AAJ, NMIAL maintain FirstRock holdings

The state-owned Airports Authority of Jamaica (AAJ) and its subsidiary, whose investments of over J$400 million of taxpayers’ money in FirstRock Capital Holdings were “irregular and lacked transparency”, continue to have shares in the private real estate company.

AAJ President and CEO Audley Deidrick confirmed on Friday that “the status quo in relation to the shares has not changed”.

The AAJ and the Norman Manley International Airports Limited (NMIAL) have been trying to sell their cumulative 28.5 million shares in the company renamed FirstRock Real Estate Investments Limited.

“The position on disposal is to do so when the value is sufficiently high to break even [or] make a profit,” he said in March when The Sunday Gleaner sought an update on the matter.

The AAJ and NMIAL bought an equal number of shares worth US$3 million in February 2019 and January 2020, for US$0.10 per stock. They have remained the third-and-fourth largest shareholders in the company, according to FirstRock’s interim unaudited report for the quarter ending March 31, 2023.

The stock closed trading on Friday at about US$0.06, which is the midway point between the highest and lowest prices over the last 12 months. Most stocks on the market have been affected by challenges in the economy influenced by high inflation and interest rates.

Economist Dennis Chung said now is “a very bad time” to sell into the stock market given the economic conditions.

“You really only sell right if you really need money or if you think that the company is not doing well,” he added.

He said that while there is “pressure” on the AAJ because of how the investment was done, officials have to make a “financially prudent” decision to “protect taxpayers’ money”.

The unaudited FirstRock report for the quarter ending March 2023 shows the group’s liabilities at US$25.7 million and assets at US$61.8 million. Shareholders’ equity was US$36.1 million. It said net profit for the three-month period attributable to ordinary shareholders was US$209, 974.

Opposition Spokesman on Finance Julian Robinson says the Government needs to give an update on the push to sell the stocks.

In July 2021, Finance Minister Dr Nigel Clarke told Parliament that the investments breached the law and that the entities were trying to sell the shares “to come into line with the investment policy guidelines, but also for purposes of diversification not to be so heavily concentrated in one equity security”.

“They’re exercising good judgement to recognise that this is the appropriate thing to do,” he said, rather than “to dig into their position”.

AAJ board minutes obtained by The Sunday Gleaner revealed that there was talk of selling the shares from as early as March 2021. Getting rid of NMIAL’s portion was deemed “absolutely necessary” for the AAJ group to satisfy a request for funds from the finance ministry.

At an AAJ finance committee meeting in April 2021, Deidrick said discussions were ongoing with principals of FirstRock to identify a buyer. The members agreed that AAJ would not dispose of stocks by fire sale – the selling of a security or other product at a price well below market value.

... PROBE INTO INVESTMENTS

The status of the shares in FirstRock is back in the spotlight following Friday’s release of the Integrity Commission’s investigative report by Parliament on the questionable transactions brought to light by The Sunday Gleaner in June 2021.

The anti-corruption agency acknowledged that its probe was triggered by the news report. Prime Min ister Andrew Holness said the issue raised a “grave concern” about governance.

Senate President Tom Tavares-Finson tabled the report at Friday’s meeting of the Upper House, despite a previous request from the commission for the document to be returned. The Senate president said he did not see a legal basis for the request. The Lower House returned the document. It is not clear why the document was recalled.

The opposition spokesman said the tabled report is “very damning” about the conduct of the implicated boards of the AAJ and NMIAL. The members resigned in November 2021.

“The fact that the boards of AAJ and NMIAL at the time of the transactions have resigned is no consolation for their egregious conduct. Steps should be taken to permanently bar individuals who breach public trust from ever serving on public boards in the future,” Robinson argued.

In a statement, he said: “The minister of finance needs to conduct an audit of all government agencies to ensure that there are no other instances of this type of malpractice.”

The Integrity Commission confirmed that the boards of the AAJ/NMIAL ignored analyses prepared by management showing that FirstRock met only one of five requirements, which was that the company’s ownership was ‘reputable’.

The boards authorised the investment despite First Rock at the time not having a performance record. There were no audited financial statements, no information on its working capital or its balance sheet, among other things.

The St Lucia-registered FirstRock started operations on March 15, 2019, and was listed on the Jamaica Stock Exchange in February 2020.

Documents revealed that in eight days, the AAJ board moved from a recommendation not to invest “at this time” to pumping taxpayers’ money into the company, which the AAJ itself said had “limited financial and operational history”.

