The Annual General Meeting (AGM) of Ciboney held on March 9, 2006 was a “recital” like so many others hosted by listed companies in Jamaica. The “agenda of restrictions” is designed to limit shareholders’ genuine participation in what is usually a once a year event and foist the moving and seconding of resolutions to “faits accomplis”.

Dead wood

At Ciboney’s AGM the Chairman of the “Wood” did not consider it worth his time to attend the meeting. Neither did the two retiring directors, one of who was not seeking re-election, the other certain of a shoe-in. This is the only public company in Jamaica with more directors than employees, a ratio of 3:1 and not surprisingly one without positive direction. Then again, it depends where you sit, whether as a minority or the majority shareholder.

Nine days wonder

As noted in the Chairman’s Report to shareholders dated January 10, 2006, Rios Hotel Management Limited (Rios) paid out the mortgage on the Resort in December 2005. The significance of this event was presumably lost to the Directors’ as the Jamaica Stock Exchange (JSE) was not separately notified, neither was the investing public.

Within nine days of the end of the third quarter (Q3’06) the financial results were completed and available for distribution at the AGM. This is another record, and the first for any publicly traded company in Jamaica. The cynics would ask why, and with good reasons. To borrow a phrase from the Minister of Finance Dr. Omar Davies, “mi no ha di money”.

Well, a glance at the third quarter results tells it all. Ahead of the AGM the directors took the liberty to pay their masters (FINSAC) first. When questioned from the floor at the AGM, one of the directors Mr. Geoffrey Messado admitted that no analysis was done to determine whether it would have been more beneficial to shareholders to retain the cash with the hope of boosting the share price. From the estimated receipt of $600m, the balance on the long-term loan from FINSAC of $350m was repaid and interest payable to FINSAC of $250m gobbled up the difference.

Sitting duck

A former Managing Director of FINSAC is the Chairman of Ciboney. As a banker the Chairman knows all too well that in times of distress creditors are primarily concerned about recovery of the principal debt and are even prepared to accept cents in the dollar, let alone interest. His experience at FINSAC would have acclimatized him to the same condition. Faced with the conflict of representing the interest of all its shareholders and that of FINSAC, it is only reasonable to assume that Mr. Patrick Hylton excused himself from that deliberation of the Board, for to do otherwise could expose him to litigation.

In January 2000 FINSAC wrote-off the accumulated interest on the long-term loan from 1998 and discontinued future charges. However, as it became clear that Rios would exercise the option to purchase the property, FINSAC re-commenced the charging of interest in January 2004 retroactive to June 2003. The interest charge of $250m paid to FINSAC translates to $0.46 per share but based on their 72% shareholding they got the equivalent of $0.64 per share.

Taken for a ride

After the AGM an old lady related a most fascinating story. She said in 1993 she bought 6,000 shares in the initial public offering of Ciboney at $2.50. On the day of the AGM she took a taxi from her home to Pegasus to get an account of her investment. On further inquiry, she realized that that was her second mistake, her shares in Ciboney trading at $0.10 was not worth the one-way journey by cab. Fortunately for her, her son picked her up on the trip home.

Responding to a question from a shareholder about whether FINSAC had recovered all its investment in Ciboney, Mr. Messado confidently stated that it did not. Elaborating further it became evident that his concern was the opportunity cost lost to FINSAC. What callousness considering that the $15,000 invested by a poor old lady in 1993 is not today worth a one-way ride!

Land at Culloden

The Directors have made it clear that they intend to wind-up the company after disposing of the land at Culloden. With that in mind would it not have been prudent to withhold all distribution to creditors until all the assets of the company were sold?

On the books the Culloden land is at $44m and an offer of $100m was rejected as too low a price. The net deficit at February 28, 2006 was $13m, therefore if the company ultimately accepts that offer it would yield a surplus of $43m. Shareholders at the AGM suggested and the Directors agreed to propose to FINSAC that they waive their right to participate in the distribution of the net proceeds.

This is a conscionable position for FINSAC to adopt for a number of reasons. The first and foremost is that the bailout of the Eagle Group was without a motive to profit. They have been repaid in full on the long-term loan and the balance of interest of $28m plus current liability of $87m is payable before any distribution to shareholders.

The surplus of $43m determined above, translates to $0.08 per share including FINSAC and $0.44 without their participation. This hardly compares to the $0.64 per share earned from interest charges before factoring the interest payable of $28m or $0.07 per share.

Wind up or down

The above calculations do not include charges associated with the winding-up of the company. Considering the tax loss of $42m at the end of financial year 2005 there might be more to gain in selling the company with the losses. Even valuing the loss at 50% shareholders excluding FINSAC could pocket another $0.21 per share.

Bring it on

This is another example of the inadequacy of the legislation governing bankruptcy and liquidation. Readers will recall the de-listing of West Indies Pulp and Paper (WIPP) in 2004 and the detention of shareholders property by its Directors. Prior to that in 2001 it was Pulse Investments Limited, which incidentally has been granted a new licence by the JSE to “pick pocket”. 

The government has signaled its intention to “bottle” some government owned entities for listing on the local exchange. Like George Bush, lets say “bring it on”.

Editors note: Last year the Chairman of the Jamaica Stock Exchange and a delegation from Jamaica visited the New York Stock Exchange with the hope of attracting investors from the metropolis. Are they really serious?