Land Swap deal welcomed but concerns over location of land raised

Chairman of the Social Security Board and Head of the Land Sales Agency, Mr. Halva Hendrickson; Prime Minister the Rt. Hon. Dr. Denzil Douglas; Permanent Secretary in the Ministry of Sustainable Development, Mrs. Hilary Hazel and Parliamentary Representative, Dr. the Hon. Timothy Harris (photo by Erasmus Williams)

BASSETERRE, ST. KITTS, OCTOBER 25TH 2012 (CUOPM) – St. Kitts and Nevis’ Prime Minister the Rt. Hon. Dr. Denzil L. Douglas has called for the setting aside of emotions and expressed confidence that at the end of the day, the land swap process will prove to be a boon to the Federation.

Although there was no opposition to the land swap agreement between the Government of St. Kitts and Nevis and the St. Kitts-Nevis-Anguilla National Bank, there were concerns about the location of land including in the swap, although it was pointed out that residents of the local communities would still have access to hundreds of acres for community expansion for home, agriculture and infrastructural and other development.

Speaking at the first in a series on Town Hall Meetings on Wednesday night at the Lodge Community Centre, Prime Minister and Minister of Finance and Sustainable Development, the Rt. Hon. Dr. Denzil Douglas pointed out that it was in July 2011, the Government entered into a Standby Agreement (“SBA”) with the International Monetary Fund (“IMF”).

At the head table besides Prime Minister Douglas, were Parliamentary Representative Dr. the Hon. Timothy Harris; Chairman of the Board of Directors of the St. Kitts-Nevis-Anguilla National Bank, Mr. Linkon Maynard; Managing Director of the St. Kitts-Nevis-Anguilla Managing Director, Sir Edmund Lawrence; Permanent Secretary in the Ministry of Sustainable Development, Mrs. Hilary Hazel and Director of Planning, Mr. Randolph Edmeade.

Prime Minister Douglas in answering the questions from the participants gave clarification to several issues.

“One of the terms of that agreement called for the Government to reduce the national debt. Notably, prior to entering this agreement with the IMF, the Government had already set for itself a goal to reduce its debt through a variety of means and these proposals were accepted without major adjustment by the IMF,” said Dr. Douglas, pointing out that he received a mandate in the 2010 General Elections when he promised that by the time the next General Election is held in 2015 “the National Debt will not be an issue.”

He told a packed Community Centre which overflowed on the corridor that one of the major holders of Government debt was, and still is, the St. Kitts-Nevis-Anguilla National Bank Limited (“National Bank”).

“The Government and the Bank came together, and together, they agreed to a plan that would substantially reduce the national debt and help set St. Kitts and Nevis on a sustainable course of fiscal health,” said Dr. Douglas.

“We should remember here that the Government did not enter into this agreement with just any institution. This is a Bank that since its inception has shown that it will, within the scope of its business model, work diligently and unequivocally with the people of St. Kitts and Nevis to move this country forward,” said Dr. Douglas.

“So what was agreed was for the Federation, which is rich in lands, to offset the debt to National Bank by transferring certain land assets at least equivalent in value to the debt to National Bank, thereby extinguishing the debt to the Bank,” said Dr. Douglas.

He said that the Government could not simply transfer lands to the Bank and the Bank could not simply remove the debt from its books. There are rules and regulations. The Bank is a business, and the Government conducts the business of the people. The Bank had, in some way, to be given cash back for the cash borrowed. And the Government had to ensure that the people of St. Kitts and Nevis were given good value for their lands.

“What was then further agreed between the parties was that a Special Purpose Vehicle (an “SPV”) would be established. This SPV would be a company, incorporated in partnership between the Bank and the Government. At the date of incorporation, each party -Government and Bank – would hold equal shares. (At this point, the Government holds one hundred thousand shares in the Company and the Bank owns one hundred thousand shares in the Company.]]

That ratio will never change except in favour of the Government and the People of St. Kitts and Nevis.

“After the transfer of the lands to the Bank, the debt owed to the Bank would be transferred to the SPV. Also, the Bank which has entered into an exclusive agreement with the SPV, would give the SPV exclusive rights to sell the lands. Any money that is realised from the sale of the lands would be used first to defray the costs of sale and secondly, to reduce the Company’s debt,” said Prime Minister Douglas.