The boards also authorised an amendment to the group’s investment policy to “cover” their actions after they had made the initial investment, the Integrity Commission said.

There was no documentation of deliberations at a February 2019 retreat, where Deidrick said the board approved the transaction. Several board members, including the transport ministry’s representative, later complained that they were at the retreat but were not part of a smaller group of officials who voted.

“I do not remember a meeting where a vote was taken and who was in favour versus who was not,” former AAJ director Juliet Mair told the Integrity Commission.

For her part, Hutchinson told the commission that an AAJ official ticked her name on a “piece of paper” to record her vote in favour of the purchase.

The anti-corruption agency’s director of investigations, Kevon Stephenson, concluded that the AAJ directors “deliberately violated” the AAJ Act and the investment policy, and that both entities breached regulations by not seeking the finance minister’s approval for an investment in a then-private company. He also said the assessment by the two boards was “inadequate, unsound and flawed”.

“The AAJ and NMIAL demonstrated a complete disregard of the principles of accountability and transparency in the processes which led to the acquisition,” he said of the 2019 investment, which was “irregular and lacked transparency”.

Stephenson also determined that AAJ deputy chairperson and later chairman, Fay Hutchinson, “was a shareholder in FirstRock Capital Holdings while serving on the board of the AAJ and at the time she voted in favour of the AAJ’s investment” and that she “breached” conflict of interest protocol established by the AAJ. She invested US$100,000 in February 2019.

The conclusion is based on “the failure on the part of Hutchinson” to formally advise the board of her personal investment in FirstRock” and then “failed to recuse herself from voting on any decision”.

He said the situation was “aggravated” by the fact that Hutchinson served on the AAJ’s finance committee, which made the recommendation for the investment.

Stephenson said Hutchinson also “breached” the Public Bodies Management and Accountability Act when she voted in favour of the investment and at the same time told other board members that she had investments in FirstRock, raising “concerns” as to whether she “acted in good faith”.

“The … utterances by Hutchinson may have prejudiced or influenced the decision of the other board members to invest in FirstRock,” he said, before noting that William Shagoury, whom Hutchinson replaced as chairman in November 2020, “failed” to address the “conflict of interest … with the level of seriousness and urgency warranted”.

The commission also noted that unlike Hutchinson, who had a “very clear and direct interest” in FirstRock, NMIAL board member Newlyn Seaton formally declared his “less direct interest” and recused himself from deliberations and voting.

Seaton’s brother, York Page Seaton, is a founding director and shareholder of FirstRock.

Hutchinson’s conduct in joining FirstRock’s board while she was AAJ deputy chair a “mere” two months after the second investment was “egregious and has no doubt caused significant damage to the credibility and reputation of the AAJ,” the director of investigations said.

The Gleaner probe had also revealed that Hutchinson’s son, Andre Hutchinson, a board member of the state’s National Insurance Fund board (NIF), declared his interest and recused himself from deliberations to invest in FirstRock. The NIF is the seventh-largest shareholder.

In June 2021, Hutchinson told The Gleaner “no” when asked whether her dual roles and private interest posed a conflict of interest.

“No personal benefit or interest was being derived,” she said.

Former Prime Minister Bruce Golding, who at the time was chairman of FirstRock Global Barbados, said it would have been “proper” for Hutchinson to disclose her interests.

Deidrick also said the overlapping directorships “was not construed to present a conflict of interest” and the then acting permanent secretary in the transport ministry, Dr Janine Dawkins, said the ministry was “satisfied” no conflict of interest was involved in the transactions.

Deidrick did not escape the IC’s criticism, as he was flagged as having “failed to discharge” his duties as the accounting officer under Financial Administration and Audit Act because there was “no evidence” to suggest he “made any attempts to advise the board on appropriate financial procedures or to at all enforce the provisions of the germane policies and/or legislation”.

EDITOR’S NOTE: Mrs Fay Hutchinson filed a lawsuit against The Gleaner Company (Media) Limited in August 2021, alleging that previous articles defamed her. Those issues have not been ventilated in this piece.

jovan.johnson@gleanerjm.com

Major Integrity Commission recommendations

1. Permanent Secretary in Transport Ministry to conduct comprehensive review of Audley Deidrick’s conduct

2. Financial Secretary or Finance Minister to order comprehensive review of First Rock investment, sanctions be imposed if losses identified

3. Status of negligent boards members serving other public boards should be considered

4. Prime Minister to commission general review of conflict-of-interest issues in government with view to legislate how it is managed and creation of regime for financial penalties to be imposed against officials who knowingly benefit from the practice