Drastic Changes in World Economy Affected Divestment of Sugar Assets – Hill

Head of the Sugar Enterprise Team, Aubyn Hill, has pointed out that a deal for privitisation of the five state-owned sugar factories was not signed with Brazilian company, Infinity Bio-Energy, as anticipated, because drastic changes in the world economy had rendered the company unable to finalise the arrangement with the Government of Jamaica.
Addressing a post-Cabinet press briefing, at Jamaica House, on February 4, Mr. Hill insisted that at the time of the signing of the Heads of Agreement in June 2008, Infinity was still in a financially favourable position.
“When a company is young and is investing, you get your equity in from investors, and then you buy your assets and convert those assets into revenues and eventually profits, so to say that the operating ratios of Infinity, when they were analysed in August, were deficient and not positive, is natural. What was omitted was the leverage ratio. At the time when we were looking at Infinity, its investors had 2.33 dollars for every one dollar of debt; in other words, it tells you that a company such as that has borrowing capacity and a financial base on which they can build. What happened subsequently and certainly by August, is that the borrowing market changed,” he explained.
Mr. Hill said given that this was the situation that existed, “to say that the negotiating team was warned in August, after the whole borrowing market had dried up, is a statement of fact. In context, when the Heads of Agreement was signed in June, the investors had substantial money, but with the borrowing market dried up, Infinity had to go back to investors and say, look, put more money in. Even billionaire investors started to withdraw and said, we can’t invest, we are holding on to our cash, that’s the reality.”
Providing an outline of the events that culminated with a deal not being signed with Infinity, and the process being re-opened to include other bidders, Mr. Hill explained that in 2007 when bidding was re-opened for the third time, a comprehensive information memorandum, setting out seven packages, had been prepared. Of the bidders, four bought the memorandum and only one, Infinity Bio-Energy, bid at closing. There were long and extensive discussions among the negotiating team and Infinity was accepted as the sole and preferred bidder.
“We started with Infinity on March 18 and on the 14th, Bear Sterns collapsed in the United States. At the time, they said Bear Sterns falling apart, ushered in something as big as the great depression of 1929-1933. So, the world had changed. When we signed the Heads of Agreement in June, of course by that time, we were seeing difficulties in the financial and economic atmosphere,” he noted.
Although the signing paved the way for full divestment by September 30, Mr. Hill said the subsidiary agreements were not ironed out by that date and “we got to December and Infinity asked for an extension to another month, and the Prime Minister agreed and had to terminate that extension, because although Infinity was still very interested, they had moved from looking for debt capital, which was not available, so Infinity went back to look to their equity holders and that has delayed the process, but they are still interested.”
Minister of Agriculture, Dr. Christopher Tufton, has since made a Cabinet submission, as mandated by Prime Minister Bruce Golding, identifying alternatives that are to be considered for the future divestment of the sugar industry. The Government, through the Ministry of Agriculture, is now looking at other private sector investors which might be interested in all or part of what Government was seeking to privatise in the negotiations with Infinity Bio-Energy. The services of the Sugar Enterprise Team are still being exercised.
The Sugar Enterprise Team, headed by Mr. Hill, was established by the previous Government in 2005, to start the divestment process by inviting investors interested in purchasing the Government’s sugar assets.
This followed Government’s decision to transform the sugar industry, following the European Union’s decision to reform its sugar regime between 2005/6 and 2009/10, as well as the huge debt burden of the Sugar Company of Jamaica (SCJ), which manages the five Government-owned sugar factories – Bernard Lodge, Frome, Trelawny, Monymusk, and St. Thomas.