Cabot Investment Fuzzy Math
The current administration and National Insurance Corporation (NIC) announced the repayment of the Cabot loan. This loan continues to raise questions as it is bewildering why a “foreign investor” would need to take the loan from the national pension provider of the country in which they should be “investing” in. Cabot Saint Lucia recently announced sales of $50M USD from the project’s real estate development. In this blogpost, we review and dissect the various press releases from the National Insurance Corporation.
Loan Repayment — March 23rd 2021 Announcement
From the press release on March 23rd 2021 by the NIC: “On March 17th 2021, the NIC received $29.4 million from Cabot Saint Lucia Inc. This amount represented full repayment of the loan of $27 million and interest accumulated to date of $2.4 million. The interest represents a 10% return over the 20 months since disbursement of the loan, as compared to the return of 5% on the NIC’s total investment portfolio for the same period. During the same period, moneys on our call account earned ¼ of 1% and fixed deposits averaged 2.35% per annum.”
Loan Issuance — July 12th 2019 Announcement
From the press release on July 12th 2019 by the NIC: “NIC’s involvement in the project is by way of an EC$27.5 million loan, which is approximately 1.2% of NIC’s investment portfolio of EC$2.3 Billion. The loan is 100% secured and is structured in a manner that would cause the NIC no exposure during the currency of the loan with a maximum repayment period of 12 years. The security held by NIC includes a first mortgage debenture on Cabot’s fixed assets including over 360 acres of land that was independently valued at approximately EC$91 million in August 2018. This investment will in no way affect NIC’s ability to service its commitments to its stakeholders. It is a very small part of NIC’s overall investment portfolio and the return to NIC exceeds the average return on the NIC’s overall investment portfolio, which is just under 5%.”
Analysis
· What is the actual amount that was loaned? NIC has presented two conflicting figures and the $27.5M figure has been used by multiple media houses. The difference between the $27M and $27.5M is significant in calculating the rate of return for this “investment.” How can the NIC which is supposed to manage $2.3B be so imprecise in specifying the amount loaned to Cabot?
· The rate of return is quoted at being “10% over the 20 months”. How was this computed? Even if we use the $27M loan figure then after a repayment of $29.4M simple arithmetic represents a rate of return of 8.9% over the 20 months. A 1% difference in rate of return is critical for a pension scheme. If we use the originally reported loan figure of $27.5M then the rate of return over the 20 months falls to 6.9%. The error in the ROI is being repeated even by persons in the banking industry who should know how to compute ROI.
· Curiously, the NIC quotes the rate of return of the Cabot loan over the full loan period of 20 months and not as an annualized figure. This is especially concerning since all other rates are apparently provided on a per-annum basis. Assuming a $27M loan figure the annualized rate of return for the Cabot Loan would be 5.2%. Assuming the more correct and earlier provided $27.5M loan figure the annual rate of return falls to 4.1%.
· In the July 12th 2019 press release the NIC states: “the return to NIC exceeds the average return on the NIC’s overall investment portfolio, which is just under 5%” however in the March 23rd 2021 release the NIC states “as compared to the return of 5% on the NIC’s total investment portfolio for the same period.” Has the NIC rate of return fallen from an annualized 5% in 2019 to 5% over 20 months representing an annualized rate of return of 3%?
o If the annualized rate of return of the investment portfolio has fallen by 2% in the midst of an increase of an annualized rate of 17% in the S&P 500 in the US over the same period then there are serious concerns regarding the long-term stability of the NIC.
o If the average rate of return of NIC investments was just under 5% then it means that at $27.5M loan figure, the Cabot loan represented a below average rate of return for the NIC as per their own numbers. This is even more baffling given that it was loan to a foreign “investor”.
· Regardless of whether the $27M or $27.5M loan figures, the interest rate charged by the NIC to Cabot lower than the following:
o Special from Bank of Saint Lucia for land loans which is at 5.9%.
o Saint Lucia Government Bonds which are at the minimum at 6.5%.
o 7.9% interest rate for land loans from 1st National Bank.
· NIC states: “On March 17th 2021, the NIC received $29.4 million from Cabot Saint Lucia Inc” hence Cabot did NOT have any payments due for the first 20 months of the loan and all interest calculations are over the full balance and not a reducing balance.
· NIC updated their March 23rd press release after the fact and this can be seen from post from PM Chastanet (the old release) and the NIC post (the updated release).
o Old Release with screenshot as of 8:30am on Mar 25th
o Updated Release with screenshot as of 8:30am on Mar 25th
Why did a risky hotel investment from a foreign “investor” qualify for concessionary interest rates and a grace period during the most challenging economic time Saint Lucia has faced?
Saint Lucians deserve to know that their NIC contributions are invested in the most optimal manner and that the NIC is accurate with its statements. Furthermore, it would be very helpful for transparency if the NIC returns to publishing their annual reports publicly on their website. It appears that from 2017 during this current administration no further annual reports have been published by the NIC.
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