QUICK LINKS

FINSAC’s Asset Management and Divestment department was established in October 1998, with the specific mandate of ensuring the speedy divestment of the assets acquired by FINSAC through its intervention activities. The sale of these assets represents some payback to the public purse. Therefore, the aim is also to ensure the maximisation of the selling price.

The assets to be realised consist primarily of some $20 Billion of non-performing loans, plus substantial holdings in a number of financial institutions. In addition, because intervened institutions often belonged to large conglomerates, operating a wide range of non-financial businesses and owning a range of other diverse assets, FINSAC acquired many "non-core business" assets.

These include residential, commercial, freehold and hotel properties, motor vehicles, artwork, furniture and equipment. To accommodate the divestment of the different types of assets, the department’s operations are handled by two distinct Units. THE NON-PERFORMING LOAN UNIT This Unit is responsible for the collection and re-structuring of classified and dormant debt purchased from intervened institutions. The rationale for centralising the collection of non-performing loans within FINSAC is a proven methodology that has been used by a number of other countries with similar problems. It facilitates:

• The creation of a "good bank/bad bank" scenario. Intervened banks which disbursed bad loans are relieved of them, so that they can focus on their own rehabilitation efforts, and on loans which add value to their institution; identification of common debtors, so that comprehensive negotiations for loan recovery can proceed from a single platform;

• Increased ability to determine the value of the security, and whether it can cover combined loans, where security on loans is shared by several institutions;

• Opportunities for more effective rehabilitation of certain distressed loan sectors through proper remedial management, leading to increased likelihood of re-structured loans becoming viable.

In order to maximise FINSAC’s ability to recover optimum amounts on the non-performing loans on a net present value basis, the Unit is organised into work-out teams, who are supported by administrative and legal personnel. Other departmental specialists provide assistance with the management of repossessed assets and the disposal of assets held as security for loans. Remuneration for the work-out teams comprises a basic salary for achievement of the minimum expected value of loan recovery plus incentive payments for the collection of amounts in excess of expected values. Based on this, it is anticipated that the total administrative cost of recovery on FINSAC’s non-performing loans will be approximately 5% of all collections. The strategies and approaches being used by the Unit have been formalized into a policy document. Focused work-out groups pursue debtors in a responsible but diligent, consistent and fair manner. All avenues are explored to identify the best way to collect on the loans.

The aim is consensual recovery, which may include a degree of loan re-structuring. The sale of assets and/or collateral is used only after all other options have been explored. At the end of fiscal 1998/1999, after five months in operation, debt recovery by the Non-Performing Loans Unit amounted to over $400 Million, bringing the total recovered by FINSAC to $1.6 Billion. THE ASSET DISPOSAL UNIT This Unit is responsible for the sale of non-core business property type assets and operates through selected brokers. It also monitors and oversees any divestment activities undertaken by the intervened institutions themselves, and liaises with appointed receivers. A comprehensive database of all the property type assets assumed by FINSAC from intervened institutions has been developed, and a catalogue for brokers describing the properties available for sale will soon be available. During fiscal 1998/1999, divestment successfully began, with agreements being reached for the sale of Negril Gardens and the Plantation Inn in Ocho Rios. Sandals Ocho Rios Hotel and the former Courtleigh Hotel property on Trafalgar Road, Kingston were also sold, as were a number of residential properties, while strong interest was expressed for several commercial properties. Additionally, potential purchasers from overseas expressed strong interest in Holiday Inn Sunspree Hotel and other hotel properties. Auctions of artwork, motor vehicles and furniture and equipment have been organised and are taking place at a timely pace. A fully itemised list of completed sales of FINSAC property type assets is included later in this Annual Report.

FINSAC is assessing its financial and strategic options with respect to the banking institutions under its control. It has therefore engaged the services of international investment bankers to review the prospects for early divestment, and recommend ways in which these assets may be packaged for the international market. FINSAC expects to successfully divest the banks in fiscal 1999/2000. The hotel divestment programme is also scheduled for completion within the same time frame. Overall, the process of divestment is proceeding in an orderly and timely manner, with the newly formed Asset Management & Divestment department successfully selling a total of $689 Million worth of assets in the first five months since its establishment. This brings the total FINSAC sale of assets to $1.8 Billion at the end of March 1999. The current projection is that approximately 20% of the government’s investment in financial sector intervention and rehabilitation will eventually be realised from the sale of non-core assets and the collection of loans.