The Garden Group fiasco

The controversial Garden Group Hotels project, involving the operators of five small hotels in the south of the island was one of the lost-making ventures undertaken by the former Keith Mitchell-led New National Party (NNP) that governed the island from June 1995 to July 2008.

A report put together by a group of financial experts concluded that the national debt of Grenada grew by a staggering EC$58.4 million dollars due within a one-year period due to government guarantees provided to the Garden Group project, the Marketing & National Importing Board (MNIB) for its Lagoon Road project, and the Call Centre.

According to the report obtained by THE NEW TODAY newspaper, the island did not get any value for money from these “speculative” projects that got backing from the Mitchell government.

As a public service, this newspaper reproduces in full the information that was obtained by the financial experts after reviewing the files of the Garden Group

 

GARDEN GROUP HOTELS LTD (GGH)

Owned by Government of Grenada (GOG)- 25%

 

2002

July 29, 30

Act No. 20 of 2002 authorizes the Minister of Finance to guarantee payment of principal and interest with respect to a US$8.9M bond to be issued by GGH to Intercommercial Trust and Merchant Bank Ltd, Port of Spain, Trinidad (ITMB).

 

GGH was incorporated in Grenada and is situated in Grand Anse, St Georges. GGH was seeking to rebuild, renovate and refurbish hotels owned and operated by the shareholders of GGH and to introduce administrative and managerial reorganization and effective marketing of the properties. In order to raise the necessary capital, GGH proposed to issue fixed rate bonds to ITMB in the amount of US$8.9 million.

 

GGH offered GOG shares in GGH as consideration for a guarantee by the Minister of Finance of the payments due with respect to the bonds to be issued to ITMB.

 

“And whereas the Minister of Finance is desirous of guaranteeing the payments due …in view of the fact that hotels generally are an important constituent of the tourism industry in Grenada”

 

Parliament authorized the Minister to guarantee the principal amount of US$8.9 million plus interest at 10.25% per annum to ITMB on terms as the Minister considers to be fair and reasonable. Any liability incurred as a consequence of the guarantee shall be a charge on the Consolidated Fund.

August 9

CMMB provides a 10 year bond to GGH for US$8.9M at 10.25% interest guaranteed by the government.

 

August 21

Memorandum of Understanding signed (See August 19/04)

 

November 7

GGH pays US$4.5 million to Grenada Co-operative Bank to discharge old loans.

 

2003

January

US$2.5 million is paid to CLICO International Life, apparently to purchase an EFPA earning 9.25% interest.

 

May 3

GGH pays NPL US$5,000

 

May 30

NTA Primis Limited (NPL: Neil Seepersad & Nigel Thomas) based in Port of Spain, Trinidad signed a contract with GGH where NPL was to provide architectural designs, to provide financing of works and to act as the approved contractor and project manager for GGH. (See August 19/04)

 

June/July

Visit to London/Geneva to open bank accounts. (See August 19/04)

 

June 11

GGH pays NPL US$110,419.96

 

July 18

Sod Turning and July 21 is official start date. (See August 19/04)

 

July 24-29

GGH pays NPL US$135,000.00

 

September 2, 25

GGH pays NPL US$250,000.00

 

September

Hurricane Ivan and with default NPL is unable to pay ITMB (the provider of bridge funding) resulting in several High Court judgments levied against NPL in Grenada and Trinidad. Neil Seepersad and Nigel Thomas apparently have personally guaranteed the loan from ITMB.

 

Thomas split from Seepersad and met with DeAllie of GGH to discuss a Novation Agreement among NPL, GGH and ITMB with respect to the assigned debt to ITMB of US$600,000.

 

September 30 Financial statements for GGH prepared by Agostini reports in part:

 

Short-term Investment: US$2.5m Clico Intl for EFPA

Non-current liability: CMMB Bond due 2012 for US$8.9M

Fixed assets: Construction in progress US$2.3M

 

October 2, 29 GGH pays NPL US$1,250,000.00

 

November 18 UBP Account opened, Geneva. (See August 19/04)

 

December 22 GGH makes a payment to Bancaire Privee of US$260,000 where MNIB has a bank account.

