Financial Sector
Adjustment Company Limited
1997/8
Financial Statements
Notes To The Financial
Statements
Balance Sheet (as at
March 31, 1998)
Statement II
1998
Notes
$’000
ASSETS
Cash and bank balances
10,880
Accounts receivable and prepayments
3
8,787
Deposits with financial institutions
4
857,002
Loans to financial institutions
5
3,500,000
Investments
6
15,853,144
Fixed assets
7
9,578
20,239,391
LIABILITIES AND DEFICIENCY IN ASSETS
Current liabilities
Accounts payable and accruals
8
3,788,296
Long-term liabilities
9
62,037,559
Deficiency in assets
Share capital
10
1
Profit and loss account - (deficit)
(45,586,465)
(45,586,464)
20,239,391
The Notes on Statement V form an integral part of the Financial Statements.
Approved on behalf of the Board.
Directors
Profit & Loss
Account
- Period from date of
incorporation, January 29, 1997 - March 31, 1998
Statement III
1998
Note
$’000
$’000
INCOME
Investment income
13,059
Interest on loans
1,855,971
Interest on deposits
563,354
2,432,384
OPERATING EXPENSES
General and administrative
310,463
Interest on loans and advances
4,334,874
Provision for uncollectible interest
receivable
1,895,443
6,540,780
Operating losses
(4,108,396)
OTHER CHARGES
Loans
and deposits loss provisions
(11,866,141)
Provision for losses in subsidiaries and
associated
companies and diminution in value of
investments
(29,611,928)
(41,478,069)
NET LOSS AND DEFICIT, MARCH 31 11 (45,586,465)
Statement
Of Cash Flows
The Notes on
Statement V form an integral part of the Financial Statements.
Statement IV
1998
$’000
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
(45,586,465)
Non-cash items included in net loss
Depreciation
948
Deferred interest on long-term liability
563,018
Loans and deposits loss provisions
11,866,141
Provision for losses in subsidiaries and
associated
companies and
diminution in value of investment
29,611,928
(3,544,430)
Increase in operating
assets
Accounts receivable and prepayments
(8,787)
Increase in operating
liabilities
Accounts payable and accruals
3,788,296
Cash provided by operating activities 235,079
CASH FLOWS FROM INVESTING ACTIVITIES
Deposits with financial institutions
(1,300,702)
Loans to financial institutions
(2,000,000)
Acquisition of investments
(3,252,656)
Acquisition of fixed assets
(10,526)
Cash used in investing activities (6,563,884)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans received
6,339,684
Proceeds from issue of shares
1
Cash provided by financing activities 6,339,685
INCREASE IN AND CLOSING CASH AND BANK BALANCES 10,880
Notes To The Financial Statements
Statement V.I
The company was incorporated in Jamaica as a limited liability company on January 29, 1997, to address the liquidity and solvency problems being experienced within the financial sector, namely banks and insurance companies.
Some of its main objectives include:
These financial statements are expressed in Jamaican dollars (J$).
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Accounting convention and principles
These financial statements have been prepared on the basis of the continuation of the company as a going concern which contemplates the realization of assets and the repayment of liabilities in the ordinary course of business, and under the historical cost convention, except for certain investments which are stated at valuations. The accounting principles followed by the company are those generally accepted in Jamaica.
(b) Foreign currencies
Transactions in foreign currencies have been converted to Jamaican dollars at the rates
of exchange ruling at the dates of those transactions. Assets and liabilities denominated in foreign currencies are translated to Jamaican dollars at exchange rates prevailing at balance sheet date. All exchange gains and losses are credited to or charged against income of the year.
(c) Interest
Interest income is credited to revenue at the agreed rates on the accrual basis.
(d) Investments
(i) Investments, other than in subsidiary and associated companies, are stated at cost less any provision required for permanent diminution in value. A provision for loss is made where, in the opinion of the directors and management, there has been a permanent impairment in the value of an investment.
(ii) Subsidiary and associated companies. Investments in subsidiary and associated companies are accounted for using the equity method. In FINSAC's balance sheet the investments are included at cost plus its share of profits (losses) and reserves arising since acquisition of the investments. The subsidiary and associated companies are as follows:
Name of Company Percentage Holding Financial Year End
(i) Subsidiary companies
Eagle Group of Companies 86 June 30
Citizens Bank Limited 84 December 31
Refin Trust Limited 100 May 31
Recon Trust Limited 100 March 31
(ii) Subsidiary and associated companies (Cont'd)
Name of Company Percentage Holding Financial Year End
Associated companies
CIBC Jamaica Limited (CIBC) 25.0 October 31
National Commercial Bank Jamaica Limited 40.0 September 30
N.C.B. Group Limited 43.8 September 30
Island Life Insurance Company Ltd. 26.5 December 31
Dyoll Group Limited 26.5 December 31
Life of Jamaica Limited 26.5 December 31
Billy Craig Finance & Merchant Bank Limited 49.0 December 31
As the financial year end of the first three associated companies listed above differs significantly from that of FINSAC, the share of profits (losses) for the year is based on:
1
CIBC
FINSAC's share of profit has been determined based on
apportionment of profits as reflected in the audited financial
statements for the year ended October 31, 1997 and the unaudited
results for five months ended March 31, 1998.
