available through the Americas II cable and satellite link.

Any new investor in GT&T is effectively taking a chance that the financial rewards from the new cable and from new products and services it will be offering will stem the decline from one of the company’s most profitable sources.

Government competition
Over the past two years the government has invested hundreds of millions of dollars to land a new fibre optic cable, ostensibly exclusively dedicated to e-governance. By December last year, the government had already advanced about $400 million to a contractor for the installation of fibre optic cables and terminal equipment. Not many people have been convinced by President Jagdeo’s explanation that the cable would be “dedicated purely to e-governance” and the linking of institutions like schools, hospitals and police stations.

Interestingly while the 2010 mid-year report refers to the GT&T cable, there was no comment on the government’s, and it would be wrong to assume that we have heard the last of the government’s re-investment in the sector or its impact on GT&T. One challenge to the government in trying to sell this as a commercial service is the absence of any redundancy in case of failure. That, however, can easily be met by the government compelling GT&T and any other private supplier to provide the government with back-up service.

It has to be remembered too that President Jagdeo has not been entirely unequivocal or unambiguous about the intent of the government with regard to this cable. For example, in comments made to the media in May 2009 on the cable, he spoke of the need to bring down the cost of bandwidth without saying that this was in relation to the government as a user of bandwidth.

The present intention and future use of this cable have unforeseen ramifications for GT&T and therefore both its majority and minority shareholding.

Liberalisation
This term has been widely used but hardly defined or explained in relation to the telecommunication sector generally, or GT&T in particular. Many thought it might have simply been the removal of GT&T’s monopoly in relation to certain defined services as was the case with cellular services. The word around is that draft legislation making some sweeping changes is now being circulated and provides for at least two persons with close party connections being granted status as Internet Service Providers. Another significant possibility is that the facilities now owned by GT&T may have to be shared with other service providers. How this encourages innovation and rewards investments is anyone’s guess but until the draft is circulated for wider discussion, it would be difficult to assess its potential impact on GT&T.
For now, it is safe to speculate that if the new provisions adversely affect the existing rights of GT&T, then unless there is agreement on compensation, the matter will end up in the courts.

A reasonable price for the shares
The current shareholding in the company is that GT&T has 16,500 shares and the government has the remaining 4,125. The net assets of the company at December 31, 2009 amounted to approximately $24 billion so that on an asset basis each share is worth about $1.2 million. On an earnings basis using a (technical) price/earnings ratio of 8:1, the share price per share would be about $1.3 million.

But the notes to the financial statements indicate that there are what are called contingent liabilities arising from rulings by the Public Utilities Commission and the Guyana Revenue Authority amounting to several billions of dollars. A potential buyer of the shares would need to look carefully at the financial statements of the company and do an assessment of the likelihood of all or any of those contingent liabilities materialising.

Such an exercise is fraught with some real challenges.

Conclusion
No one buys a cat in a bag. This is not a share sale by the company requiring a Prospectus or an Offering Memorandum with all the warranties, assurances and projections by the company and its directors. Like any ordinary holder of shares in a company, the government could make no representations about the future of the company.

The absence of takers for the government’s shares should therefore not surprise anyone, and least of all the government. It would be strange for it to expect any interest when as the seller, the legislator, the regulator and fellow shareholder it has created such uncertainty and confusion about the company. An investment in the shares of any business is a calculated evaluation about the future. As it is in the case of GT&T.

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Liquidating Clico: Avoiding the pitfalls

Introduction
When I started this series on the failed insurance company I chose the title because of a sincere belief that those who were entrusted with powers and duties for the liquidation of Clico would act responsibly and professionally, and would ensure, at a minimum, full compliance with statutory requirements and ethical standards. Part 1 appeared before the court amended its original order making the Bank of Guyana the liquidator, the amendment appointing in its place, Mr Lawrence Williams in his personal capacity. The significance and ramifications of that change did not seem to affect the conduct of Mr Williams and the Bank of Guyana who together have operated not in accordance with the law but as a cheque-writer seemingly carrying out the publicly announced wishes of the chief politician. That was what the President seems to have expected of Mr Williams as Governor of the Bank, acting as the court-appointed liquidator. He and his team appear to have acted on those wishes rather than in conformity with Part V of the Companies Act under which the liquidation was ordered.

