Mr. Speaker, I rise pursuant to Standing Order #18.

In his closing budget presentation the Minister of Finance and the Public Service detailed what he described as two "sweetheart deals" with Dehring Bunting & Golding Ltd. (DB&G), a company in which I held the position of Chief Executive Officer, citing them as examples of why a Commission of Enquiry into Finsac needs to be held.  For the benefit of the members of this Honourable House, a sweetheart deal is defined as "A collusive, unethical transaction between two parties."  Therefore it is necessary for the record, and to defend my own integrity, that I be allowed to explain these transactions.

In my explanation of these alleged sweetheart deals, I will show that the Minister misled this Honourable House and also breached Standing Order # 35 (5) which states "No Member shall impute improper motives to any other Member of either Chamber."  I am requesting that the Minister withdraw these statements and if he complies then it will be unnecessary to seek further sanctions.

One of those two examples was a supposed sale by the Government of cash flows owing by the Jamaica Redevelopment Foundation.  The Minister embarked upon a description of the supposed transaction in considerable detail. 

The fact is that no such transaction ever took place.  DB&G did communicate with the Government about the potential benefits of a transaction arising from the Government's ongoing dealings with the Jamaica Redevelopment Foundation.  However, those discussions did not lead to any form of transaction. 

Mr. Speaker, you will be aware that the Privy Council recently ruled against a former Prime Minister and affirmed his liability for a defamatory statement that he had made against a former Deputy Commissioner of Police.  In doing so, our highest Court made it clear that even a politician owes a duty of care to check the reliability of the defamatory information which he chooses to publicly disseminate. 

It is clear that in the matter of this supposed transaction, the Minister of Finance totally failed in that regard.  He must have made little or no effort to discover the truth that no such transaction took place.  He did not even ask me about the matter, which he could easily have done. 

Mr. Speaker, I will now address the other transaction that the Minister of Finance mentioned in that speech.

It was a matter of public record that part of the price at which the Government had sold the National Commercial Bank (NCB) to AIC some time before, included a portion that would be paid over time with interest. 

As the 2003/4 fiscal year was drawing to a close, it was also well known in financial circles that the Government was facing a significant challenge in meeting its fiscal target.  Failure to meet the target would have been damaging to the Jamaican economy, as it would result in expectations of higher public sector borrowings and higher interest rates in the coming year. 

DB&G conceptualised a potential transaction whereby the Government could sell those future payments from AIC to yield their present value, applying current interest rates to determine the price of the sale of those cash flows.  The transaction would bring forward substantial revenue for the benefit of the Government's coffers.  DB&G approached the Ministry of Finance with the idea, and offered to arrange the transaction and to find investors who were willing to fund it. 

The Government of Jamaica Handbook of Public Sector Procurement Procedures (May, 2001) of the National Contracts Commission describes itself as "the definitive book on the subject as of 1st May, 2001".

It provides for four (4) types of methods of procuring public sector contracts. These methods are: (i) Open Tender; (ii) Selective Tender; (iii) Limited Tender; and (iv) Sole Source or Direct Contracting.  The applicable procedure depends on the circumstances of each case.

The Procedures provide that Sole Source or Direct Contracting may be justified in circumstances such as:

• (1) when the procuring entity receives an unsolicited proposal it considers meritorious;
• (2) when there is an unusual and compelling urgency; or
• (3) where it is otherwise in the public interest.

The question of putting the AIC Receivables transaction out to tender did not arise.  First of all, it would have been quite unethical for the Government to take DB&G's idea and give other finance houses the benefit of the opportunity to bid on it. Secondly, a key objective of the transaction was to assist the 2003/4 fiscal target to be achieved with resulting benefits to the overall economy, and this objective would have been thwarted if the transaction did not proceed with urgency.  It was a clear case in which the Sole Source or Direct Contracting approach was justified in the public interest. 

I should mention, Mr. Speaker, that it is a matter of record there have been many other instances of various banks making loans or providing financing to the Government or public sector agencies, where the circumstances were urgent or it was otherwise not appropriate for the transaction to go to tender.  Only three months before this transaction in December 2003, the Government borrowed US$100Million from the Bank of Nova Scotia on a similar sole source arrangement.  The exigencies of life are such that sole source transactions will likely continue to occur from time to time.

For the record, the price at which the securities were issued by the Government in the AIC Receivables transaction was in line with prevailing market conditions. Medium term Government of Jamaica variable rate local registered stock are priced at a margin over the 6-month Treasury Bill rate (typically between 1.5 and 2.0% at that time).  Since the interest comprising the AIC Receivables was at the Treasury Bill rate, the securities were issued at a discount so as to ensure a yield to investors that was in line with Government securities of a comparable duration.

A 1% fee was negotiated by DB&G for conceptualising and arranging the entire transaction and then successfully placing it in the market with investors, and was fair and reasonable.  DB&G also had a continuing obligation as Registrar and Paying Agent for the transaction.  It cannot be fairly compared to the fees that the Government pays for routine offerings of debt that do not involve any financial engineering or any continuing administrative role. 

The Government got value for money, which is why the technocrats in the Ministry of Finance agreed to the terms and decided to proceed.  It was unfortunate that the Minister read excerpts from one unnamed official as if that were the prevailing view.  The transaction was reviewed by an entire team of Ministry technocrats, and the consensus was in favour of the transaction, which is why it proceeded.

For the record, Mr. Speaker, DB&G placed some of the securities among a number of institutional investors with which it does business, both in the private and public sector.  Those investors included the NIF and the NHT, which have cash surpluses which they must invest to generate returns to meet their statutory objectives.  The terms of DB&G's engagement did not require DB&G to discriminate against the NIF or the NHT, and those entities invested because the transaction met their investment objectives at the time and was priced in a manner acceptable to their investment committees. 

It is common market practice that while a large transaction is being negotiated, the investment bank arranging the transaction builds a book of potential orders for the securities, so that on signing, the cheque can be delivered almost immediately.  This is why the NHT and other institutional investors would have been aware of the transaction while the negotiations were still being finalized.

Mr. Speaker, it is regrettable that the Minister of Finance has sought to denigrate and cast aspersions on what was a good transaction for Jamaica and at a publicly owned company -DB&G - that has won many awards for both its financial performance and its corporate governance, all in an attempt to score political points at my expense.  It was the first time that the Government was issuing asset-backed securities in the domestic capital market to raise cash by securitizing future flows arising from a complex privatisation agreement, and the transaction was accordingly recognised in the financial marketplace as a creative and innovative financial solution. 

In closing, I would like to remind the Minister of Finance that financial markets operate on confidence, and demand less political rhetoric from the Minister who has been given charge of the economy. 

2008-05-13