CBCS St. Maarten harbour bond loan termed ‘unusual’

THE HAGUE/PHILIPSBURG--The transactions of the Central Bank of Curaçao and St. Maarten (CBCS) in relation to the 2012 bond emission for the St. Maarten Harbour Holding Company were "unusual" and "at odds" with the CBCS's current monetary and investment policy.
That was the conclusion of the final draft audit report drafted by PricewaterhouseCoopers (PwC) Advisory of the Netherlands on the request of the Ministers of Finance of Curaçao and St. Maarten, advised by the Kingdom Council of Ministers. The August 2014 audit report was released earlier this week.
The audit team specifically looked at the financing of the St. Maarten Harbour Holding Company by the CBCS, since it was the largest financial transaction and obligation that the CBCS took on since its inception in 2010. The term "Harbour Case" was used in the report.
Early 2012, the harbour company decided to issue company bonds in four trenches for the maximum amount of US $150 million. The money was to be used for the refinancing of a number of existing loans at a lower interest rate, to finance a number of expansion activities and to construct a bridge over the Simpson Bay Lagoon.
The CBCS played different roles in the emission of these bonds. Firstly, the Bank issued a so-called underwriting facility which secured the purchase of all unsold bonds by the Bank. Secondly, the CBCS issued a so-called repurchase obligation which ensured that all those who bought bonds could resell these to the Bank at emission price. Thirdly, the Bank also bought bonds of the harbour company.
The audit team concluded that the decision to issue an underwriting facility was not presented to the Bank's investment committee nor was it taken in a formal meeting of management of the Bank. The decision was also not made public. CBCS President Emsley Tromp took a decision before the decision-taking process was concluded and as such it did not carry the approval of the Board of Directors.
The CBCS stated in a press release dated February 14, 2012, that the emission was "successful," but failed to mention that the Bank had issued an underwriting facility and that the Bank itself had been the biggest buyer in the emission by purchasing $42.6 million in bonds.
The Bank risked a maximum exposure of initially $150 million by issuing a repurchase obligation. This amount was later diminished to $110 million. Curaçao objected to this risk and informed the CBCS Supervisory Board that it would be held responsible for any possible damage to Country Curaçao as a result of the repurchasing obligation.
The PwC audit report concluded that the transactions made by the CBCS and the way in which these were designed could be qualified as "unusual" and "at odds" with the Bank's current monetary and investment policy.
According to the report, both the Board of Directors as well as the Supervisory Board have done insufficient in the Harbour Case where it came to the duty to gather and present information. The Supervisory Board should have asked the Board of Directors more about the Harbour Case, while the Board of Directors should have brought the case to the attention of the Supervisory Board in a more active manner.
The Board of Directors has contended that the close involvement of the Supervisory Board was unnecessary because the transactions in the Harbour Case fit in the Bank's monetary policy and that this was also not applicable to domestic investments.
The audit team concluded that it would have t
estified of prudent management to present "such a large, specific and unusual transaction" to the Supervisory Board for approval beforehand. Feedback to the Supervisory Board was also limited after the transaction.
The audit report contained a large number of general observations and recommendations on the functioning of the CBCS, which embodies the monetary union of Curaçao and St. Maarten when the islands attained country status in October 2010.
The Daily Herald

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