This effective impunity exists because of the way the court normally operates. Once it has pronounced on a matter, either by an order or a decision, it has no further role in the matter. Lawyers, who have historically and almost invariably used Latin to encapsulate major legal principles – and to sound learned – refer to the judicial officer becoming functus officio. The Chief Justice could cringe at how the law in the case of Clico is being abused, but he has little power to do anything about it. The law has detailed provisions regulating the conduct of the liquidator, mechanisms for accounting, accountability and oversight, and a role for the Official Receiver. None of these is being observed. In fact as I pointed out in a letter to the press earlier this week, the process has been handed to or taken over by unauthorised persons who legally have no role in the matter.

Just pay the cheques
It is not that any of these is being done surreptitiously or under the radar. No, they are done in the full glare of publicity and with a disdainful disregard for the law, even by lawyers. And condoned and encouraged by well-meaning individuals arguing that persons have waited long enough to get back their money so the law or some columnist must not get in the way! Just pay the cheques.

The major starting point for the liquidation after due notification would be the statement of affairs summarising the assets and liabilities of the company and indicating their relative ranking. This has not been done and the liquidator has failed to carry out his first major duty. Unauthorised persons have been inserted in the process while the Official Receiver has either been shut out or has stayed out. That is more than personality or formality. It has to do with reporting to the court and investigating into conduct, including frauds.

So what might the financial picture have looked like in the statement of affairs, a document that is required to be filed on the public records? The reality is that the public will never know since the liquidator has chosen not to file one. The Judicial Manager did present to the court a statement of net assets as at February 28, 2009, more than eighteen months ago. The picture presented then was as follows:

Value of net assets
The difference between the carrying values of the liabilities and their best and worst case scenarios is that the liabilities of $4.9 billion did not include the actuarial values of the outstanding policies, those that were genuine insurance policies and those high interest earning instruments that were being sold Ponzi-like and bought by unthinking but often educated individuals looking to make more than an average buck. Those so-called policies were described in the recent court papers as illegal.

Measuring of the loss
What the figures mean is that if assets are sold for the values shown as best case and liabilities met at those values, Clico’s depositors and policyholders would lose $8.1 billion. If they realise and are met at the amounts shown as worst case, the loss climbs to $11.9 billion.

We got lucky and received roughly $3 billion from the Caricom Petroleum Fund, thereby reducing the potential loss on the best case scenario to $5.1 billion and $8.9 billion on a worst case.

The liquidator needs to go after every asset of the company but he may find that there will be pluses and minuses. For example, there are some 4,285,224 shares in Banks DIH Limited valued G$51,422,688 not in the name of Clico and therefore excluded from net assets. Similarly excluded from the value of net property is a property located at 19 Smythtown, New Amsterdam, Berbice with an estimated value of $2 million.

On the other hand, the Judicial Manager has optimistically included a forced sale value of the Camp Street palace at $1.2 billion on a best case and a value of $750 million on a worst case. In fact it seems that the realised value on an arm’s length forced sale may be more around $500 million. President Jagdeo, an economist who has found novel and sometimes illegal means of granting subsidies, has suggested that the government might be interested in buying the asset at a premium!

Another source of inflows is from the various inter-company balances with companies that may have assets on which the liquidator can put his/their hands. Clico Bahamas is dead while CRL, a Clico subsidiary located in Guyana, owes Clico Guyana some $2.2 billion on a loan on which neither capital nor interest was being paid but which the auditors Deloitte and Touche have shown at their unimpaired values. In the statement of net assets at February 28, 2009 prepared by another accounting firm, the CRL balance is shown at nil value, because of doubts about the guarantee. But the loan is secured by a guarantee from the parent CL Financial and a first debenture over the assets of CRL so there may be some assets which can be sold and some money recovered by the liquidator. And on the other side of the balance sheet, Clico Guyana owes Clico Trinidad $941 million, which I think it is safe to say they will not have the gall to claim and which in any case should not be paid.

