Given likely liquidity problems, the best option for the Berbice Bridge Company Inc (BBCI) is a government takeover, says business analyst Christopher Ram, who also flayed the waiving of over $500M in dividends due to the state.
Writing yesterday on his blog www.chrisram.net, Ram argued that since its opening in December 2008, the bridge has “spectacularly failed to deliver the promises” made by former President Bharrat Jagdeo and head of government holding company, NICIL, Winston Brassington about reasonable tolls, profitability and the payment of preference dividends annually. Now, he said, the waiver of dividends to the state is required to lend an appearance of viability to the bridge company.
The public/private partnership for the bridge saw private companies investing in the bridge construction for a guaranteed rate of return over the period of the 21-year concession. This, critics said, resulted in high crossing tolls which have burdened Berbicians particularly as the ferry service was withdrawn to ensure optimal use of the bridge.
Ram argued that even under these favoured conditions and concessions and waivers, the company will face liquidity issues as bond and other payments become due.
In the second instalment of his examination of BBCI, Ram flayed Brassington for waiving over five years of the dividend due to the state without proper authority.
The analyst also related that a request to BBCI for information drew a blank as the company said he had provided no good reasons for the request. Ram replied that this was not required under the law.
Ram said that the information he sought was as follows:
(1) the register of shareholders;
(2) the register of debenture holders;
(3) conversion privileges or rights to the shares in the company.
He wrote the company chairman, Keith Evelyn and secretary and received the following response a week later:
“BBCI acknowledges receipt of your letter dated September 23 addressed to the Chairman, and the request contained therein.
“The company has noted that your letter did not allow the privilege of a proper reason or rationale behind this unusual request.
“Accordingly, I am writing to inform you that the Board would be happy to consider your request objectively should you be able to give proper justification for your request, stating what meaningful objective can be achieved by this exercise; especially given that BBCI has in place internal controls, external auditors, and is subject to the Berbice Bridge Act No. 3 of 2005.
“Upon receipt of a satisfactory response, the request would be put to the Board for consideration.”
Ram said that access to this information is a right of any person under section 194 of the Companies Act.
Noting that Brassington was a former company secretary of BBCI and represented the state’s 70.3% shareholding in the company by virtue of NICIL’s control of Aroaima Mining Company, Ram asserted:
“It is clearly overdue that Brassington should be summoned before the relevant authorities to answer for his flagrant disregard of the law. And BBCI must be made o pay the accumulated dividend of more than half a billion dollars payable to the Government since neither Brassington, nor indeed no one else, has any authority to waive those dividends. It is probably worth restating that BBCI’s Articles of (Association) not only provides for the carrying forward of unpaid dividends, but that these be paid at “an increased rate of 1% per annum over the 11% previously due….”
Ram contended that it was of probably more than passing significance that when he was secretary of BBCI, Brassington tendered to the Registrar of Companies incomplete annual returns, concealing the required information on the preference shares, held by the government. In this, he was helped by audited financial statements which merely referred to an “investor” and did not include the amount of the dividend waiver or show it as a related party transaction.
Noting that the financing structure for the Bridge Company is Brassington’s, Ram said that even before the bridge was built, many had challenged his projections as being far too optimistic. Ram said it took no more than a few years before it became reality that the financial structure of the Bridge Company was weak. Ram said that had the $500 million plus dividends not been waived, BBCI would have been “unable to meet its obligations and would be in a serious overdraft position.”
He said his fear is that not only will every effort be made by Brassington to have the country continue to give up its entitlement to the preference dividends of $104 million annually but that the government could also lose most if not all of the $950 million invested in preference shares. The NIS he said could also lose out on its $80 million equity and possibly a portion of the approximately $1,500 million in its loan investment in the company.
With its high borrowings, Ram said that liquidity dangers for the Bridge Company are never far away. The company has liabilities with respect to $5.575m worth of corporate bonds.
The analyst said if it is assumed that two instalments of Tranche 1 become payable in 2014, the company will have to find some $610 million to repay Tranche 1 and another $100 million or so to repay other loans which will become due. If the company is unable to meet those obligations, it would find itself facing what is called ‘cash-flow’ insolvency, Ram said.
He concluded “The annual $104.5 million waiver will probably not be allowed to continue, putting the company under even greater pressure and threat. I therefore remain convinced that the best option for this company and the users of the Bridge would be for the Government to take it over”.
Ram also commented on the structure of the board of BBCI. He noted for its 70.3% of the total issued shares in the company, the government is entitled to have only one director while the Ramroop group has two directors with its 12% shareholding and the Hand-in-Hand group for its 3% holding holds the chairmanship of the board. The NIS which owns 20% of the company’s equity capital or 6% of its total capital has one representative.
Another large investor in the company is the New Building Society ($1,870 million) but it has no representation on the Board. This asymmetry seems typical of Brassington’s concept of public-private sector partnership, Ram contended.
In last week’s instalment, Ram had revealed that the bridge company registered a 57.3% increase in profitability for 2011 but he raised concerns about the validity of this position considering the question of taxes.