2
National Commercial Bank Jamaica Ltd. and N.C.B. Group Ltd.
FINSAC's share of profit is based on an apportionment of profits
as reflected in the audited financial statements for the year
ended September 30, 1997 and the unaudited results for six months
ended March 31, 1998.
(e) Depreciation
Depreciation is calculated on the straight-line basis on cost or revalued amounts over the estimated lives of the assets. Annual depreciation rates are based on the following estimated useful lives:
Leasehold improvements 2 years
Furniture and fixtures 5 years
Office equipment 5 years
Computer equipment 3 years
Motor vehicles 5 years
3. ACCOUNTS RECEIVABLE AND PREPAYMENTS
1998
$’000
Interest receivable
1,897,911
Other receivables and prepayments
17,882
1,915,793
Less: Provision for doubtful debt (1,907,006)
8,787
4. DEPOSITS WITH FINANCIAL INSTITUTIONS
These represent amounts deposited with the financial institutions. The deposits are evidenced by promissory notes issued by the institutions.
These deposits include:
1998
$’000
Eagle Permanent Building
Society (Note 4(a))
140,000
Eagle Commercial Bank Limited (Note 4(a))
553,303
Jamaica Mutual Life Assurance Society (Note 4(b))
607,399
1,300,702
Less: Provision for losses
(443,700)
857,002
(a) The deposits at Eagle Permanent Building Society and Eagle Commercial Bank Limited are repayable on demand at an interest rate of 12.5% per annum.
(b) The deposit at Jamaica Mutual Life Assurance Society is for 90 days beginning January 1, 1998, at an interest rate of 18% per annum.
5. LOANS TO FINANCIAL INSTITUTIONS
These comprise:
1998
$’000
Jamaica Mutual Life
Assurance Society (Note 5(b))
7,000,000
Workers Savings and Loan Bank (Note 5(c))
7,922,441
14,922,441
Less: Provision for losses
(11,422,441)
3,500,000
(a) The above loans arose as a result of financial arrangements made by the company to correct solvency problems experienced by the two financial institutions and comprise the following:
(i) The company issued bonds to Jamaica Mutual Life Assurance Society and endorsed these to National Commercial Bank Jamaica Limited to settle the formers overdraft with the latter.
(ii) The loan to Workers Savings and Loan Bank arose partly as a result of the company taking over the advances of $5.922 billion given by the Bank of Jamaica (BOJ). The company issued Bonds to an equivalent value to BOJ. The liability under the Bonds is reflected as a long-term liability to BOJ. (See Note 9(a)).
(b) The loan to Jamaica Mutual Life Assurance Society is subject to a moratorium on principal and interest payments up to the fifth anniversary of the date of the first disbursement, and is subordinated to all other creditors of the Society.
It shall be repaid thereafter in forty equal quarterly installments consisting of principal and interest.
It bears simple interest at the rate of 4 H % per annum during the first five years which shall be capitalized on the fifth anniversary of the date of the first disbursement. Interest shall be compounded annually at 4 H % thereafter.
(c) Interest is charged on the loan to Workers Savings and Loan Bank at the rate of 12 H % per annum. The repayment dates shall be determined by FINSAC.
These comprise:
Name of Company Percentage Holding 1998 $'000
Subsidiary companies
Eagle Group of Companies 86 - *
Citizens Bank Limited 84 257,972
Refin Trust Limited 100 1
Recon Trust Limited 100 - *
257,973
Long-term loans
(i) Recon Trust Limited
(Note 6(a))
13,150,000
(ii) Refin Trust Limited (Note 6(b))
1,700,000
(iii) Refin Trust Limited (Note 6(c))
3,622,477
(iv) Crown Eagle Life Insurance Company Limited (Note 6(d))
13,229,588
(v) Crown Eagle Life Insurance Company Limited (Note 6(d))
500,000
(vi) Eagle Merchant Bank of Jamaica Limited (Note 6(d))
2,000,000
(vii) Crown Eagle Life Insurance Company Limited (Note 6(e))
30,709
(viii) Crown Eagle Life Insurance Company Limited (Note 6(f))
624,000
34,856,774
Provision for loss of investment and loans
(28,238,003)
Total investment in subsidiary companies 6,876,744
* Denotes less than $1,000.
