Government to lend 'Butch' US$32.5m ... For Sandals Whitehouse acquisition
Gordon 'Butch' Stewart has agreed to surrender his 33 per cent stake in the management company for Sandals Whitehouse for US$1, but will then buy the hotel property outright from the Government in a deal that prices the resort at US$40 million (J$3.4 billion).
Under the sale deal announced by Prime Minister Bruce Golding last week, Stewart will upfront US$7.5 million in cash as down payment on the hotel, but will then receive a vendor's mortgage from the Jamaican Government for the remaining purchase price of US$32.5 million.
The loan will be repaid over seven-and-a-half years at six per cent.
A vendor's mortgage is a special loan-financing vehicle offered by the seller to the buyer of an asset to sweeten or encourage the completion of a transaction. After the acquisition, the buyer makes payments
in instalments to the vendor under agreed terms as if servicing a commercial mortgage loan.
The price of the asset, which was based on valuations by Ernst & Young, values Sandals Whitehouse at one-third the US$117 million to US$120 million it cost to develop and commission the now eight-year-old property asset.
Stewart is using his holding company, Gorstew Limited, as the vehicle for this transaction.
Gorstew will be required to put up security in the form of a first- charge mortgage on the property, as well as its corporate guarantee.
But even as the Government pursues the deal with Stewart, the Office of the Contractor General is probing the sale. In fact, it was media reports that the negotiations were under way between the Government and Stewart that alerted Contractor General Greg Christie to the sale and caused him to launch an investigation.
Under normal procurement rules, Cabinet ratification comes after the National Contracts Commission has endorsed the process of award, not before.
But Golding seems anxious to shed the hotel, which has been a drain on the country's finances.
"Make no bones about it. In the final analysis, the taxpayers of Jamaica will bear a substantial portion of the more than US$120 million that has been spent on a project that was not properly conceived and very badly executed," he told lawmakers.
Gorstew is a joint-venture partner with two other government agencies in Ackendown Newtown Development Company Limited (ANDCo) - the UDC owns 37 per cent, the NIBJ 30 per cent, and Gorstew 33 per cent - in which ownership of Sandals Whitehouse is reposited.
Over time, ANDCo has racked up a debt of US$80.5 million - US$65 million in loans - that earnings from the hotel are insufficient to service.
ANDCo's costs are approximately US$7.7 million per year.
"However, the rental income under the lease agreement has averaged US$3.9 million per year, approximately one-half of its expenses," Golding said.
The joint-venture agreement provided for a 20-year lease of the property to Gorstew, with 14 to go.
"The decisions and actions we have taken are in the best interests of the country and have been taken to cauterise and minimise the losses that the Jamaican people will have to bear," said Golding.
"Bringing an acceptable closure to this sordid ordeal has been a burden facing this Government since it took office."
The sale does not close the chapter on the hotel. Loan repayments and the conclusion of a US$29-million lawsuit brought by Stewart are matters in progress.
"What we have done is to staunch the haemorrhaging and start the exit process," said Golding.
"It is not the end of the matter, but it is the beginning of the end."
>> See Prime Minister Goldings's full statement: Proposed sale of Sandals Whitehouse hotel