NBS AND CLICO

Mar 18, 2009 Features / Columnists, Peeping Tom

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The New Building Society (NBS) is constructing a spanking headquarters opposite the St. George’s Cathedral. This must be an indication of good times for that entity which is now under the microscope for the haste with which it recently purchased CLICO’s shares in the Berbice River Bridge.
The value of those shares we are told is close to one and a half billion dollars, quite a staggering sum and one that is probably double what it would cost to construct their new headquarters, on land which I believe was purchased from the government, and on which many years ago used to house the CLICO insurance company.
I am sure that the Board of Directors of the New Building Society did not act hastily in arriving at the decision to construct a new multi-million dollar headquarters. I am sure that a great deal of financial analysis went into this decision. I am sure that this matter was carefully deliberated over and all the pros and cons carefully considered before a decision was taken to build. Such care is absolutely necessary when making large investments.
This is all the more reason why questions are bound to be asked concerning the recent decision of the New Building Society to buy CLICO’s shares in the Berbice River Bridge. Was this a carefully considered decision? Was there sufficient time for the Board of Directors to consider the ramifications of this purchase? Who approached the NBS with the offer to buy? And did this offer not suggest that CLICO (Guyana) was in serious problems? Did the Board of Directors ask why CLICO (Guyana) was selling its interest in the Berbice River Bridge?
At least we now know why CLICO (Guyana) had to sell its shares in the Berbice River Bridge. This was confirmed during last week’s press conference hosted by the Commissioner of Insurance. When asked by Adam Harris to what use the monies from the sale of CLICO (Guyana)’s share in the Berbice River Bridge was put, the Commissioner said that it was used to pay claims.
What we therefore have is a situation in which CLICO (Guyana) was rescued, well, only partially, by the sale of its interests in the Berbice River Bridge to the New Building Society. Without the monies that it received from this sale, CLICO (Guyana) would have been unable to pay a large number of its claimants and policyholders, some of whom had made a run on the institution. Those who were able to get their monies out after the NBS made the payment to CLICO (Guyana) should therefore say thank you to the New Building Society for agreeing to the purchase of CLICO’s share in the bridge, a sale that we can only assume was on very short notice.
The NBS seemingly moved rapidly to purchase these shares. I am sure that the members of the Society would sure be interested in knowing just when the offer was made to the NBS to buy these shares, how many Board meetings it took to arrive at a decision to secure the shares and what feasibility or financial analysis was done before committing close to one and a half billion dollars of the Society’s funds into a bridge which may not show a profit in its early years.
Just after the Berbice River Bridge was declared open, the President of Guyana made a shock announcement. He indicated that the NIS and the government, who are also shareholders in the Bridge, may have to forego dividends in the Bridge so as to assure the contractual rate of return to the other investors.
This column revolted against that suggestion, pointing out that if this were to happen, if the NIS and the government were to in the initial years forego their rate of return, it would amount to a transfer of wealth from the government to the private investors in the Bridge, something that was unacceptable.
Clearly this suggestion by the President was also a signal that the bridge stood not to make profits in the initial years, and this is all the more reason why the decision of the New Building Society to purchase such a large block of shares was surprising. Does the NBS hope to gain a rate of return this year on that investment? Or is it sinking funds into the bridge with the expectation that things will turn around in later years? However, given its already significant exposure in the Bridge, is the NBS not over-extending itself by securing CLICO (Guyana)’s share in the bridge?
What needs to be answered also is the discount that was paid on these shares. Surely, the NBS would not have paid face value for shares purchased from a company which was in desperate straits. The NBS had to know that CLICO (Guyana) needed money badly – why else would they dispose of their shares in the bridge – and therefore the NBS ought to have negotiated a massive discount for the purchase of the shares in the bridge, say a 50% discount. Did they?

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