Name of Company Percentage Holding 1998 $'000
Associated companies
CIBC
25.0
519,832
National Commercial Bank Jamaica Limited
40.0
167,000
NCB Group Limited
43.8
947,802
Life of Jamaica Limited
26.5
143,316
Island Life Insurance Co. Limited
26.5
77,878
Dyoll Group Limited
26.5
37,132
Billy Craig Finance & Merchant Bank Limited
49.0
29,400
1,922,360
Add: Excess of the percentage of the net assets over the cost of investments 232,751
2,155,111
Share of losses
(413,833)
Total investments in associated companies
1,741,278
Other investments
Preference shares:
12 H % cumulative redeemable:
National Commercial Bank Jamaica Limited 3,670,000
NCB Group Limited 1,000,000
Life of Jamaica Limited 1,056,684
Island Life Insurance Company Limited 222,122
Dyoll Group Limited 162,868
National Commercial Bank Jamaica Limited
- 0% redeemable
1,163,000
Citizens Bank Limited - 9 H % US$ convertible cumulative
redeemable
98,291
- 12 H % non-cumulative redeemable
1,000,000
Billy Craig Finance
& Merchant Bank Limited
- 12 H % convertible cumulative redeemable
55,000
8,427,965
Less: Provision for loss
of investment
(1,192,843)
7,235,122
Total investments 15,853,144
(a) The amount at item (i) represents FINSAC bonds to National Commercial Bank Jamaica Limited on behalf of its wholly-owned subsidiary, Recon Trust Limited, to purchase non-performing loans of that Bank.
(b) The amount at item (ii) represents FINSAC bonds to Citizens Bank Limited on behalf of its wholly-owned subsidiary, Refin Trust Limited, to purchase non-performing loans of that Bank.
(c) The amount at item (iii) represents FINSAC bonds to Citizens Bank Limited on behalf of its wholly-owned subsidiary Refin Trust Limited to purchase non-performing loans, inter company balances and equity investments relating to the Horizon Financial Entities.
(d) Interest is charged on the loans at items (iv), (v), and (vi) above at the rate of 12 H % per annum.
(e) Interest is charged on the loan at item (vii) above at the rate of 10% per annum on principal of US$850,000 (J$30,709,000).
(f) The amount at item (viii) arose as a result of the company taking over advances given by the National Investment Bank of Jamaica Limited (NIBJ). The liability under the debt is shown as a FINSAC bond to NIBJ.
(g) The above loans are unsecured and the repayment dates shall be determined by FINSAC. Interest rate has not yet been determined for the loans at items (i), (ii) (iii) and (viii).
Cost Accumulated
$'000 Depreciation $'000
Leasehold improvements
3,344
-
Furniture and fixtures
1,358 260
Office equipment
694
44
Computer equipment
2,848 360
Motor vehicles
2,282 284
10,526 948
Net Book Value
9,578
8 ACCOUNTS PAYABLE AND ACCRUALS
1998
$’000
Interest payable
3,771,856
Other payables and accruals
15,194
Payroll taxes
1,246
3,788,296
Advances from Bank of
Jamaica (Note 9(a))
17,715,047
Advances from Government of Jamaica (Note 9(b))
6,339,684
FINSAC bonds (Note 9(c))
37,982,828
62,037,559
(a) Advances from Bank of Jamaica (BOJ)
These represent debenture notes issued by the company to BOJ and guaranteed by the Government of Jamaica. These notes are transferable and arose as a consequence of advances given by BOJ to the following institutions and taken over by the company:
1998
$’000
Eagle Commercial Bank
Limited (Note 9(a)(i))
11,229,588
Workers Savings and Loan Bank (Note 9(a)(ii))
5,922,441
17,152,029
Interest accrued on Bonds (Note 9(a)(iii))
563,018
17,715,047
These are repayable as follows:
(i) The principal sum is due April 7, 2007. Interest is charged at the rate of 10% per annum payable semi-annually on the 7th day of April and the 7th day of October of each year.
(ii) The principal sum is due as follows:
$’000
On February 26, 2008
4,522,441
On February 26, 2008
1,000,000
On March 11, 2003
200,000
On March 25, 2003
200,000
5,922,441
Interest is charged on $4.522 billion at 10% per annum payable semi- annually on the 26th day of February and the 26th day of August.
