Tue | Apr 25, 2017

Outameni payback - DBJ could recoup investment if attraction fortunes turn around

Published:Tuesday | November 18, 2014 | 11:00 AM
Joseph M. Matalon

The Development Bank of Jamaica (DBJ) has revealed that though it decided in October 2013 to write off a $76.4-million investment in the Orange Valley Holdings (OVH)-run Outameni Experience attraction, it would still be able to collect what is due if the debt-ridden company rebounds.

That debt, the DBJ said, amounted to more than $200 million at the time.

In a statement yesterday, DBJ Chairman Joseph M. Matalon outlined that, arising from the merger of the DBJ and National Investment Bank of Jamaica (NIBJ), as at September 30, 2006, the DBJ assumed ownership of the outstanding preference shares from a US$500,000 investment made in March of the previous year.

"The preference shares have not been cancelled, enabling the DBJ to collect in the event there is a turnaround in the fortunes of the company," Matalon said in response to suggestions in the public sphere that the DBJ had provided the first of two government bailouts to the operators of Outameni.

Matalon, in outlining the
DBJ's association with Outameni, said yesterday that OVH approached the
NIBJ in January 2005 for an equity investment of US$500,000 to assist
with the construction of a heritage tourism attraction/theme park at
Orange Grove, Trelawny, to be named Outameni Theme
Park.

"In accordance with the then mandate of the NIBJ
to provide equity capital to viable projects, and in keeping with its
focus on the development of tourism-related projects, the NIBJ, at its
board of directors' meeting on March 31, 2005, approved an investment of
US$500,000," Matalon said.

The investment was for a
period of five years with fixed dividend payments of eight per cent,
payable annually.

However, six years later, the DBJ
board took a decision to make full provision against the investment, by
charging the profit-and-loss account of the bank and reducing the
carrying value of the asset in its balance sheet.

"It
should be noted that this provision was made at a point in time long
before the National Housing Trust (NHT) transaction was consummated or
even contemplated," Matalon said, in separating the DBJ from the ongoing
controversy surrounding the Trust's $180-million purchase of the
property.

IMPAIRED INVESTMENT

"The
board's decision to make full provision for the preference shares was
based on the fact that the investment was impaired, the bank not having
received any preference dividends or redemptions since inception of the
project, and the project itself having recorded losses in each year of
operation since inception."

Matalon said the DBJ
decision was prudent and in keeping with international financial
reporting standards, and that the bank's external auditors subsequently
reviewed and accepted the move.

He said the potential
purchase of OVH by the NHT was discussed during a meeting of the DBJ
board on December 20, 2012, and, based on a request from the NHT, a
letter of no objection to the transfer of lands, free and clear from any
liens of the NIBJ/DBJ, should the NHT decide to proceed with a purchase
of the property.

"Matalon noted that, in October
2013, the DBJ board took a further decision to write off the investment
in OVH altogether on the basis of the fact that, among other things, OVH
owed secured lenders to the project J$209 million, with interest
continuing to accrue and increasing the outstanding secured balances
over time.

The DBJ had also recognised that, in any
future liquidation of the OVH, the bank's preference shares would rank
behind the secured lenders and all other creditors, in the order of
priority of distribution to shareholders and
creditors.

"Given the foregoing facts, it was clear to
the board that the chance of any recovery of the investment was
extremely remote and therefore justified the write-off of the asset,"
Matalon said.

DBJ's Outameni
Facts

  • At the time of write-off, the balance of the
    investment was US$728,383.51 (the equivalent of J$76,476,554, based on
    the then exchange rate of US$1=J$104.9949) due to the DBJ at October
    2013, and representing the original value of the preference shares plus
    accumulated rights to dividends since issuance of the
    shares.
  • The National Investment
    Bank of Jamaica made an equity investment in - not a loan to - the
    Orange Valley Holdings project. The Development Bank of Jamaica, by
    policy, does not make direct equity investments, but rather provides
    loans on concessionary terms to viable projects in the productive
    sector.