Last week’s article, ‘Belmont Jackass?’ seems to have aroused some discussion.
That’s good. So let’s continue, and try to give this thing some perspective.
When the Labour Party took office in July 1995, it did so with the laudable commitment to spread development and opportunity around the island and to convert the northern side of the island into a major hub of economic activity, while ensuring that the pristine ambience of the area would be preserved.
As a result, we saw the White Gate Development, which fell far short of the mark, and the La Vallee Development, which was a scandalous and costly failure. And we saw the Golden Lemon and the Rawlins Plantation Hotels, and related projects, go belly up.
The ongoing failure to deliver a major project in his constituency placed increasing pressure on Dr. Denzil Douglas. So in order to save his own skin, he had to put people in jobs. And neither the inconvenience and the cost of the daily commute to Basseterre, nor the overall cost to the Government of carrying 500-600 more jobs than it needed, or could afford, mattered much to him.
“National debt, me arse” was his mantra.
If only he hadn’t stuck his nose in and tried to rule like a lord over White Gate and La Vallee, and if only the Baathsheba and La Vallee Greens nonsense companies hadn’t been brought into the picture, there would’ve been a far greater chance of success, scores of millions of dollars would’ve been saved, and hundreds of folks from the area might’ve been making a good living today, either as entrepreneurs or employees, right there in their own area, saving the hassle, the time and cost of the daily Basseterre commute.
And all through it, the IMF shook its head, albeit discreetly, in disbelief, warning, and waiting for the inevitable.
You can, therefore, understand why, in time, he came to see Kittitian Hill as his last chance. But two years ago, this project was hamstrung by massive debt, cash flow challenges, a shaky market, and waning confidence among its major shareholders. One of the several restraints which it faced was a caveat (a lien) placed in March 2008 against its title to 106 acres of land, for a debt owed by Belmont Resorts Limited(BRL), the owner of Kittitian Hill.
That creditor was CLICO Investment Bank (CIB).
So on 20th August 2010, help came to Kittitian Hill.
The Sugar Industry Diversification Foundation (SIDF) came about as a result of a decision taken by Dr. Douglas and his inner circle in April-June 2006, and adopted/formalized by a collectively very weak and unquestioning Cabinet in July-August of that year. I was in the Cabinet.
Earlier in 2006, a proposal similar to that of the SIDF had been submitted. The key differences were: (i) all of the funds would go into the Government’s account, with no take out fees for anybody; and (ii) a cap would be placed in the number of citizenships granted.
That proposal had been rejected out of hand. Then shortly thereafter, the SIDF proposal was submitted.
In making the case for adoption, a chap claimed that putting the process in the hands of the Ministry of Finance, as was being proposed, “would make it quite clear that St. Kitts & Nevis is not promoting citizenships, but we are promoting investments and citizenship is only incidental to such investments”.
Make it clear to whom?
He went on: “It is likely that any program that requires a direct contribution to the Government may be perceived as a program for the sale of passports. Hence the use of the vehicle of the foundation, with a clearly defined corporate structure, is therefore preferred to any proposal involving direct payments to the Government for citizenship or for a passport”.
Nonsense.
Then he threw this in: “Henley & Partners has proposed the establishment of a Sugar Industry Diversification Foundation which, among other things, would provide funding to the Government for debt reduction and a range of social and economic projects. The foundation would be established by the Government which would appoint the council that would manage the affairs of the foundation”.
Really? Good to know.
Next he called on decision makers to “authorize the Minister of Finance to enter into an agreement with Henley & Partners, on such terms as he deems appropriate…”
And acting like a bunch of eunuchs, we collectively agreed.
So Henley & Partners stepped into the driver’s seat, with a 5-year worldwide exclusive deal to market the program, and the next step was to set up the SIDF and proceed to the market. Then the money started to roll in. And Dr. Douglas had his slush fund, safe and secure from the prying eyes of the Director of Audit.
I doubt if any member of Cabinet ever saw the agreement made between Henley and the Minister of Finance.
So the help that came to Kittitian Hill on 20th August 2010 was an EC$14,791,681.00 loan from the SIDF to BRL.
It was out of that loan that CIB was paid. Indeed, the order was given for a certain gentleman to cross the waters to Trinidad and personally hand over the cheque. Whether payment was made to CIB itself or to a judicial manager, I don’t know. It’d be good to find out.
