FINSAC bad debt portfolio questioned
LOCAL ENTITIES expressing an interest in bidding for the Financial Sector Adjustment Company's (FINSAC) bad loans portfolio have said that the asking price may well prove too high. Parties interested in the portfolios have heard that it may well go for anywhere from between 20 cents to 35 cents on the dollar though the Government hasn't officially set a figure.
What FINSAC has said is that the portfolios would be divided into multiple loan pools of residential and commercial real estate assets, business assets, and secured and unsecured consumer debt.
In an effort to wind down the operation of FINSAC and divest its remaining assets, the Government has turned to the American distressed asset service provider Ocwen Advisors to handle the bid process on behalf of FINSAC in the offering of over 17,000 assets totalling more than US$700 million.
Local and international concerns
Advertisements appeared last week in both the local and international business press inviting both local and international concerns to tender bids. An advertisement that appeared last week in an edition of The Wall Street Journal read: "The loans are sub performing and non performing. The collateral for the loans is predominantly located in Jamaica.
Begins .................... .............................................Immediately
Due Diligence Material Available .....................March 12
Bid Date ............................................................. April 16
Asset Review files will be available for review in Jamaica by appointment only or for purchase on CD-ROM.
Buyers are subject to qualification. Pros Buyers are subject to qualification. Prospective bidders must submit a completed Confidentiality Agreement and Qualification Statement."
Grace, Kennedy's Financial Services Division together with auditing power house Price-waterhouseCoopers have joined forces to acquire both the loan and real estate portfolios and are looking to pitch their bid at 10 cents on the dollar. Both companies will be announcing a Memorandum of Understanding (MOU) later in the week with a view to entering the due diligence process.
Grace, Kennedy's finance director Don Wehby speaking to Wednesday Business said: "Both Grace, Kennedy and PricewaterhouseCoopers got together with the intention of looking to acquire the FINSAC loans portfolios. We do believe that the loan portfolios will be heavily discounted and that the Government will be hard pressed to find takers at 25 cents on the dollar."
"We are particularly interested in the real estate portfolio which we feel we can reinvigorate. With that particular portfolio, we are looking to establish a real estate investment trust with a listing on the Jamaica Stock Exchange (JSE). That way we can invite partners from both the United States and the Caribbean region to join us. I would imagine that aggressive entities who are not averse to a high risk tolerance will be seriously looking at the FINSAC loan portfolios."
Grace, Kennedy who recently acquired Trafalgar Commercial Bank (TCB) may well find that a real estate investment trust is a good fit with its new commercial banking arm with the FINSAC real estate portfolio proving timely.
Another local interest group gearing up to acquire the portfolios who wish to remain unnamed at this stage said that they would be prepared to go as high as 15 cents on the dollar.
A spokesman for the Group said: "Many of these loans are in a bad state and both the administrative and collection process will be incredibly labour intensive.
"It would be interesting to take a look at FINSAC's annual report and see just how much it spent on administration. What we have here is loan documentation that is poor and it could take as long as five years to unravel all the various loans.
"To take on this project you can forget about steady cash flow and with interest rates what they are in Jamaica at the moment, it is almost certain that U.S. operations will be eyeing the portfolios more favourably."
There are those in the business community who are asking why FINSAC will not allow first choice to owners to buy back their assets at a ceiling of 30 cents on the dollar. This idea has been championed by Senator Anthony Johnson. The Senator believes that the March 31 deadline stipulated by FINSAC by which debtors must make arrangements to settle can not be effectively met and is calling for an extension of that date.
Senator Johnson is on record as saying: "The money that involved - $20 billion dollars can not be found in 30 days because the country does not have that amount of loose cash. Corporate Jamaica has taken this announcement almost in a daze."
PricewaterhouseCoopers' senior partner Richard Downer said: "Perhaps the Government should have out-sourced the portfolios because whatever they do, they would be accused of favouritism and cronyism- nothing in between. And even if they did succeed they wouldn't be given credit."
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