 

December 23 Garden Group Hotels Limited from the proceeds of the CMMB US$8.9M bond issue, remits a payment to Societe Bancaire Privee

 

2004

February 4 Instruction to purchase Societe Generale (SG) 120% Bond for US$2,500,000 (See August 19/04)

 

February 9 The first interest payment is due to CMMB but it is not paid until May 6, almost three months late.

 

February 23 Subscription for SG Bond (See August 19/04)

 

March 4 Request for Line of Credit of US$1.5M against Bond (See August 19/04)

 

March 15 Approval of US$1.5M Line of Credit- SBP (See August 19/04)

 

March 18 GGH pays NPL US$625,000.00

 

April 28 Instruction to SBP (Societe Bancaire Privee S.A.) to sell Bond (See August 19/04)

 

May 5 GGH pays NPL US$360,000.00. Total paid by GGH to NPL is US$2,723,419.96.

 

June 1 NPL meeting with Board to advise new structure (See August 19/04)

 

August 3 Meeting with Minister of Finance (See August 19/04)

 

August Construction work ceased in August 2004 due to nonpayment of contractors.

 

August 19 NPL provided a project summary:

 

It states the project has focused on the Cedars/No Problem hotels and then Camerhogne Park. The Maffiken site is being prepared for renovation and construction work. Village Hotel will be the last existing site to be developed based upon the Marketing Plan for the overall Group. To date there has not been confirmation of the status of the Beach Facility.

 

Here is the financial status of the project in US$:

 

Contract Price 14,500,000

Work certified to date is 35% 5,075,000

Payments received to date 2,723,420

Amount due to NPL 2,351,580

Amount financed by NPL 1,096,352




Amount NPL owes contractors 1,255,228

2,351,580

 

Secondary Financing:

 

The first phase of financing is completed. The second phase is being finalized unitizing the Monetization of Life Policies Structure. This will provide for the line of credit using A+ rate securities lodged with First Caribbean Bank or Republic bank with the issuance of the Letter of Credit to Deutsche Bank providing the US$12 million to complete the project.

 

The real estate sales at the Cedars are anticipated to yield US$300,000 per unit for the first 20 units = US$6,000,000 with the Beach facility at US$500,000 for 12 units = US$6,000,000.

 

Proposal for Completion:

 

Sale of Societe Generale Bond to settle contractors

Complete the secondary line of financing of US$12 million

Full time GGH CEO/Project Manager for day to day operations

Comprehensive marketing plan to be finalized

Identify operator/management group to ensure specification are consistent with their requirements.

Revise the construction program in line with contractual obligations

 

September Hurricane Ivan hits Grenada.

 

November 29 Caribbean Money Market Brokers Ltd (CMMB) writes to Hon. Anthony Boatswain, Minister of Finance re: GGH US$8.9M Bond Issue. Further to our November 23 meeting we indicated that CMMB would provide you with a briefing on all the information available to us from our records and various meetings and discussions with parties involve with this project.

 

We will also state our position and provide some recommendations as to a possible course of action that you may wish to take as a significant shareholder and guarantor of the above bond. Please see the attached 5 appendices. Both Sean Spiers, COO and Robert Mayers, Director sign the letter for CMMB.

 

Appendix 1 Summary of US$8.9M Bond Details & Current Status

Issue date: August 9, 2002 and maturity August 9, 2012

Interest rate: 10.25%

Moratorium: 1 year for interest until August 9, 2003

Guarantor: GOG

Principal outstanding: US$9,835,626.41

Interest outstanding: US$504,075.85

Current status: Interest payment in default

Payment schedule: see Appendix 5

 

The first interest payment that was due on February 9, 2004 was paid May 6, 2004, almost three months late. The second interest payment for US$504,075.85 is outstanding and requests have been made to GOG and GGH. In addition there is a late payment penalty of US$18,947.73.

