WAS DUE DILIGENCE DONE ON SYNERGY HOLDINGS?

Apr 22, 2010 Features / Columnists, Peeping Tom

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We concluded yesterday with the assertion that the contractual safeguards are only there to protect the financial outlays being made by the government in the three billion dollar road project which was recently awarded to Synergy Holdings Inc.
However these safeguards do not assure that the project will be completed; they are only safeguards as to what will happen should there be non-performance or slippages.
This is why in any prequalification it is important for the government to be confident in the capacity and capability of the successful firm.
The government obviously has this confidence despite the company not having a demonstrated track- record in Guyana. It is said that the company has experience in Georgia and another State. Hopefully, the government will provide evidence of this so that the people of Guyana can be as confident as they are that the firm has what it takes to undertake such works.
Apart however from checking on the capacity and capability of a firm, the evaluators in a prequalification process are also expected to check on the credentials of the firm. You would want to ensure that you are not dealing with a company that may have skeletons in its closets or whose past contains something that would cause you to question further, its suitability for the project.
You would want to check on the background of the principals of the firm and their record. This is what is called due diligence and is something that is done in respect to major investments, and one would have expect would have been done in respect to the company that was awarded a three billion dollar contract to build the access roads to the Amaila Falls Hydroelectric Project.
Was due diligence done? This question was asked at the press conference called by the government to defend the deal.
The government has not come out and stated definitively whether it carried out any due diligence on the firm awarded the three billion dollar contract but any failure to do so would constitute a gross dereliction of responsible action on the part of the authorities.
It would be frightening to assume that the government did not conduct its own due diligence. What was said at the press conference was that since the company secured a bond from the Hand in Hand Insurance Company that company may have done its due diligence.
Now the fact that the insurance company may have done its own due diligence before securing a bond for that company does not absolve the government from not doing the same.
What does Hand in Hand have to do with the responsibility of the government to conduct due diligence which will be handling three billion of our dollars? The government therefore needs to answer the question: Did it undertake a due diligence of Synergy Holdings before it awarded it a three billion dollar road contract?
Now this brings us to Hand in Hand. One official was quoted as saying that the decision of the company to issue the bond was because of the confidence the government had expressed in the project.
The government on the one hand seems to have confidence in the due diligence which it believes the insurance company may have done and the insurance company seems to have confidence in the confidence the government has in the project.
In all of this rigmarole, no one has asked what is an insurance company doing issuing bonds to secure the interests of Synergy Holdings? This I am told is not a new practice but surely the issuance of bonds is not a traditional insurance product; it is more a banking product.
After the experience of CLICO (Guyana), one would have expected that the regulatory authorities would have reined in these practices. In effect, what Hand in Hand is doing is issuing a guarantee on behalf of the company. Thus, if there is a default which necessitates the government having to be repaid, the bond can be cashed in.
In the case of CLICO we had persons banking huge sums in that company because of the high interest earning annuities.
Thus what we had was a banking function being turned into an insurance product. So, instead of it being treated as a deposit, it was treated as an annuity which is a legitimate insurance instrument.
We all know what happened with CLICO (Guyana).Insurance companies should not be allowed to issue bonds. This should be left to the commercial banks whose operations are more tightly regulated.
In the meantime, Hand in Hand should better explain to its shareholders how the bonds that it issued- which amount to a guarantee- are secured. Are they holding any transports of fixed asset securities for Synergy Holdings? Or are these bonds backed simply by goodwill, and of course the confidence of the government?

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