Explaining the shareholding arrangement works in favour of the people of St. Kitts and Nevis, Dr. Douglas said: “The Bank owns “A” Shares in the Company. The Government owns “B” Shares in the Company. The main purpose of these different classes of shares is to clarify the redemption value and priority of the shares. The designation of classes of shares does not mean that the Bank has more power or authority in the Company than the Government. What it means is that when the lands are sold, the Bank’s shares will be paid out before the Government’s shares are paid. And this is the way it should and has to be. The Bank lent the cash, the Bank must get back its cash,”

“So as the lands are sold, and the monies from the sales reduce the Company’s debt, the Bank’s “A” shares will eventually be redeemed. The Government will continue to hold all its “B” shares in the Company even after the Bank’s shares have all been redeemed. That means that the Bank’s shareholding will eventually come to zero and the Government (and therefore the people of St. Kitts and Nevis) will at the end of the day hold one hundred percent of the Company. Holding one hundred percent of the company means that the Government will hold one hundred percent of all the remaining assets of the Company. And the agreement of the parties, and the structure of the Company, is designed to ensure that there will be no, or no significant liabilities of the Company at the end of its purpose. Because that is what a Special Purpose Vehicle is designed to do. It will carry out its purpose – in this case to sell lands and extinguish a debt – and at the end, having achieved its purpose, the assets will be distributed and the company will be dissolved.

Therefore, if there are any lands that were transferred to the Bank under the terms of the agreement, and those lands were not needed to be sold to satisfy the Company’s debt, those lands will be returned to the people of St. Kitts and Nevis. The Bank will not have a choice. The Government will not have a choice. They have to be returned.

“Even further, if there is any excess money left over from the sale of lands after the Bank has been fully paid, that money will also be turned over to the people of St. Kitts and Nevis. Neither the Government nor the Bank can transfer assign or dispose of the shares they own to any third party UNLESS the other shareholder agrees to such a transfer in writing,” said the Prime Minister, adding:

“Neither the Government nor the Bank can pledge, mortgage, charge or otherwise encumber any of the shares that they own in favour of any third party unless the other shareholder agrees in writing Therefore you, the people of the Federation, will always know the persons having power and authority over the sale of our lands. This further ensures that no third party without a genuine interest in, or an emotional tie to, the lands of this Federation will ever hold the power to sell these lands.”

“The people of St. Kitts and Nevis are protected further. In the Company, there will be six directors. Three will be appointed by the Bank. Three will be appointed by the Government. The Chairmanship of the Board will be rotated annually between the shareholders, with one of the Government’s appointed Directors being the First Caribbean. When it comes to voting, the directors have equal voting powers and the Chairman does not have a casting or deciding vote. The Government will always have equal say in what happens in the Company.

“There are more benefits to the people of the Federation – once the Government loan is transferred to the Company, the interest rates reduce from an average commercial rate of 8.6% per annum to the extremely favourable rate of 3.5% per annum. This new, lower rate was not just handed over to the Government by the Bank. This rate was negotiated by the Government who said that at times the value of the people’s land must be recognized.

A reduced interest rate ultimately means that fewer lands will have to be sold to satisfy the debt because the overall debt will be reduced.”

It should be understood that the SPV will be run like any other well-established private sector company. There will be directors as explained earlier. There will be professional staff hired and operating from brick and mortar premises. There will be secretaries and managers. There will be auditors appointed. The rules governing companies in the Federation will apply to it. Annual returns will be filed. It will have retained accountants and legal counsel.

Further, the land sales process will be transparent and apparent.

The lands have been valued by an independent valuation agent agreed between the parties.

“A minimum of three real estate agents selected through a competitive tender process will assist the Company with the sale of the lands. They will only assist however in accordance at all times with any licences or permissions granted to them by the Company. The company will continue to have the sole and exclusive right at all times to sell the lands. It is the sole and exclusive agent for the marketing and sale of the lands in accordance with the agreements made between the Bank and the Government.”

The Bank, as legal owner of the lands, will sign the transfers of the lands to the prospective buyers. The Government will always have an equitable interest in the lands by virtue of its shareholding in the Company and the relationship between the transferred debt and the sale of lands.

The entire process from the date the Company becomes fully functional to the date that the Company’s debt is fully paid out is calculated to last three years with provisions for an extension if that becomes necessary. We do not expect it to become necessary.

It is the conversion of one asset to another – the change from land to cash. It has the benefit of reducing the Federation’s debt by 33.3% instantly. It has the further benefit of reducing the interest cost to the country instantly.

“All throughout the process your Government will continue to oversee the lands that are the birthright of the people of this Federation and ensure that they will be used for purposes that are to the benefit of the people of this nation,” said Prime Minister Douglas.