Interest is charged on the balance of $1.4 billion at a rate equivalent to the weighted average yield applicable to the six month treasury bill tender held immediately prior to the start of the interest period plus one half percent (H %). The effective weighted average yield rate for the period is 29%.
Interest on the $1 billion is payable semi-annually on the 26th day of February and the 26th day of August.
Interest on the first $200 million is payable semi-annually on the 11th day of March and the 11th day of September.
Interest on the second $200 million is payable semi-annually on the 25th day of March and the 25th day of September.
(iii) Interest due on Bonds
The principal sum is due April 7, 2007. Interest is charged at 10% per annum payable semi-annually on the 7th day of April and the 7th day of October.
(b) Advances from Government of Jamaica
These advances are evidenced by Promissory notes issued to the Government of Jamaica. They are payable at such time as it may be determined by the Government of Jamaica, and bear interest at the rate of 10% per annum.
(c) FINSAC bonds
1998
$’000
National Commercial Bank
Jamaica Limited (Note 9(c)(i))
19,150,000
Citizens Bank Limited (Note 9(c)(ii))
2,700,000
Citizens Bank Limited (Note 9(c)(ii))
3,622,477
Eagle Merchant Bank of Jamaica Limited (Note 9(c)(iii))
2,000,000
Jamaica Mutual Life Assurance Society (Note 9(c)(iv))
7,000,000
Jamaica Mutual Life Assurance Society (Note 9(c)(iv))
947,802
Life of Jamaica Limited (Note 9(c)(v))
1,200,000
Island Life Insurance Company Limited (Note 9(c)(vi))
122,580
Dyoll Life Insurance Company Limited (Note 9(c)(vii))
31,569
Crown Eagle Life Insurance Company Limited (Note 9(c)(viii))
500,000
Billy Craig Finance & Merchant Bank Limited (Note 9(c)(ix))
84,400
National Investment Bank of Jamaica Limited (Note 9(c)(x))
624,000
37,982,828
FINSAC bonds are guaranteed by the Government of Jamaica and are payable at a fixed future date. Interest is charged at various fixed rates for each loan for a defined period and thereafter the aggregate of the weighted average yield rate applicable to the latest six month treasury bill tender expressed as a percentage plus 100 basis points.
(i) National Commercial Bank Jamaica Limited
$'000
The bonds to National
Commercial Bank Jamaica Limited
(NCBJ) are in exchange for:
• The purchase of
non-performing loans of the NCBJ
and transferred to Recon Trust Limited
13,150,000
• 12 H % Redeemable Preference Shares of NCBJ
3,670,000
NCB Group Limited
1,000,000
• 0% Redeemable shares of NCBJ
1,163,000
• Ordinary shares in NCBJ - equivalent to 40% of the issued
share capital
167,000
19,150,000
Repayment terms and interest rates applicable have not yet been finalized.
(ii) Citizens Bank Limited
The bonds to Citizens Bank Limited (CBL) are in exchange for:
$'000
• Purchase of
non-performing loans of CBL which
were transferred to Refin Trust Limited
1,700,000
• 12 H % Redeemable non-cumulative Preference Shares in CBL 1,000,000
2,700,000
The principal sum of $2.7 billion is due September 30, 2004. It bears interest at the rate of 26% per annum from November 1, 1997 to September 30, 1998. Interest is payable semi-annually on September 30, and March 31. The first payment is due September 30, 1998.
The bonds totaling $3,622,477 are for the purchase of non-performing loans, etc., of the Horizon Financial Entities (see Note 6(c)). The terms of repayment and the interest rate have not yet been determined. However, the principal sum bears interest commencing March 6, 1998.
(iii) Eagle Merchant Bank of Jamaica Limited
The principal sum is due October 31, 2004. It bears interest at the rate of 26% per annum from November 1, 1997 to October 31, 1998. Interest is payable semi-annually on October 31 and April 30. The first payment is due October 31, 1998.
(iv) Jamaica Mutual Life Assurance Society (Mutual Life)
The bonds to Mutual Life are in exchange for:
$’000
• Bonds to Mutual
Life have been endorsed over to
NCBJ to settle the overdraft with that Bank
7,000,000
• Purchase of shares in NCB Group Limited 43.8%
947,802
7,947,802
The principal sum is due December 16, 2012. It bears interest at the rate of 29.08% per annum from December 16, 1997 to December 16, 1998. Interest is payable semi-annually on June 16 and December 16. The first payment is due December 16, 1998.
(v) Life of Jamaica Limited
The bonds to Life of Jamaica Limited (LOJ) are in exchange for:
$000
• Ordinary shares
of LOJ - equivalent to 26.5%
of the issued shares
143,316
• 12 H % cumulative Redeemable shares in LOJ
1,056,684