Mon | Dec 11, 2017

Coconut sector needs $2b investment - Gentles says court fight could hurt industry, turn off investors

Published:Sunday | November 26, 2017 | 12:00 AMAvia Collinder
In this May 6, 2017 file photo, Chairman of the Coconut Industry Board Christopher Gentles appears pensive during the annual general meeting of the Coconut Growers Association, held at the Jamaica Conference Centre, Kingston.
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The Jamaican Government is about to split off the commercial operations of the Coconut Industry Board, leaving only the regulatory arm under the control of the State.

But the reform programme is being subsumed by the fight over the ownership of the 163.42 million Seprod shares held by the Coconut Industry Board, which is now headed to court.

Coconut Board chairman Christopher Gentles is questioning the wisdom of that move, saying a legal fight serves no one’s interest, except for lawyers, at a time when the focus should be on locating financing for commercial investments in the sector, to the tune of $2 billion.

“I do not believe that it serves the coconut farmers, the coconut industry or Jamaica well for this matter to be tied up in the courts,” said Gentles.

“This is a critical juncture in the life cycle of the coconut industry, where we may be missing the opportunity of a lifetime for which an investment of $2.02 billion could serve to attract to lay the foundation to attract another $12 billion in investments both locally and overseas. I think potential investors may be turned off by such a turn of events,” he said.

Requests for comment from the Ministry of Industry Commerce & Agriculture, MICAF, were unanswered.

Initially, the Jamaican government had signalled plans to divest 122.5 million of the 163.42 million Seprod shares, but it got pushback from private interests. At today’s market prices, those 122.5 million shares are worth $3.9 billion.

However, Gentles told Gleaner Business that the parties had been negotiating a settlement of $1.5 billion in talks that have been ongoing since May.

That price would be around half the $2.9 billion carrying value placed on the Seprod stock at the end of the Coconut Board’s 2016 financial year. The market value of the 163.42 million shares is substantially higher at around $5.2 billion.

The talks derailed in the past week, ostensibly because the Coconut Board has been trying to negotiate a smaller settlement than the $1.5 billion.

“We have had extensive negotiations and we have had extensive movements by both parties in the matter. I believe with a little flexibility on behalf of the minister and the coconut growers we could have had a breakthrough,” he said.

Gentles said the Coconut Board and the growers it represents ultimately believe that all the holdings should stay put to finance new market development and other investments in the coconut industry once the commercial arm has been spun off.

But he also said that given the board’s alliance with the agriculture ministry over the years, in which they collected permits on behalf of the state and benefited from grants, the government was entitled to some of the agency’s resources.

“The issue is what proportion the government would request, and the quid pro quo and the commitment of the Government of Jamaica, that would allow the coconut growers the autonomy to invest in the Coconut Industry Development Project,” he said.

Over the commodity board’s history, he said, it was the growers who sacrificed returns from the agency in periods of disaster, while the Coconut Board itself has been the one taking the risk with Seprod over that company’s history.

Last year, for example, Seprod ­ which is a publicly traded company ­ paid out a big dividend to shareholders after disposing of equity investments that resulted in a large capital gain.

However, the Coconut Industry Board opted to reinvest its share of the dividend in Seprod in November in the form of a loan worth US$2.89 million.

It “wanted the money to remain as working capital” at a time when Seprod was reinvesting heavily in its dairy operations, factories, and new products, Gentles said.

The loan pays interest quarterly at an annual rate of three per cent.

“The coconut growers have been extremely frugal and have nurtured this investment in Seprod for 45 years. There have been periods of hurricanes, when a payout could have been made to growers, which was forgone in order to develop this resource,” Gentles said.

“We have to recognise that the country and Jamaica would benefit for 30 years to come from a significant investment in the coconut industry today in nurseries, farms and factories. But if we fritter away resources fighting fires, then we will fail to invest in our future.”

As to who rightly has call on the holdings of the Coconut Board, Gentles insists the quarrel is all a misunderstanding about the treatment of assets in a quasi state agency.

“The government and ourselves have both an understanding and a misunderstanding. For Government organisations that have been privately capitalised, and which are not [dependent] on the Consolidated Fund, there are special constitutional provisions for them with regards to what the government can and cannot do with their resources,” said Gentles, who is one of four government appointees on the Coconut Industry Board.

“As far as utterances of the permanent secretary, even recently, the assets of the Coconut Board will be transferred to a member’s body. They will have their assets ­ or maybe what he meant is they will have what’s left,” he said.
 

Seprod’s history is connected to the Coconut Board. It was formed out of a company called Soaps & Edibles Producer Limited, which was fully owned by the commodity board.
Seprod itself was formed as a 100 per cent subsidiary of the Coconut Board, “without a dime of investment from the government”, Gentles said.
 

Seprod was initially privately held, but “when it came time to renew the investment in the company, Coconut Board could not find the funding to do it, so floated shares of the market,” he said. “The growers retained control, however, through the board, which got just over 32 per cent of shares and another 19 per cent, which were taken up by large growers.”

Today, Musson Jamaica Limited is the largest shareholder in Seprod with a 45.27 per cent stake, followed by the Coconut Board with 31.65 per cent. The list of top ten owners is rounded out by pension funds and other institutional investors.

avia.collinder@gleanerjm.com