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News : World Last Updated: Jan 16th, 2011 - 18:04:19

Gorstew unlimited
By Marston Gordon
Jan 16, 2011, 17:54

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For Gorstew, the acquisition of another hotel at rock bottom price from government is an ordinary deal (ordeal), sordid maybe, but not for Butch.


Bail out and dump

Capitalism has created the mantra of “too big to fail”, which essentially is that taxpayers money are poured into creating or resuscitating an entity whose survival is perceived to be for the benefit of society at large. The untold truth is that the capitalist class is either averse to the risk involved or has expropriated the substance of the entity and see no further value in holding such. As the risk diminishes and the view to profit appears on the horizon, the line of reasoning from the capitalist is that “government should not be in that business”, boondoggling them into selling back the asset below market prices.


Whitehouse hotel

In 2001, then Chairman of the Urban Development Corporation (UDC), Dr. Vin Lawrence, led the formation of a tripartite company, Ackendown Newtown Development Company Limited (ANDCo) in which UDC, National Investment Bank of Jamaica (NIBJ), and Gorstew held 37%, 30% and 33% respectively. The project was late in completion with huge cost overruns and substandard work, and Gorstew which has a 20 year lease on the property sued ANDCo for US$28.8 million. The final cost at completion in 2005 was US$117m, plus remedial work of US$3.0m.


Source of funds:


            Equity- UDC & NIBJ                         30.0

            Equity- Gorstew                                 15.0

            Total equity                                         45.0


            Third party loan                                  62.8

            Shareholders loan (UDC & NIBJ)      17.7

            Total loan                                            80.5


            Equity & loan                                      125.5


Better options

1.         Since the shareholders agreement does not oblige Gorstew to inject additional funds, the outstanding loans to ANDco should be converted to equity and dilute Gorstew’s shareholding:


                                                                        US$m              Shareholding%

            Equity- UDC & NIBJ                         30.0                             25.2

            Equity- Gorstew                                 15.0                             12.6

            *Loan to equity (UDC & NIBJ)         74.0                             62.2




* Repayment of US$6.5m from US$25.0m loan currently being serviced.



Cash cost of operation:

            Interest cost on debt of US$55.5m                            2.6

            Debt amortization on US$18.5m                                4.0

            Insurance                                                                   1.1

            Equipment replacement (estimated)                             0.6

                                                Total                                      8.3


Rental income from lease                                                        3.9


Net cash inflow (Outflow)                                                     (4.4)


It will cost taxpayers US$4.4 million per year (US$63.8m over remaining term of the lease) to keep an asset that cost US$117m compared to selling it for US$40.0m with a vendor’s mortgage for 32.5m over 7.5 years at 6% interest. Even if it was sold for cash, taxpayers will still be on the hook for $34.0m with nothing to show or any chance for a better day.


2.         Because ANDco is insolvent, invite the third party creditors to call the loan for US$56.3m and let them negotiate with Gorstew for the best price. That way, taxpayers will “feel as free as a bird”, to quote Butch Stewart in 2004 when the government bought back his share in Air Jamaica for a $1.


P regardless

It is hard to understand what the government of the People’s National Party (PNP) had in mind when they signed up with Gorstew for the Sandals Whitehouse venture.

What’s more startling are the excuses proffered by Jamaica Labour Party government why it is in taxpayer’s interest to hand it on a platter over to Butch. And I will comment only on the most absurd of arguments, which is that Gorstew has the right of first refusal; so what, more the reason why a reasonable price should be sought.

The valuation of the property on a net present value basis is to treat the people of Jamaica with gross contempt.


Not for the first

The galling fact is that this is not the first hotel that Butch has leased from government only to later acquire it at steep discount, by paying a deposit and afforded a vendors mortgage: Ciboney Group, under the control of FINSAC, gave up Sandals Grande Ocho Rios in 2003 for US$17.5M against its 1992 valuation of US$66.6M.


Source: Jamaica Gleaner, Jamaica Stock Exchange, Jamaica Observer

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