AAJ went against board and invested in First Rock, probe reveals

The Airports Authority of Jamaica (AAJ) Group invested almost a half-billion dollars of taxpayers’ money in start-up First Rock Capital Holdings (FRCH), despite an initial board recommendation against the move, a Gleaner investigation has found.

Over a period of 15 days in February 8, 2019, the AAJ swung from deciding against buying shares to doing so with some board members shut out of the ultimate decision.

It has also emerged that a subsidiary, NMIAL Airports Limited, went ahead with the AAJ in a second stock purchase in January 2020, despite warnings from board members to wait because the money was needed by the finance ministry.

The entities have US$3 million (J$450 million), split equally, in First Rock, making the group the third largest investor up to March this year.

The revelations may give perspective to July’s “gravely concerned” admission from Prime Minister Andrew Holness on the scandal exposed by this newspaper.

His administration has resisted calls for board members of both entities linked to the deals to be sacked even after Finance Minister Dr Nigel Clarke confirmed in Parliament that the first investment allegedly broke the law.

“Investment in the stocks of FRCH was not recommended at this time because of limited financial and operational history. As a company just being launched, there was no financial data on which to assess the returns obtainable from this investment,” noted the minutes from a January 23, 2019 meeting of the AAJ board obtained through an access to information request.

That conclusion was made after the AAJ said it analysed proposals pitched by two entities, including First Rock, a St Lucia-registered private equity firm that started operations in March 2019 and listed on the Jamaica Stock Exchange the following year.

But eight days after the decision to rule out First Rock, an internal analysis emerged recommending that the AAJ buys US$500,000 worth of First Rock shares through a private placement. A matching amount was controversially made by the NMIAL.

The analysis, which said it was based on the AAJ’s Group’s investment policy, assessed the financial strength of First Rock.

AAJ said First Rock approached it with the investment proposal in 2019.

The company met only one of the AAJ’s six eligibility criteria and that was for having a ‘reputable’ ownership and structure.

The company failed on the others which included not being in operation for at least two years, lacking working capital, no positive balance sheet and could not meet the requirement on assets ratio.

The main reason the AAJ analysis gave for First Rock not being eligible was that the company was “just being established”.

The company found favour under a second set of criteria which favourably considered the management of the company. The analysis said the group’s overall investment strategy would benefit through the diversification of risks and from the long-term nature of the investment.

Additionally, it said risks were “mitigated” because First Rock’s private offering at the time was approved by the Financial Services Commission and the planned listing of the company on the JSE.

POLICY DID NOT ALLOW FOR INVESTMENT

The AAJ and NMIAL boards, each by majority decision, approved the purchase of the first set of shares at a joint retreat on February 8, 2019 in St Ann.

The AAJ policy did not allow for investment in stocks and IPOs and the agencies amended the policies to accommodate their actions and only sent the proposed changes to the Ministry of Finance for approval after the transaction took place.

It was on that basis that the finance minister told lawmakers in July that the February 2019 investment breached the regulations of the Public Bodies Management and Accountability Act which mandated his ministry’s approval before public entities invest in companies not listed on the stock exchange. They also breached their own policy by investing in a start-up rather than a “blue chip” company.

Controversy followed the 2019 retreat, with NMIAL board members Kent Gammon and Julia Moncrieffe Wiggan questioning how the final investment decision was made at a board meeting on April 10, 2019.

Gammon said as chairman of the finance committee, he was not aware that the investment was authorised and even before the amendments to the investment policy.

He also said documents sent to him by AAJ’s finance department for approval by round robin did not go to his correct email address.

AAJ CEO and President Audley Deidrick responded to Gammon, noting that the investment was “substantially directed” by the AAJ’s board and that the decision was taken to proceed with the transaction and submit the revised investment policy to the finance ministry for endorsement.

Deidrick also said the deadline for the investment was the date it was presented at the retreat.

For her part, Moncreiffe Wiggan, the then Transport Ministry’s representative on the board, said she was also not aware that a decision was taken at the retreat to invest in First Rock and that reference to a board decision “should be corrected to indicate that only some members of the NMIAL board provided approval”.

