Here is Mark Golding’s response to the Minister of Finance, Audley Shaw’s statement.

SINCE the 2008 Budget Debate when Peter Bunting criticised Audley Shaw’s statements, as then Opposition Spokesman on Finance, supporting Ponzi schemes such as Olint, Mr Shaw has been on a campaign to smear DB&G and by extension two of its former directors, Peter Bunting and I, Mark Golding.

His 2008 accusations of sweetheart deals were the subject of a two year investigation by the Contractor General, whose report found no evidence of any sweetheart deal. Notwithstanding this finding, Mr Shaw then diverted the resources of Ministries and agencies of Government to search their records for any transaction with DB&G for the previous ten years, in a futile quest to unearth some impropriety.

Finding no impropriety, Mr Shaw has now engaged in another round of political mudslinging, based on twisting and mischaracterising the history of a hotel project executed by Runaway Bay Developments Limited (RBDL). His media release last night contains a number of inaccuracies, which need to be corrected publicly given that those inaccuracies impugn my reputation and integrity.

1. Mr Shaw states — “In 1996, in the midst of the financial crisis, the Government of Jamaica through NIBJ made an equity investment in RBDL of US$7 million. At that time, the promoters — Mr Peter Bunting, Mr Mark Golding, and partners – invested US$5 million, comprising, cash of US$1 million and property re-valued at US$4 million, up from its 1993 purchase price of US$2.5 million.”

This is full of inaccuracies. In fact:

* NIBJ’s investment in RBDL commenced after September 1997, not in 1996.

* NIBJ’s investment in RBDL at that time, disbursed during the 1997-1999 period of construction of the 225-room Hedonism III hotel in Runaway Bay, was US$13,000,000, comprising US$8,930,000 in preference shares and US$4,070,000 in a debenture.

* Peter Bunting and I were not promoters of the project. The project was executed by RBDL, the company which had bought the property. DB&G was only one of several private sector shareholders in RBDL. DB&G itself is a public company with thousands of shareholders.

2. In his closing budget presentation last week Wednesday, Mr Shaw stated that NIBJ injected a further US$11 million between 2000 and 2004. That statement was incorrect and untrue. This is borne out by the shift in his position in his media release last night:

* Mr Shaw states that “In 1997, the NIBJ increased its exposure in RBDL by investing a further US$6 million.” This is incorrect and misleading. Prior to 1997, NIBJ had no investment in RBDL.

* Furthermore, the figures in his media release are again incorrect. He stated that NIBJ invested US$6 million in 1997. As indicated above, NIBJ’s initial investment was in fact US$13 million, which was injected between 1997 and 1999 during the period of construction of the hotel.

* The figures in his media release state that NIBJ “increased its exposure” by US$5.238 million from 2000 onwards. This is a drastic departure from his untrue statement in Parliament that US$11 million was injected by NIBJ between 200 and 2004.

* US$4.015 million was expended by NIBJ in 2001 (not 2004, as stated by Mr Shaw) to take over the loans of two local banks (NCB and RBTT). NIBJ’s decision to acquire the loans of the two local banks in 2001 was to protect its own investment position, and had nothing to do with DB&G. NIBJ stepped into those two banks’ shoes, and became a secured creditor for the US$4.015 million. It was not an “injection” by NIBJ in RBDL, as it was the two local banks (not RBDL) which received the US$4.015 million from NIBJ.

* Mr Shaw states that in 2006 NIBJ paid US$223,000 to the project’s contractor, Nevalco. This is incorrect. The project’s contractor was CFC Construction (Engineers) Limited (not Nevalco). The payment was made to CFC to settle an arbitration claim dating back to 1999. DB&G also contributed to the payment to CFC, on a proportionate basis.

* He speaks of the “cash investment made by Mr Bunting, Mr Golding et al, in the project”. Mr Bunting and I were not investors in the project. DB&G, of which we were minority shareholders together with less than 15% of the shares, was an investor in the project.

* Mr Shaw says that “the overrun on the project was approximately US$18 million”. This is false. The overrun on the project was in fact just under US$7 million (the total development cost was US$42.892 million, which is US$6.992 million over the original project cost of US$35.8 million).

* Mr Shaw describes NIBJ as a lending institution, and suggests that it should have taken security. However NIBJ, as its name suggests, is an investment bank. It provides capital in a variety of forms to projects it considers worthy of support. In this case, the debt requirements of the project were fully committed, and NIBJ was approached to provide the remaining required capital in the form quasi-equity (in the form of preference shares and an unsecured debenture), without which the project would not have commenced. It is worth noting that NIBJ has also provided unsecured quasi-equity to other hotel projects, such as the Ritz Carlton. By its very nature, quasi-equity is unsecured.

As regards financial sacrifices for the project, in 1999 DB&G made a major additional investment in the project when it financed the overrun by injecting over US$6 million in additional funding, without any further contribution from NIBJ or the other stakeholders. If DB&G had not done this, the project would have stalled, the hotel would not have opened, and the NIBJ and the other investors would have been left with an unfinished construction site.

The hotel’s opening years were beset by a barrage of external negative events, beginning with 1999 Gas Riots just two months before the hotel opened, followed by the Y2K scare and an industry-wide slump. The hotel’s recovery from that initial setback was stymied by the events of September 11, 2001 and the serious downturn that followed. This necessitated a restructuring of the finances of RBDL. As part of that restructuring, NIBJ converted its preference shares into ordinary shares, assuming a controlling interest in RBDL of over 50%. SuperClubs’ management contract was converted into a long-term lease with 10-years of guaranteed minimum rent designed to cover interest payments on RBDL’s debt. DB&G waived interest on US$2.3 million of its loans to RBDL. DB&G also subsequently wrote off its equity.

As regards GCT, during the initial period when the hotel was operated by SuperClubs as agent under a management contract, our understanding, based on advice from Queen’s Counsel, was that liability to charge GCT did not arise because hotel revenues from short-term guests were exempt from GCT under paragraph 4 of Part II of the Third Schedule to the GCT Act. In 2000, after management contract was replaced by a long-term lease to SuperClubs and NIBJ assumed voting control of RBDL by converting their preference shares into ordinary shares, NIBJ took over the administration of RBDL’s affairs. Any questions relating to GCT after 2000 should be directed to NIBJ.

Mr Shaw has also repeated a number of allegations impugning the integrity of NIBJ’s internal approval process. I have no knowledge of, and cannot comment on, those allegations. However, what I do say in that regard is that is the due diligence process which NIBJ’s professional management went through before recommending the investment in the project were both thorough and businesslike, as were their negotiations around the terms and conditions of their investment. NIBJ’s approval process was no less exacting to those undertaken by the other institutional investors in the project (Caribbean Development Bank, NCB, TDB, etc). It is therefore insulting to those management professionals, and to all the directors of NIBJ who ultimately approved the investment, to describe its investment in the project as a “sweetheart deal”.

I wish to reiterate that the hotel project has employed hundred of Jamaican workers, both during construction and after the hotel opened. It has earned tend of million of US dollars for Jamaica. The initial equity investors, including DB&G and NIBJ, have suffered losses, not because of a lack of the commercial good faith best efforts of all involved, but because the commercial environment in which the hotel has operated has not enabled it to generate adequate revenues.