Priority of payments
Where the assets of a company being wound up are not sufficient to pay the liabilities, the order of payment is crucial. In such a case, who should be paid first is governed by the Companies Act which provides that in a winding up, there shall be paid in priority to all other debts (emphasis mine):

(a) all local government rates and all public taxes of every description due from the company within the period of twelve months before the relevant date and not exceeding in the whole one year’s rates and taxes;

(b) all wages and salary of any employee in respect of services rendered to the company during the period of four months before the relevant date;

(c) all wages of any employee, whether payable for time or piece work, in respect of services rendered to the company during the period of four months before the relevant date; or [sic]

(d) contributions payable under the National Insurance and Social Security Act.

The GRA
These persons/entities including the NIS and the GRA have statutory priority, but indications are that the liquidator is ignoring this, and it has gone unchallenged by these statutory bodies. In fact, the GRA is doubly affected because its staff pension scheme which is administered by Clico is in no different position from the other schemes with Clico. It has been told that the liquidator and the team to which he has unlawfully delegated his statutory function will look at them after the first set of money has been exhausted. And to make the bad worse, the first cheques that are being written are not to entities such as the legal and proper pension schemes with possibly tens of thousands of members but to unsecured creditors whose policies even the company now admits were illegal.

The NIS
The amount of the deficit in the best case scenario is within the range invested in Clico by the National Insurance Scheme whose 2008 financial statements show close to one hundred million dollars in accrued income and six billion dollars of unimpaired assets. Admitting that this six billion dollars investment is no longer earning any income for the Scheme, NIS chairman Dr Roger Luncheon is quoted in the Stabroek News as expressing confidence of full recovery since that is what the President promised. It might have been useful for Dr Luncheon to consult with another of his board members, the delegated liquidator Mr Maurice Solomon to get some idea if and when this money will be recouped.

The reality facing the NIS is that its fund is now impaired even as the President tries to fill the hole created by the unlawful conduct of the directors of Clico. Does it matter to him and those who so carelessly invested in the Ponzi-like scheme offered by Clico that they are being rewarded at the expense of the NIS? No wonder then that several months after its completion, the Minister of Finance is contravening the law and withholding the tabling of the 2008 NIS Annual Report in the National Assembly.

No legal sanctions
It is all now history and the public is willing to forget that the NIS was part of the arrangement with Mr Lawrence Duprey, our own Allen Stanford, under which the NIS would invest in Clico to allow the latter to invest in the Berbice Bridge Company Inc (BBCI). Some ghosts do come back to haunt us even as Clico’s director Ms Gita Singh-Knight remains not only an integral part of Clico but also chairperson of BBCI.

Despite all the laws and the rules governing liquidations, nothing will come out of the illegalities that have characterised Clico’s operations over the past several years. There are too many secrets to hide and personalities to protect. Breaking the laws by the Jagdeo administration is commonplace, and if the President can delegate his immunity as he seems to have done at the cultural centre, what is there to prevent Mr Lawrence Williams delegating his in personam duties? After all, this is how things operate in Guyana and this region.

Bet
Without placing anything on the table, I would bet that no one will be brought up under section 446 of the Companies Act 1991 dealing with fraudulent trading and operating Clico “with reckless disregard of the company’s obligation to pay its debts and liabilities; or with reckless disregard of the insufficiency of the company’s assets to satisfy its debts and liabilities.”

Or under section 447 of the Companies Act which provides in part that if any past or present officer or liquidator of the company is guilty of any misfeasance or breach of trust in relation to the company, the court can order the person to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust as the court thinks just.

But it is section 448 that provides the reason why there will be no investigation into Clico’s affairs. It would mean that the court, either on the application of any person interested in the winding up or on its own motion, direct the liquidator to refer the matter to the Director of Public Prosecutions. Sections 446 to 448 clearly do not apply to Clico.

All that is being done illegally could with some imagination have been done legally. For now, Business Page will give up on thinking that it can persuade those involved to mend their ways. It will turn its attention to other things.