Meanwhile, someone thought that the loan on its own was not the smartest thing to do, so the decision was taken for the SIDF to buy majority ownership in BRL.
This it did on that same day, 20th August 2010, buying 3,616,623 BRL shares, representing 60.42% of the company, for EC$14,583,310.00, or EC$4.03 per share, a price which seems quite high, based on the net value, and the other circumstances, of BRL at the time.
Can you guess what or who was the driving force behind the loan, the insistence that somebody literally cross the waters to pay off CIB, and the purchase of the shares?
It seems as if, over the years, the SIDF has, among other things, become an entrepreneur, being the only game in town with regard to the non-real-estate citizenship by investment option, and at the same time being a ‘player’ in the real estate option, competing with other developers.
And not only competing, but being given an advantage. Let me illustrate.
Originally in the real estate option, if a foreigner bought a unit in an approved development, that unit couldn’t be used again to provide citizenship for a subsequent buyer. So only one citizenship issue (to the applicant, and his or her spouse and dependents, if any) was possible for each unit sold.
The objective of this was, sensibly, to stimulate construction activity and to provide jobs and other economic opportunities in the country.
But the policy changed.
It allows a foreigner buying a unit to get St. Kitts & Nevis passports for himself and for his spouse and dependents. Then five years later, he can sell the unit, and the new owner can, along with his spouse and dependents, become citizens. So as long as that unit is in existence, it can generate citizenships repeatedly, every five years. This is a disincentive to construction activity, and makes for a very open-ended citizenship program.
But the situation has been made even worse, and uniquely so, by Kittitian Hill. And here’s why.
A firm representing the project states on the Internet that it’s “pleased to announce a new product, which qualifies for the St. Kitts Citizenship-by-Investment Program (they forgot Nevis).The Redeemable Preference Share Offer (RPSO), is the Kittitian Hill Resort Development’s exclusive product…and is commonly referred to as the Buy Back Option”.
“The offer allows applicants to purchase specially appointed Cottage Suites within the development for a price of US$400,000.00. Each Cottage Suite is owned by a special purpose company (I wonder who will own these companies.. plenty money in that!) and has been divided into 10 (ten) redeemable preference shares, each for the sale price of US$400,000.00.The applicant is renouncing any income or dividend from the company, in exchange for the guaranteed option to re-sell the property back to the developer after 5 years (at the same sale price of US$400,000.00)”
If companies can’t afford to pay back the owners and redeem these shares, then a problem arises. This suggests a degree of risk in this Kittitian Hill Buy Back Option that could come to embarrass and further hurt our country. Because while one or two preference share holders may not care so much about getting back their US$400,000.00, others will, and that’s where the problem will arise.
That’s one aspect of the problem. Another aspect, where the disincentive to ongoing construction and the unfair advantage in favour of Kittitian Hill over other projects come even more into play, is the fact that while those other projects are able to provide only one (1) set of passports every five years for each unit, Kittitian Hill is allowed to provide ten (10) sets every five years for each unit, with the 10 preference shares in the company specially established for the unit.
So, for example, if Silver Reef has 40 units, it can provide for at least 40 sets of passports every five years, while Kittitian Hill, with the same 40 units, can provide for at least 400 sets of passports every five years, recurring.
Which means that the “real estate option” is now really less about real estate than it is about a piece of paper called a redeemable preference share. The situation is not much different from the old, and properly discarded, policy whereby people who bought bonds could get citizenship.
I’m sure that you won’t be surprised, therefore, to hear that other projects in St. Kitts & Nevis are looking to get the same deal. Certain developers told me that there’s no magic in having 10 redeemable preference shares, so they’ll be making a formal request to have the Kittitian Hill formula applied to their projects, but with 20-50 preference shares to be issued per unit. If they can make more money with less construction costs, then that’s what they’ll do.
“Construction and jobs, me arse!”
Meanwhile, we’re beginning to hear rumblings from the other end of the island, concerning possible, massive law suits in the USA.
And in addition to all of that, our Constitution allows people who are born here to be citizens, so don’t be surprised if you hear of a new tourism 'push' which encourages foreign women to “visit beautiful St. Kitts & Nevis and give birth to an island baby. Make sure to get your baby’s passport before you leave, so that he can enjoy visa-free travel to Canada and the European Union countries when he’s ready”.
LOL, but it isn’t funny. What a racket that would be!
Do you see where we’ve reached? And where we could be headed?
