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The Gleaner - March 14, 2001

Union Bank sold

THE SALE of Union Bank of Jamaica to Royal Bank of Trinidad & Tobago (RBTT) who will take formal possession on March 20, will see the conversion of a portion of the $27.6 billion bonds being held by the amalgamated bank into securities to be issued by the Jamaican Government.

Interest on the securities will be paid in cash and therefore the Bank's financial position and prospects would be improved, Union Bank said in a notice to minority shareholders, asking them to support the divestment to the Trinidadian bank.

In the notice, published in the Monday, March 12 edition of The Gleaner over the signature of Union Bank's chairman C. Dennis Morrison, Q.C., the Bank said that for the nine months to September 2000 it made a profit of $628.6 million. However, it continued to experience severe liquidity problems because most of its assets comprised bonds issued by the Financial Sector Adjustment Company (FINSAC) and to date no interest on the instrument has been paid in cash.

In fact, the notes to the Bank's financial statements for the year ended December 2000, said FINSAC bonds being held, including accrued interest, totalled about $27.6 billion and accounted for 81 per cent of the Bank's total assets, up from $22.1 billion or 68 per cent of the assets the previous year.

FINSAC, which has stated its intention to accept the offer being made by RBTT, owns some 2.066 billion or 99.4 per cent of the ordinary stocks of Union Bank, some 9.4 million or 93.6 per cent of the 20 per cent cumulative redeemable preference shares, almost 27.8 million or 92.6 per cent of the 25 per cent redeemable preference stock, 2.5 million or 99 per cent of the 9.5 per cent U.S. dollar convertible cumulative redeemable preference shares, and has full ownership of the one billion 12.5 per cent redeemable preference shares.

The notice said RBTT has offered to pay $1.10 for each ordinary stock unit, which has a par value of 50 cents per share, but last traded on the Jamaica Stock Exchange (JSE) at the offer price up to the end of February.

RBTT has also offered to buy the preference stocks at par plus outstanding interest to the end of February. "The offer is, in our opinion, a good offer, as the price is the same as the actual trading price, and also as the bank has been unable to make dividend payments on preference stocks since 1995," said the notice to shareholders.

In addition, Union Bank said, based on accumulated losses of more than $2.7 billion at as year end 2000, it would not be in a position to pay any dividends until those losses have been eliminated.

"FINSAC will accept RBTT's offer and we encourage the other stockholders to do the same," the notice said.

RBTT intends to apply to the JSE to have all of Union Bank's stock delisted as soon as it obtains control of the financial institution, and, if carried through, would adversely affect stockholders since trading would be subject to transfer tax of 7.5 per cent.

FINSAC's acceptance of the offer means that RBTT will have effective control of more than 90 per cent of the bank, and this will automatically trigger a compulsory acquisition of the minority shareholding.

Minority shareholders have been given until April 17 to accept RBTT's offer.

Union Bank, which has 24 branches islandwide, is the amalgamation of four failed commercial banks - Island Victoria, Eagle Commercial, Citizens Bank and Workers Bank - as well as four affiliated building societies, three merchant banks and micro financing organisations.

A source involved in the negotiations for the sale of Union Bank to RBTT speaking to Wednesday Business said : "Although the sale of Union Bank is in effect done, there still remains questions concerning the conversion of FINSAC bonds to Local Registered Stock (LRS). In particular the maturity dates have yet to be established. Just how this will be done has yet to be clearly outlined though it will provide much needed liquidity for the bank.

"For the fiscal year January to December 2000, the bank made a profit of $366 million. That sum would have been more but interest and penalty fees of $520 million had to be paid to the BoJ. What is interesting is that we made those profits with an asset base of between 2 to 3 billion. Just like NCB, FINSAC purchases aided profitability."

RBTT is supposed to have handed over approximately US$60 million to acquire Union Bank according to a party privy to the deal.

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