Thu | Dec 8, 2016

DBJ reports $26b divestment haul

Published:Friday | February 13, 2015 | 12:00 AM

Avia Collinder, Business Reporter

The Development Bank of Jamaica estimates that state assets divested over the past six years have saved the country $4 billion that was being poured into operating a number of loss-makers, annually.

Additionally, the bank estimates that the value of the transactions in cash and future capital expenditure for 16 assets was around $26 billion, with more to come when it eventually finds investors for Kingston Container Terminal and Norman Manley International Airport.

"The NMIA and KCT public-private partnerships will see the Government retaining ownership of the assets with the private sector, under a long-term concession agreement, applying the necessary capital and know- how to complete required capital works, with anticipated increased activity and efficiency in the operations," said DBJ Managing Director Milverton Reynolds.

"The anticipated investment over the concession period is US$500 million," he said.

Reynolds said that since 2009, the combined intake from asset sales handled by DBJ on behalf of the Government, amounted to US$67.7 million (J$7.8 billion) from investors who are also committed to further investments of US$164 million (J$18.8 billion) to be spent over five to 10 years after takeover - a total of $26.6 billion.

Reynolds said 11 of the assets were acquired by local investors that included "blue-chip entities, small and medium-size enterprises, family-owned businesses and multinationals".

Three of the more prominent deals were The Jamaica Pegasus hotel, which was sold to Kevin Hendrickson's Quivin Holdings Limited; Mavis Bank Coffee Factory was bought by a consortium comprising Jamaica Producers Group and Pan-Jamaican Investment Trust; and Wallenford Coffee Company was sold to Michael Lee-Chin's AIC International Investments.

The most recent deal was a $40-million transaction with Ryco Limited, which bought the Farm Machinery Centre in January 2015.

The proceeds from divested entities have been used to settle debts and liabilities of the companies; for cash infusions and monetising of non-core assets of owning entities, and to pay for related privatisation costs, among other expenses, Reynolds said.

He adds that of the 16 entities privatised to date, eight were either under-performing, under-capitalised or were a drain on fiscal resources. These were primarily the six sugar estates, as well as Wallenford and Windalco.

"The sale of these entities essentially removed the cost of operations from the Government's books and transferred those obligations to the private sector, which brings adequate capital, economies of scale, expertise and markets to improve the efficiency of the operations," said the DBJ head.

The overall savings to the Government from the privatisations is about $4.34 billion per year, broken down by Reynolds as: $3.7 billion of operating losses for the sugar companies; $297 million for Wallenford; and $345 million (US$3m) for Windalco.

Alongside the port assets, DBJ's divestment list also includes: assets of the Cocoa Industry Board, which are up for sale; Caymanas Track Limited; Petroleum Company of Jamaica Limited; Jamaica Railway Corporation via PPP, and the Montpelier lands in St James, a portion of which are up for sale, while some will be leased. The method of for Caymanas Track and Petcom are still to be approved by Cabinet.

Reynolds said deals for the Cocoa Board assets and KCT "are at an advanced stage of negotiations" and should be finalised by March. The Montpelier lands transaction also has the same wrap up date.

In relation to horse racing company Caymanas Track Limited, Reynolds said the business has incurred operating losses of about $84 million per annum over the last three years to year ending March 2014, and that the DBJ is seeking "an experienced operator" with the right "synergies and capital" to take over the operation.

Other assets recommended for divestment, but are yet to be packaged for the market, include Nutrition Products Limited, Bath Fountain Hotel and Spa, Milk River Spa, Jamaica Exotic Flavours and Essences Limited and St Joseph's Hospital.

avia.collinder@gleanerjm.com