There’s still a “reasonable chance” that Government and the National Insurance Scheme (NIS) could recover close to US$70 million (BDS$140 million) invested in the failed Four Seasons project, a former principal has suggested.
In a clear-all statement on his Facebook page on Monday, Professor Avinash Persaud addressed the issue amid concerns about the millions invested by the National Insurance Scheme in the near two-decade-old project as well as questions raised in the Auditor General’s 2020 report related to the Government’s write-off of its investment in the 2018-2019 financial year.
Persaud explained that the recovery of the US$60 million (BDS$120 million) guarantee the Government paid and the BDS$9.8 million the NIS had invested in 2012 would depend on the outcome of a case still before the law courts, in which the Government is seeking to recover the title of the Paradise Beach property that would have housed the 110-room hotel and approximately 36 luxury villas.
The former Executive Chairman of Paradise Beach Limited, who was responsible for helping to secure financing to save the project, explained that the write-off became necessary after the Mia Mottley administration discovered that the Government did not hold the title to the property.
“The previous Government had entered into a private transaction with a contractor sometime between 2014 and 2016, where it had transferred the title of the property without receiving a cent. The new owner was to use this title to find an investor and pay $20 million to the Government then. In response to this discovery, the new Government did what every textbook would say to do: write down the asset – after all, the Government did not seem to hold title – and go to court to seek to recover title or value, which is ongoing,” Professor Persaud explained.
He added: “While disingenuous people are jumping up and down about the write-down, even though conservative accounting rules would require it, the real issue was why and how was an asset worth over US$100 million not secured but transferred without consideration by the last administration. Maybe there is a good explanation. Times were tough. But it didn’t work. By 2018, the property was unsold and desolate and no money paid.”
In his 2020 report, Auditor General Leigh Trotman called for the treatment of the BDS$124 million Investment in Four Seasons Hotel by the Clearwater Company, owned by the Government, to be explained.
“The value of this investment remains unchanged on the books of Government for several years even though the property on which the investment was based was significantly impaired. In the 2018-2019 financial year, the entire investment was written off. It has not been clearly established what was the basis for the entire write-off of the investment. It was not also clear what was the nature of the investment relationship Clearwater had with the hotel owners,” Trotman’s report stated.
Professor Persaud, who is also Special Envoy to Prime Minister Mottley on Investment and Financial Services, maintained that when he negotiated the Government guarantee in 2010, the Government would have had a first claim on the property.
“All other claims would fall behind the Government, so if the owners couldn’t pay the Government back, it could foreclose and take the title. The legal team and I fought hard for this against Four Seasons and others who wanted to have the first claim. This meant that the US$60 million (BDS$120 million) government guarantee and the BDS$9.8 million investments were fully backed by an asset that, at the time of the guarantee, chartered valuers had put at US$110 million (BDS$220 million) in 2010, (40 acres of prime west coast beachfront land with planning permission and engineering studies for a hotel and residential development),” he stated.
He added that “thanks to the guarantee design . . there is a reasonable chance that once the Government gets back the title and the land is sold in the calmer conditions of today, the Government and NIS get back the full amount put in”.
With respect to the NIS’ investment, Persaud said the state entity got involved after the Inter-American Development Bank (IDB) agreed to underpin the project but later pulled out after “political noise” about the potential NIS investment.
“The NIS proposal came about because credit conditions were deteriorating fast. Greece collapsed in 2010 and defaulted in March 2012. Barbados’ economy contracted sharply and many of the villa owners were struggling and pulling out. Critically, Barbados’ credit rating fell from investment grade to worse than junk. Late in 2012, the IDB said it was no longer comfortable lending US$80 million (BDS$160 million) and was more prepared to lend US$50 million (BDS$100 million) instead, taking an increasingly hard-to-finance gap and making it bigger,” he added.
Last year, the Government said it was on the cusp of attracting investment to the project but that was derailed by the COVID-19 pandemic.
Persaud disclosed that the Government has received offers but suggested the outcome was dependent on the court’s ruling.
“During the recent sales process a line of buyers formed, bidding over US$65 million (BDS$130 million) in part cash and debt offers, but they can’t buy from us what we do not currently own. That is why we are in court and, until we get back the title, why the asset was written down,” he said.
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