 

Appendix 2 Disbursement of Proceeds of US$8.9M Bond Issue

 

Bond Issue 8,900,000

 

Legal Fees 167,596

Arranger Fees 200,250

Interest @ 7.75% 137,950

Trustee, agent fees 10,000

Expenses 146 515,942

 

Net proceeds plus interest earned 8,542,708

 

Disbursements:

Nov 7, 2002 Grenada cooperative Bank 4,497,367

Jan 3, 2003 CLICO International Life 2,500,822

July 29, 2003 NPL 35,000

Aug 25, 2003 NPL 150,000

Sep 22, 2003 NPL 100,000

Oct 1, 2003 NPL 1,000,000

Dec 22, 2003 Societe Bancaire Privee S.A. 259,518 8,542,708

 

Appendix 3 Project Update

 

This is based upon discussions with Keith Braveboy and David Lander, both directors and shareholders of GGH.

 

We understand that GGH has an investment in Target Financiere S.A. to the value of US$2.5M. We have no documents and the Directors do not know its current value or whether there were any liens against it. However given that the Group has paid US$2.47M of its building costs and only US$1.285M has been disbursed to NPL then the balance must have been borrowed elsewhere and possible secure against this investment.

 

We understand GGH is seeking additional financing to complete the project. CMMB has not been approached.

 

We estimate GGH will require funding of US$10.168M over the next year at least until the Garden Inn project is up and running.

 

The value of construction works completed to date is US$5,075,000 of which US$2,473,420 has been paid and the balance of US$2.6M remains unpaid.

 

Construction work ceased in August 2004 due to nonpayment of contractors.

 

Appendix 4 Suggested Course of Action

 

Meet with GGH Board to determine current status of project.

Liquidate investment in Target S.A. with funds to be placed with CMMB and set aside to make interest payment on the bond.

Pay outstanding interest immediately

Reconstitute the Board of Directors

Dispose of less valuable properties

Finish “Garden Inn” and put into operation

Maintain GOG shareholding of 25% in GGH

Ensure NPL has no further involvement in the project.

 

November 30 Handwritten note on the November 29, 2004 CMMB letter reads:

 

“P.S. This matter should be discussed urgently with the Garden Group Board of Directors”

2005

March CMMB is owed US$20.5M (GGH plus one other loan) and wants a land swap for debt

 

May 24 Nigel Thomas of NPL wrote to Sendjer Shefker, Director of Target international Funds ltd, in London re GGH and MNIB. He set out a list of requests for various financial information including names of investment houses, etc in relation to the projects and Neil Seepersad.

 

2007

January 17 Leisa Kisto, attorney from Rinzai Chambers in Trinidad and Counsel for NPL writes to Angus Friday, Chairman of GGH requesting payment of US$2,159,383.15 by January 24 othewise she will start legal proceedings. She states that her client Seepersad advised her that the project came to a halt due to Hurricane Ivan, an event which clearly falls under the Force Majeure provisions of the contract.

 

June 7 Letter from Tourism Minister – Brenda Hood, to E.S. Mahon, Director of Risk, ITMB, acknowledging the debt of US$600,000, arising out of an “assignment/agreement between NTA Primis Ltd and Intercommercial Trust & Merchant Bank”

 

Unknown NPL assigned debt of US$500,000 plus interest it has with GHG to Intercommercial Trust & Merchant Bank in Trinidad in exchange for payment of US$600,000 (see July 30, 2002)

 

2008 ITMB retains Bruce Procope to send a letter to Prime Minister Mitchell seeking repayment of US$600,000

 

April PM Mitchell responds with consideration of crown lands as security

 

April 22 Thomas states that the offer from the GOG of 2025 Bonds in the sum of US$696,958.93 was deemed to be insufficient and as such failed to meet the requirement of the Board of Intercommercial Bank Ltd.

 

June 8 Leisa Kisto, attorney from Rinzai Chambers in Trinidad wrote to the Chairman, GGH re outstanding payments under contract dated May 30, 2003 for GGH development and referred to her January 17, 2007 letter. She again threatens legal action of payment is not made to NPL.

2009

April 7 Nigel Thomas provides an outline statement.

 

Tagged . Bookmark the permalink.

Comments are closed.