NIS buys Clico building for $600 million

At a time when the National Insurance Scheme is experiencing the results of more than two decades of bad governance it has just dished out some $600 million to buy the CLICO building on Camp Street. That building was the single most valuable asset of the failed giant insurance company which was placed first under judicial management and later ordered by Chief Justice (ag) Ian Chang after he found that information available to him in 2010 pointed “unerringly” in the direction of its insolvency. The Chief Justice appointed Bank of Guyana Governor Mr Lawrence Williams as liquidator of the company but in keeping with the law Mr Williams was appointed in his personal capacity.

The acquisition is an interesting transaction. On the one hand the building is one of the largest buildings in Georgetown and the transaction is the single largest real estate transaction ever entered into by the Scheme. Yet but not surprisingly, the board of the NIS headed by Dr Roger Luncheon has not made any statement on the matter. With one old but historic church site sold in Regent Street for $500 million dollars the NIS might have thought it was getting a fancy building at a steal.

Shortly after the danger signs appeared in February 2009, a report on the net assets of the company showed the building as CLICO’s single most valuable asset. According to the report done by a local accountancy firm the building had a going concern value of $1.5 billion and a liquidation value on a best case scenario of $1.112 billion and under a worst case, $750 million. So $600 million must be a good price for any buyer.

Bigger building
Hopefully the Liquidator can explain this and whether he sought out the widest possible prospects to ensure that he obtained the best possible price as his fiduciary obligations would require. The price at which the Liquidator sold the property ought to be of some concern to the creditors of CLICO since it is out of the pool of proceeds that they are paid. Fortunately for the Liquidator and despite several possible causes, no challenge has been raised in relation to the liquidation of CLICO.

The building which dominates Camp Street seems to have been built without any serious consideration for cost, and indications are that it would be extremely expensive to maintain. Perhaps in making the acquisition decision the directors might have felt that the existing head office built decades ago is no longer adequate to house the staff and records and cater for the persons who visit there daily.

Or perhaps it wants to consolidate its Georgetown operations which are now housed in three locations, hopefully leading to greater efficiency and economy. In that case, our pensioners and persons attending the NIS office for medical and other reasons will have to accustom themselves to use elevators!

Bigger issue
If the NIS moves offices it will then have to consider what it would do with the existing buildings and whether there is a market for them. If that turns out not to be the case, the NIS would regret its $600 million dollar decision in addition to other costly decisions and transactions it has had with CLICO. For example, as at December 31, 2009 the NIS had more than $5.8 billion invested in CLICO which it seemed most unlikely to recover, not withstanding the bravado of Mr Jagdeo that the “NIS would not lose a cent.”

And in his own peculiar style Dr Luncheon had assured the auditors during the course of the 2009 audit that “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 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.”

With recent parliamentary developments I do not think the matter will be that simple. The end of the Jagdeo presidency allows for all the questions that have gone unanswered for nearly two years to be answered fully and truthfully. It would be sad indeed that the NIS should be one of the first casualties of the newly configured National Assembly.

Clearly, Jagdeo’s undertaking is not worth a cent and the opposition controlled Assembly will no doubt demand a quid pro quo: an investigation into the collapse of CLICO including the unlawful transfer of money abroad, the relationship between Jagdeo and CLICO and its CEO and whether there was impropriety in the use of $1.5 billion the company received from the New Building Society to which it sold the bulk of its investments in the Berbice Bridge Company bonds.

More of CLICO and the NIS
Now let us return briefly to the liquidation. CLICO’s principal asset is now well and truly sold for $150 million less than the worst case fire-sale price. So that those larger investors who were hoping to get some more out of CLICO might just have experienced that sinking sensation which we have all felt at some time. Their situation is at least $150 million worse but even that to the NIS as a creditor of CLICO is chicken feed.

For several years, the NIS has been engaged in some quite interlocking, if not incestuous relationships with CLICO. It had lent CLICO and Hand-in-Hand Insurance Company tons of money at modest interest rates which they then invested in the Berbice Bridge Company at quite attractive rates of interest. Indeed CLICO was such a big investor that its CEO and Director Ms Gita Singh-Knight was hand-picked as the Chairperson of the Berbice Bridge Company Inc.

But there may be a bit of good news. As at the date of the net assets report referred to above CLICO is shown as an investor in the Bridge Company to the tune of $605 million made up of $400 million in Subordinated Loan Stock, unpaid interest of $89 million and short-term loans of $116 million.

There is no indication whether Mr Williams the Liquidator has sought to liquidate those funds or call in the unpaid interest. If not that is a good small piece and some consolation.

Finally, I saw a newspaper article refer to the payment of the building to be by way of a set-off. In my view this is not permissible under the law but then the liquidation of CLICO has had improper interference from then President Bharrat Jagdeo which was hardly consistent with the law.

The reason for set-off not being available is that it would amount to a preference to the detriment of the 39 policyholders who at the date of cessation of business had balances in excess of $30 million but who were paid up to a maximum of $30 million only.

I am sympathetic to the new members of the National Assembly whose task is almost as huge as the cleaning of the Augean stables.

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