Bids for GuySuCo’s Enmore, Skeldon and Rose Hall estates will be scored more on technical than financial proposals, according to PricewaterhouseCoopers (PwC) Jamaica representative Wilfred Baghaloo, who led the privatisation team that met with 14 prospective bidders last week.
“The primary objective of the government is to get a qualified, experienced, competent and well structured proposal to operate the factories for the foreseeable future and that is why the technical component is more weighted in the scoring process,” Baghaloo was quoted as saying in a statement issued on Sunday by the Special Purpose Unit (SPU), which was set up by the National Industrial and Com-mercial Investments Limited (NICIL) to oversee the divestment of key GuySuCo assets.
He explained that a technical proposal will carry 70% of the score and the remaining 30% will focus on the economics of the proposal.
NICIL’s Chief Executive Officer Horace James has told this newspaper that after the bids have been submitted and the evaluations are completed, it will be Cabinet that will make a final decision. “PwC would give the score, because they will use a scoring system for the business plans as they evaluate them in terms of technical and financial aspects and that sort of thing. They will look at the bids, score, make their evaluation and recommendations but we still have to submit to Cabinet,” James said.
PwC was selected by the SPU as international financial services provider for the divestment process.
The SPU statement said the meeting with the prospective bidders, who come from Trinidad, Canada and Guyana, was held at the Marriott Hotel last Tuesday to address their concerns and questions. James, Colvin Heath-London, the head of the SPU, and external counsel Devindra Kissoon were also in attendance.
The statement identified the evaluation criteria to be used to select the preferred bidder as being among the “difficult questions” posed to the privatisation team. They also sought clarity on: the status of the new regulatory environment/framework required to facilitate fair competition between the government and private sector in an industry that was predominately led by the government; taxation benefits and exemptions that the government will provide; government’s energy policy and an assurance that new products, especially ethanol and electricity, can be guaranteed in a market through public policy; the tenure/duration of the leases and the security in a politically unstable environment; work permits; and the state of the equipment and factory.
The statement noted that the prospective bidders were “extremely concerned” about the statement of the equipment and questioned whether they were being asked to buy scrap metal.
It added that Baghaloo told them the government has gone through “great pain” to schedule the reopening of all three factories. “East Demerara Estate operated in the last crop and I understand that Skeldon is now being prepared to reopen in November. In respect of Rose Hall, I gather that preparations are being made to open operations in first quarter of 2019. I fully understand your concerns re buying a factory that is not a going concern and most importantly a factory that has been closed for a long period of time,” he was quoted as saying.
The statement also said many of the prospective bidders requested an extension of the bid submission deadline, which was initially set for September 28th, 2018. It has now been extended to October 31st 2018, although it was noted that other bidders thought it was too short.
“We would have to evaluate the status and options as we get closer to the bid date,” Baghaloo said, while noting that the primary concern was to ensure there was a level playing field, particularly for those who showed interest in early stage of the privatisation process.
Ready to finance
Meanwhile, the statement also sought to assure that NICIL stands ready to fund GuySuCo’s capitalisation programme from the $30 billion syndicated bond it has secured.
It said the SPU has been working “feverishly” to make sure that all obligations arising out the recently executed bond have been met.
“This is against the backdrop of recent comments made by the Minister of Agriculture and GuySuCo who have signalled a general disinterest in applying the proceeds of the bond for the capitalisation of GuySuCo, [and] instead [appropriated] the monies for unauthorised expenses,” it, however, added.
The SPU noted that the latter situation has resulted in lenders signalling alarm, especially since GuySuCo ought to be generating sufficient revenue from its operations to offset its day to day expenses and debt obligations. Nevertheless, it added that NICIL stands ready to fund GuySuCo’s programme.
The Kaieteur News last week reported that Republic Bank (Guyana) Limited had suspended further financing from the bond after funds were misused to repay interest on a debt.
While the assets of the corporation were used to secure the bond, GuySuCo has no interactions with the bank since through the third party agreement the SPU is the trustee and is answerable.
The SPU has explained that GuySuCo must submit applications that are vetted to make sure it meets the approved criteria of the bondholders. It said that two disbursements have been made so far: one for $880 million and another for just over $1.1 billion.
It was stated that monies from the bond facility will be used to purchase equipment for production of white sugar, the development of co-generation plants and operational expenses. It has also emphasised that the monies obtained from the bond facility were not acquired to facilitate the payment of debt.
‘Storm in a teacup’
The SPU statement reminded that NICIL was mandated to seek financing for the three-estate GuySuCo to reposition it into a sustainable and competitive corporation. It said at the end of “some very complex and sometimes frustrating negotiations,” it was able to convince a number of participants of the viability of GuySuCo, while calling the syndicated bond the largest ever to be reached in Guyana.
The statement also addressed the $116.16 million transactional costs, as reported in the Kaieteur News, for the arranger of the bond facility, Republic Bank Limited Trinidad and it said that they included arrangers, legal, trustee, registration and paying agent fees.
“Such fees are standard for any transaction of this type and usually ranges between 1 – 2% of amount being raised,” it explained, while noting that NICIL and the Ministry of Finance were able to negotiate a significant reduced transaction cost well below the typical costs. “While it is customary for certain commercial terms of a transaction to remain private, we felt the need to respond on this point to ensure that the parties and participants in this bond maintain their confidence in our local capital markets,” it added, while calling the questions raised about the fees “a storm in a tea cup.”