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ASSET MANAGEMENT & DIVESTMENT

FINSAC’s Asset Management and Divestment department was established in October 1998. Its specific mandate is to ensure the speedy divestment of assets acquired by FINSAC through its intervention activities. 

The department also oversees the divestment activities of FINSAC–intervened institutions, which have the responsibility to dispose of their own assets, such as the Jamaica Mutual Life Assurance Society. Some $74 billion worth of non–performing loans acquired from institutions intervened by FINSAC form a large part of the assets to be realised.

There are also substantial FINSAC holdings in a number of financial institutions. In addition, there are many FINSAC–owned or controlled “non–core business” assets, including residential, commercial and hotel properties, motor vehicles, artwork, furniture and equipment. 

These were acquired because FINSAC–intervened institutions often belonged to large conglomerates, some of which operated a wide range of non–financial businesses and owned a range of diverse assets. Since the sale of these assets represents a payback to the public purse, the Asset Management and Divestment department’s aim is to ensure the maximisation of the selling price.

To accommodate the realisation of all these different types of assets, the department has two operational Units. 

NON–PERFORMING LOANS UNIT
The Non–Performing Loans (NPL) Unit has been operational since September 1998. Initially the loans purchased by FINSAC were left with the intervened institutions for collection, but after careful review of these arrangements, it was decided that collection would be more efficiently achieved by FINSAC. The services of McKinsey & Company, an internationally respected consulting firm, were retained to establish clear guidelines for the Unit’s operations. Subsequent to the initial acquisition, there have been incremental purchases of loans from Union Bank as part of the merger and rehabilitation programme of that institution, and from Victoria Mutual Building Society. As of March 30, 2000 the NPL Unit was managing a total portfolio in excess of 21,000 accounts made up of demand loans, mortgage accounts and credit cards. To increase efficiency, the Unit has been expanded to include Workout Officers, with specific responsibility to manage the acquired credit card and mortgage accounts. This has facilitated significant re–structuring of mortgage accounts, which will hopefully lead to more timely resale of these accounts to other mortgage institutions. The NPL Unit’s operations have been further streamlined by the implementation of new computer software, ICBS/CUBS, replacing the Access System, which was previously in use.

Notwithstanding an emphasis on collections, there is also a strong consensus on the importance of maintaining viable business operations. Hence, the unit refers accounts falling within the parameters of the National Industrial Policy to the FINSAC

OVERSIGHT COMMITTEE
This 14-person committee, formed at the end of 1998, includes representatives of the taxpaying public, private industry, the Government of Jamaica and FINSAC. Its mandate is “to determine transparently and independently whether or not accounts submitted to it are eligible for re–structuring.” 

Re–structured debts are those where the debt itself may have been compromised and new terms of repayment can be agreed, based on the debtor’s financial position as determined by FINSAC. Other debts may simply be re–scheduled. Re–scheduled debts are those for which the existing debt is put on a new timetable for repayment, based on representations by the debtors regarding their ability to repay.To date the FINSAC Oversight Committee has reviewed $4.95 billion worth of loans, and re–structuring or re–financing has been arranged wherever possible and appropriate.

The NPL Unit’s achievements during the 1999/2000 financial year were:

• The development of a comprehensive loan policy and procedures manual, ensuring transparency and uniformity in the treatment of all debtors. This policy is set out in full in Appendix VI to this Annual Report, and is also publicly posted on the internet at the FINSAC website.

• As at March 31, 2000, loan collections were $3.3 billion - well in excess of industry projections.

• As at March 31, 2000, 1,740 loan accounts have been re–structured and/or re–scheduled at interest rates of 12–15% for US$ loans and 25–30% on J$ loans.

• Risk on all loans that were either insufficiently or improperly secured was minimised by perfecting or obtaining additional security where possible.

ASSET DISPOSAL UNIT
The Asset Disposal Unit (ADU) is responsible for the management, maintenance and ultimate disposal of FINSAC’s acquired “non–core business” physical assets. This includes the sale of assets forming part of the security for loans acquired by the Non–Performing Loans Unit, where these assets have become available for sale after other avenues for debt recovery have been exhausted.

The ADU also monitors and oversees the divestment activities undertaken directly by the intervened institutions, and liaises with appointed receivers and liquidators.

A comprehensive database of all assets available for sale directly by FINSAC and from intervened entities has been put together. All real estate, motor vehicles and art assets are sold through designated brokers, on a non–exclusive basis, and an efficient broker management programme has been put in place to facilitate this. 

The ADU currently has over 31 approved brokers, and the sales process has been enhanced significantly through broker activities.During the fiscal year 1999/2000, the ADU disposed of assets valued at $5.5 billion, as set out in Appendix IV to this Annual Report. This result compares with $1.8 billion realised in the fiscal year 1998/1999, and brings total divestment to date to $7.3 billion.

A commendable level of divestment was achieved despite the acknowledged slump in the real estate market in recent years. However, the ADU’s experience has been that residential properties have recently been selling at a comparatively rapid pace. The market for commercial properties has not reflected the same vibrancy, although there was increased interest in commercial properties from local, private and public sector entities, as well as investors from the international community during the last quarter of the year.

Specific organisational progress achieved by the ADU during the financial year 1999/2000 has been:

• Appointment of an International Hotel Specialist working in–house to assist in reviewing, assessing and developing strategies for divestment of FINSAC’s hotel portfolio; 

• Appointment of the international real estate brokers, Christie and Company, to market FINSAC’s hotel properties on the international market. Through the activities of this company, the FINSAC hotels have received extensive international exposure with potential purchasers’ interest spilling over to other FINSAC–owned commercial properties.

• Oversight Management – a property management committee has been established to monitor and co–ordinate the disposal of properties belonging to FINSAC–intervened entities, namely all those owned by Mutual Life and Crown Eagle Life, plus selected properties belonging to Island Life, Life of Jamaica and Victoria Mutual Building Society;

• Maintenance – an efficient system of property management and maintenance has been implemented. Outstanding statutory and maintenance fees/charges for all properties under FINSAC management have been brought up-to-date, and there is now an on–going liaison process with all related property, strata plan and management committees.

• Sales and marketing – a competitive sales process has been implemented through a cadre of brokers. The process is fully transparent.

Meanwhile the divestment of FINSAC–owned real estate, shares and businesses has proceeded at an accelerated rate.

Of the 14 hotels originally for divestment, eight have been sold for a total of US$71.25 million. The remaining six hotels are valued at US$87.5 million, with four of these expected to be sold by June 2000. However, the sales of the Renaissance Jamaica Grande and Ciboney hotels in Ocho Rios are expected to be protracted due to legal complications. 

With respect to real estate properties, the ADU’s projections are for some 75% of residential and 50% of FINSAC–owned commercial properties to be sold in the 2000/2001 fiscal year, with an average recovery to the public purse of 85% of estimated market value.

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