Leader of the Opposition McKeeva Bush defended the financing arrangements for the Boatswain’s Beach/Cayman Turtle Farm project that was the subject of a highly critical report of Auditor General Dan Duguay released this week.
‘I have absolutely nothing to hide,’ Mr. Bush said, adding that he had actually requested the auditor general investigate the matter after the issue was raised in the Legislative Assembly last October.
Mr. Duguay did not mention the name of any particular member of the board of directors of Cayman Turtle Farm Limited in his report; he instead criticised the board of directors as a body. Mr. Bush was chairman of the board at the time of the financing. Some of the other board members at the time included Minister of Tourism Charles Clifford, who was permanent secretary for the Ministry of Tourism at the time, Carlyle McLaughlin – accountant by trade – Robert Soto, Captain Eugene Ebanks, Joseph Parsons, and Turtle Farm Managing Director Ken Hydes.
Mr. Bush maintains the decisions made by the board of directors were good ones, despite the criticism of the Auditor General.
‘All matters relating to the financing were dealt with by the then-board of directors, of which I was chairman,’ Mr. Bush said in a statement on Wednesday. ‘During this entire process the board of directors maintained the highest standards of transparency, sound corporate governance and at all times utilising the necessary professional and legal counsel to ensure that all matters relating to this financing was dealt with correctly.’
Mr. Bush said other people on the board were authorised to ‘handle all aspects of the financing with no direct involvement of myself in the process’.
The original financing proposal was presented to the board of directors on 5 February 2003 by David Berry and Suresh Prasad, who where representing a Canadian company called Prospect Ventures Inc. Although Mr. Berry was an employee of Mr. Bush’s real estate company and Mr. Suresh was a long-time acquaintance of his, Mr. Bush said he had nothing to do with the two men making the proposal.
‘I didn’t even know [Mr. Barry] was a shareholder in this company until later,’ he said, adding that he had no involvement with Mr. Suresh other than being an acquaintance. ‘He doesn’t work for me and I don’t work for Suresh,’ he said.
Cayman Turtle Farm Limited Board of Directors meeting minutes indicate Mr. Suresh and Mr. Berry were brought in to a board meeting on the invitation of Mr. Hydes, whom they had presented with an ‘attractive proposal’.
The Auditor General was particularly critical that the board of directors of CTFL entered into the initial financing arrangement with GC Ventures, partially because the interest rate was not a very good deal and ‘made no financial sense to the Turtle Farm’. He was also critical of the fees payable with relation to the original financing agreement, and the fact that after the deal was abandoned, the Government paid out more than the negotiated fees, even though there were probably legal ways to avoid most of those fees.
Mr. Bush was adamant that GC Ventures, as well as two other companies, QuadCapital Advisors LLC and Live Oaks Capital Ltd., were due the fees.
‘The way I looked at it, all three of those companies were involved. No one could say they weren’t,’ said Mr. Bush. ‘I think the Auditor General has a bee up his bonnet about this, but I think he’s wrong. A lot of value was put in by those people and they deserved to be paid.’
In a full-page advertisement placed in Cayman Net News by the board of directors of Cayman Turtle Farm Limited in April, 2005, Managing Director Ken Hydes stated, in response to an earlier front-page story, that the article was patently false in its attempt to portray the financing as a scheme to enrich middlemen and possibly government officials. ‘All fees were negotiated, scrutinised and independently verified as being reasonable market rates and subjected to a competitive process,’ Mr. Hydes wrote. ‘In a study commissioned by the Accountants Commission in the UK… to determine standards for similar compensatory arrangements in the UK public sector, the UK compensatory arrangements were reported to be significantly higher than those negotiated with the advisors in the CTFL financing.’
In a board of directors’ meeting on 5 March, 2003, the issue of high fees came up as one of the unresolved issues of the deal.
‘[Mr. Hydes] then spoke to the point concerning high fees,’ the minutes of the meeting state. ‘However, [Carlyle] McLaughlin felt that to receive the percentage indicated, over time, might not necessarily be too high.’
Mr. Duguay disagreed. After reviewing the files, he said it was his opinion the fees were ‘grossly excessive and that the residents of the Cayman Islands received little or no value for these payments’.
After the government pulled out of the original deal and signed another financing deal with William Blair and Company LLC, even more fees were due. At that point, the shareholders of the government-owned CTFL, represented by then Chief Secretary James Ryan, then Financial Secretary George McCarthy and civil servant Kearney Gomez also expressed their concern, in a resolution, of the ‘excessive fees initially agreed upon’ for the two financing deals.
In another board of director’s meeting of CTFL in October, 2003, many aspects of the original financing arrangement were set out. Among the sections of items discussed was one that dealt with the parties involved in the deal. Those parties named included the CTFL’s financial advisory group, which developed the structure of the agreement; PriceWaterhouseCoopers (UK), who were described as expert advisors to CTFL on the structure and accounting treatment through the CTFL’s financial advisory group, and which reviewed and approved the deal; PriceWaterhouseCoopers as CTFL’s local auditors; and the Cayman Islands Auditor General, who was said to have reviewed the structure and accounting treatment.
Mr. Duguay said he noticed that the Auditor General’s office was mentioned in the minutes of the meeting.
‘No one here remembers anyone talking about that,’ Mr. Duguay said. ‘It could have been my predecessor, but there is no documentation about it.’
Regardless, Mr. Duguay said from his reading of the minutes, the Auditor General’s office – if it said anything at all about the financing deal – most likely only commented on the structure of the special purpose entity that had been envisioned to use so that the loan was made off the government’s balance sheet and did not count against the government’s borrowing limits.
Mr. Bush said the SPE idea, which was similar to the off-balance sheet Private Finance Initiative proposal for the Government accommodation project at the time, was a very popular notion back then.
‘That was a way of financing that was being proposed for Cayman at the time,’ he said. He noted that the government wasn’t actually close to its borrowing limits at the time ‘but we didn’t want to push it up farther, either.’
With regard to the final US$44.6 million loan package the Boatswain’s Beach project received in the end, Mr. Bush noted that even the Auditor General acknowledged it was a good deal that saved the country millions of dollars.
‘But he claims we paid too much fees,’ Mr. Bush said. ‘At the end of the day, even though we had to pay out higher fees, we saved millions of dollars of interest, far more than we paid out.’
Mr. Bush asserted that Mr. Duguay does not understand business.
‘Given the people we had on the advisory board, I certainly take their expertise and knowledge based on the industry they worked in for many years, rather than the opinions of the Auditor General, who does not know the bond business and writes as if he has an axe to grind; as if he was a politician.’
Mr. Bush said current Tourism Minister Charles Clifford, while a member of the CTFL board, had congratulated the financial advisory committee for the project for their work on the matter.
‘No doubt Mr. Clifford now would like to make this a bigger issue, with the unfounded opinions of the Auditor General to back him up,’ Mr. Bush said. ‘My advice to both of them is to wait until the Public Accounts Committee completes its examination of the Board and has a chance to call Mr. McLaughlin, Mr. Hydes, board members and myself as witnesses, if necessary, since the Auditor General failed to interview the Board on this matter.’