SS Board buys into Citrus Products Limited - 02/17/14 06:28 PM
There is crisis in the citrus industry, with dark clouds gathering overhead. It’s certainly not the first in what is a volatile industry, but it is serious. In recent weeks, Citrus Products of Belize Limited, the company which accepts and markets citrus, has been unable to make regular payments to growers. The crisis is rooted in the deadlock that has occurred between the two major shareholders in CPBL – the Citrus Growers Association and Banks Holdings Limited. CGA owns fifty-one percent of the shares while Banks holds forty-six point five-nine percent of the shares. But while the CGA is the majority shareholder, there was an investment agreement under which BHL has veto powers over the affairs of CPBL. BHL has used those powers to veto the appointment of a new auditor as directed by the Board. The operating capital provided by the commercial banks then dried up. Prime Minister Dean Barrow held a press briefing this morning where he reported that ultimately the Social Security Board will use public funds to acquire shares in the amount of nine point one million dollars from the CGA. Mike Rudon was there and has the story.
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Mike Rudon, Reporting
The current and particular crisis in the industry has to do with money. In recent weeks CPBL has had difficulties in meeting payment to growers for the delivery of produce. Last week it got to the point where a lack of working capital being extended to CPBL by its banks made it likely that the factory would stop operations. But after intensive discussions, PM Barrow is convinced that a way forward has been forged. In the immediate short term, First Caribbean International Bank has been persuaded to advance immediate working capital funds to keep the factory going. And then G.O.B. gets intimately involved.
Prime Minister Dean Barrow
“The Government of Belize is proposing to buy out the FCIB facility…buy out the loan that FCIB has with CPBL. The idea is that S.S.B. will afterwards take that loan…government will on-sell it to S.S.B. since in fact S.S.B. is in the business of making loans while the government of Belize is not, or only unusually so…and that ought to see then S.S.B. stepping permanently into the shoes of FCIB.”
PM Barrow is confident that the investment by the S.S.B. will meet Board and public approval, since he says the move makes sense practically and financially. And besides that, it is a strategic move on the citrus chessboard to make the King, in this scenario Banks Holdings Limited, vulnerable.
“S.S.B., the proposal is, would also become a shareholder by way of the transfer of a portion of that fifty-one percent of the shareholding that’s currently held by CGA. Now that would come about in this way. CGA is indebted to S.S.B. in the amount of about nine point one million dollars. CGA would liquidate the debt to S.S.B. by way of this share-swap…in other words S.S.B. would take nine point one million dollars worth of CGA shareholding. What the transfer of this portion of the CGA shareholding to S.S.B. would do would be to give S.S.B. a ten percent stake in CPBL. It seems like after the debt is converted to shares, the new structure would look something like this – CGA would have forty-one percent, BHL would have forty-six point five nine percent, S.S.B. would have ten percent and other shareholders would have two point four one percent.”
And then it all falls into place. PM Barrow says that it has been agreed with all parties, including Banks Holding Limited, that the Board would then be reconfigured. CGA would appoint two directors, Banks Holdings would appoint two, Heritage Bank would appoint one, S.S.B. would appoint one and G.O.B. one.
“The hope is that all this would do two fundamental things. Number one…get us over the immediate financial hump insofar as CPBL is concerned…allow us to pay growers for fruit and allow CPBL to keep marching on. Two…the reconfigured Board with these three new directors to hold a balance between CGA on the one hand and Banks Holdings on the other ought to be able to forge a new modus Vivendi if you will…ought to be able to usher in an era of peaceful co-existence at a minimum. I’m not sure that it isn’t too much to expect that in fact everybody would hold hands and gather round the campfire and sing Kumbaya…but practically speaking, it appears that in terms of the two previously warring factions there is a determination on both sides to allow this triumvirate of new directors to help to pour oil on troubled waters.”
G.O.B. would appoint a director only until the FCIB facility is on-sold to S.S.B. S.S.B. would then most likely appoint two directors. Mike Rudon for News Five.
With all that said…with shares swapped, loan facilities appropriated and the Board restructured, has there really been any fundamental change to the core of the dispute? As we understand, despite the re-configuration of the Board, Banks Holdings Limited still retains its veto power, which means that it can still do what it has been doing all along. Today, Prime Minister Dean Barrow showed his hand where that is concerned. While Banks retains the veto, in the end G.O.B. is left with the face cards.
Prime Minister Dean Barrow
“What changes is that there is first of all a new Board structure in which the three members representing government, Social Security and Heritage Bank hopefully will be able to break any logjam between Banks Holdings on the one hand and CGA on the other. What changes is that the new structure is supported by all. What changes is that the two warring sides have committed to making this new structure work. But what changes most fundamentally is that if it doesn’t, government via S.S.B. has the authority under the loan arrangement, under the security arrangements, to take the running of the company out of the hands of the shareholders completely and appoint a professional, impartial, unbiased receiver.”
But the PM maintains that he has received assurances from all stakeholders and both parties, and he feels there will be a genuine intention to make the structure work.