She also said a NMIAL board met a day before the retreat and that provided the “opportunity for the matter to have been raised and deliberated”, the minutes said.

According to the documents, Moncrieffe Wiggan said “a caucus of the board excluding herself and Director Gammon” met and approved the investment at the retreat, despite them not being there.

NMIAL board members were not the only ones in the dark on the First Rock deal, as Tanya Bedward, then board member of the AAJ, also indicated that she didn’t know that a decision was taken at the retreat to invest in First Rock, although she knew of the “need” to adjust the investment policies, the documents further revealed.

Regarding the second stocks purchased in January 2020, the documents revealed the boards approved buying additional First Rock shares through an IPO – US$1 million each – on the basis of a “business case” that they felt was good.

There was a concern, however, with the NMIAL’s participation because by that time, the finance ministry had demanded $5 billion annually from the AAJ to which the NMIAL had to make a contribution.

“As the AAJ was investing in FRCH, should the NMIAL also invest in that instrument was the question,” read the minutes quoting the AAJ Director of Finance, Samuel Manning, at a finance committee meeting on January 24, 2020.

Committee member Lloyd Pommells said his investigation showed that the investment was “high risk”, with another member Leroy Lindsay later supporting the view that the decision be put on hold “for now”.

According to the minutes, Deidrick suggested that NMIAL wait while the AAJ could go ahead.

Gammon, who was chairing the committee, countered that he did not see the investment as high risk and recommended that the NMIAL invest but “perhaps not at the level currently being proposed”.

In the end, the AAJ and the NMIAL each bought US$1 million worth of shares.

UNDER PRESSURE TO SELL

Now, the AAJ is under pressure to sell the NMIAL shares to meet a deadline this month for the provision of money to the finance ministry.

The AAJ and the NMIAL fall under the control of the Ministry of Transport and Mining, which is currently headed by Minister Robert Montague who has been silent, despite his colleague finance minister throwing him under the spotlight to indicate his confidence in the boards.

The first time any of the minutes referenced any involvement of the minister was at an NMIAL board meeting on April 7, 2021, where the chairman Canute Sadler informed members that Montague wrote to him on March 23 ordering an investigation of NMIAL’s investment portfolio.

That intervention from Montague came months after Sadler raised concerns about the First Rock investments including on the AAJ board of which he’s also a member.

At a meeting in February 2021, the NMIAL chairman said the First Rock investments were a “risky undertaking”, as the company was a start-up and lacked a performance history.

Sadler supported a recommendation for the finance committee to be established and directed to conduct an in-depth study of First Rock issue and indicate whether the NMIAL should sell its shares.

At that point, Deidrick indicated that “the funds may have to be liquidated in any event to fulfil NMIAL’s portion of the special distribution to the Government”.

At the same February 2021 board meeting, the NMIAL chairman also said that a director on First Rock’s board was also a director of the AAJ.

The AAJ board member whom Sadler mentioned in the February meeting who was also serving on First Rock’s board was Fay Hutchinson, who resigned from First Rock on March 17, 2021. She joined in March 2020.

Hutchinson, who bought one million First Rock shares in February 2019, has been serving on AAJ’s board since 2016, rising to deputy chair in 2018 and then chair since November 2020, taking over from William Shagoury who was chairman from April 2016.

The AAJ said Hutchinson did not declare joining First Rock’s board.

The NMIAL board was led from May 2016-December 2020 by Neil Seaton until Sadler took over.

Current AAJ board members who were involved in at least one of the First Rock investments are: Fay Hutchinson, Denton Campbell, Epsi Cooper-Morgan and Pauline Bowla (joined board after first investment, abstained in vote on second).

Current NMIAL board members who were involved in at least one of the investments are: Donna Reid, Leroy Lindsay, and Thomas Chin.

The new NMIAL board was appointed in December 2020, just a month after a similar move with the AAJ.

The AAJ reported on June 17 that the US$3 million worth of shares were valued at US$2,566,620 (US$0.09 per share). A share traded at US$0.07 on the JSE yesterday. The stocks were bought at US$0.10 per share.

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

jovan.johnson@gleanerjm.com