The Cabinet briefing went like this: “The Cabinet held a discussion on the government’s determination to purchase the DeLuxe Cinema property on High Street, through a forced sale by a local bank. The Cabinet reiterated the wisdom of so doing by recounting the multiple reasons for its actions. First, the Fernandez family will not benefit from the purchase; that the family is a minority shareholder in the company, and the purchase money will go to the indigenous bank that extended credit to the company. The indigenous bank will thus be saved from reporting a significant bad loan or loss, which would otherwise impact the local banks further if the loan were not repaid.”
Let’s examine those first few points. As far as we know, the DeLuxe Cinema property is in foreclosure. Likely, the purchase is not directly from the bank but with the owners of the DeLuxe Cinema. Meaning that the government will purchase from the owners and then the owners will satisfy their indebtedness to the bank – how much is that? A fair question because the government opened the door and they are using taxpayers’ money.
What this briefing does reveal is that the buyout is also a bailout of the bank (on this particular loan) so that they do not suffer a significant bad loan or loss. An interesting argument since the bank was holding many other commercial properties that were or are in foreclosure, including two significant buildings that were former casinos. Buildings that many people are arguing have a greater appeal as a cultural centre than DeLuxe Cinema.
Then there is the interesting point regarding ownership and the government’s claim that the Fernandez family is a minority shareholder in the company. Well, according to the Land Register, DeLuxe Theatre Limited is the registered owner of the building and the documents at the company register, stamped October 30, 2009, lists six members of the Fernandez family, including Minister Fernandez, as owners of approximately 95 per cent of the shares in the business. Why would the government tell us that the Fernandez family is a minority shareholder?
Let’s move on to the other information in the Cabinet briefing. It states, “Second, the property yields almost $50,000 dollars monthly in rental revenue, or $600,000 annually. The $8,000,000 dollar purchase price, which the government will pay for the building, will be amortised in less than 15 years—the same as any mortgage—if the rental-income yield were to remain the same for that period. Further, the DeLuxe property is valued at $11 million dollars currently and is therefore an investment that will likely appreciate even further upon acquisition.”
The most obvious thing in that statement is the valuation claim of $11 million. It would be interesting to understand the basis for that claim because from our perspective, there is only one true value … market value. And we would venture to say that the DeLuxe property has some serious disadvantages towards achieving an $11 million market value. A couple that come to mind: It is purpose built for being a cinema (meaning renovation costs to convert it would be extreme), so the pool of possible, interested buyers would be very small. As well, parking is a nightmare, making day operation almost impossible. We will not even touch on the point that government would need to get money at less than 2 per cent interest to amortise $8 million over 15 years, paying only $50,000 monthly.
The Cabinet briefing went on to state, “Its purchase fits into the model of profitable acquisitions pursued by the Gaston Browne administration thus far: The WIOC, the CUB, the Shoul land near Royalls, the unfinished car park, all of which the administration has already or will shortly place within the NAMCO; all are driven by the profit-making motive, no bailouts!”
It could be that additional information will be forthcoming but so far we have not seen how this is a profitable acquisition. Will the government continue to run it as a cinema? We have heard that foreign and local films will be shown there, but if blockbuster Hollywood movies cannot draw the crowds to make the business successful, then how will foreign and local films?
We had previously written on the need for absolute transparency in this situation because, as you can see, when the information comes in drips and drabs, it creates more questions than answers.
The Cabinet briefing attempted to contrast this purchase against transactions completed by the United Progressive Party (UPP) but we have to ask, why? If this purchase can stand on its own merits, then why bring up previous purchases? This is not a question of which is “the better deal of a bad lot”. And by saying that, we are by no means glossing over any previous bad transaction that was not in the best interest of the people; rather, we just want to stay on topic.
We have more questions now than before. The claims made in the Cabinet briefing need greater transparency. There were other commercial properties held by the bank but we see no eagerness by the government to save the bank from those bad loans or losses. Is it just coincidental that the only one that interested the government was the one owned by a minister? There are also no details that support the assertion that this will be a profitable acquisition that is driven by a profit-making motive, because, let’s face it, cultural centres, such as the one described, are near impossible to turn a profit. Then there is the price, which is difficult to analyse because the property never went to auction to determine its real market value.
A lot of talk with little said, while the people are screaming for transparency on this deal.