At the start of the conference, Prime Minister Dean Barrow made reference to lining up the directors of Banks Holdings Limited against the wall and shooting them. That is testament to how tense relations have become between the two majority shareholders in CPBL. But PM Barrow reiterated that no money is being given to the Citrus Growers Association, and this is not about facilitating a buyout of Banks Holdings Limited.…the moves that are being made are designed to give an infusion to the CPBL. The intention is only to allow the company to function without the multiple imbroglios created by hostilities and tensions between the majority shareholders.
Prime Minister Dean Barrow
“We all know that there is a desire…the CGA would say an intention for them to purchase the Banks Holdings Limited shareholding. Now that may well be a consummation devoutly to be wished. And they had approached me for government to assist with the purchase price. I absolutely and flatly refused. I don’t think that government has any right to give public funds to what is in fact…CGA is this hybrid, it is an association but you’ve got to treat it certainly as a sort of private sector entity – I don’t believe that government has any right to provide public funds for that sort of an undertaking. So let’s be very clear – the question of whether if CGA were to be able to buy out Banks Holdings and become cock of the walk completely in terms of CPBL….how that would work, the merits and demerits of such a proposition is not relevant at this time because what we are talking about is a situation in which public money is being used to facilitate a set of arrangements that will see CPBL given the oxygen to continue functioning in the interest of the growers and in the interest of profit making for all concerned, under a new regime that will hopefully avoid the deadlock that has hitherto confounded the operation of CPBL.”
News Five understands that in discussions regarding a possible buyout of shares held by Banks Holdings Limited, the figure of eighteen point five million dollars US has been thrown out as the asking price for those shares.
Earlier we told you about the intervention by G.O.B. into the citrus industry. But at what cost…and at whose cost? G.O.B. has said that it will take over the loan facility to CPBL from the First Caribbean International Bank, and then S.S.B. will buy it from them. In addition, the CGA owes the S.S.B. nine point one million dollars, and that debt will be swapped for ten percent shares in CPBL. It’s a complicated bit of high finance, but when there is any talk of S.S.B. money, everybody pays attention. Add in the bit where the CGA currently owes the S.S.B. millions of dollars for two loans which are in arrears, and nobody’s smiling at the thought of S.S.B. shelling out more money. Today S.S.B. Chairman, Doug Singh, seemed a little shaky as he trumpeted how solid the CGA is, seconds after he revealed that they hold two non-performing loans with the S.S.B.
“I don’t want to be unkind to those good gentlemen in CGA, but there is a history—regrettably—of delinquency. Some dividends, I think four million in dividends were probably paid, if memory may serve me, in 2008 and 2009. But I’m saying that if you were to look at this as a banker or if this were your own money, would you still be engaging in further debt-swaps or in a debt-swap when there is a track record of being unable to meet their commitments?”
Doug Singh, Chairman, Social Security Board
“Well that is something that…from the lending standpoint, you have to evaluate each situation separately. The monies that were loan under the first circumstances was for shares and is secured with guarantee from BCGA/ICL which owns majority of the shares. In addition to that, the second loan was for on-lending in the industry, for the benefit of the industry and the farmers who borrowed would repay. Now risk is risk and an industry like this has to be supported one way or the other because it requires the finances to expand, for it to grow. We are working out those circumstances now. CGA I think is fairly solid. CGA owns fifty-one, currently fifty-one percent of a company that has a net book value of over ninety-two million dollars. The fact that it is not liquid does not mean that it doesn’t have an inability to pay us on time. So perhaps you should check the numbers.”
PM Barrow has reiterated that no money will go to the CGA. He says that the money will be used to purchase a loan facility from the FCIB which is held by CPBL, and not the CGA.
The announcement was made Monday that the Social Security Board will be taking on a financial role in Citrus Products of Belize Limited. Currently CPBL has a loan facility with First Caribbean International Bank. That facility will be bought by G.O.B. and then on-sold to the S.S.B. Now pensioners and contributors are touchy when it comes to S.S.B. funds which they consider sacred especially when the investment seems like a risky one. CGA currently holds multi-million dollar loans with S.S.B. which are in considerable arrears. Following negotiations today with stakeholders, it was made clear that government funds will not be given to CGA to buy out Banks Holdings Limited, as has been speculated. They say the financial undertaking will be to CPBL, and the industry merits it. Still, Banks Holdings shares are for sale if the price is right.
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Gaspar Vega, Minister of Agriculture
“Once its public funds, it is always a concern for the government. But at the same time, we also have to think about the people that would be affected if this industry were to collapse. So we have to weigh our differences and that is one of the reasons why we wouldn’t contemplate the complete buyout of BHL with Social Security funds.”
Anthony King, Executive Chairman, Banks Holdings Ltd.
“One’s shares are always available for sales at the appropriate price and that hasn’t been part of our discussion, but our shares remain available for sale at an appropriate price. And in the past, the discussions have been between the CGA and ourselves, not the famers; the CGA as an association. That wasn’t the subject of today’s meeting. Today’s meeting was about how do we come to a new arrangement for a new structure of the board to take the company forward and those are the matters that we have been discussing.”
The 2012 Actuarial Report from S.S.B. reveals that since 2010, returns from S.S.B. investment have dropped more than ten million dollars annually.