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Henry Lynch suspended as Housing Foundation Director

~ Lake called to correct 'erroneous' statements ~

BELVEDERE--St. Maarten Housing Development Foundation (SMHDF) Director Henry Lynch has been placed on non-active duty as of December 12 by the foundation's supervisory board pending the outcome of "an independent forensic investigation" by Government Accountant Bureau SOAB "into certain business and management activities" of SMHDF and of St. Maarten Housing Finance Foundation (SMHFF).

However, that investigation is now on hold due to the intervention of Minister of Housing, Spatial Planning, Environment and Infrastructure VROMI Maurice Lake. The minister also has issued some "erroneous" statements about the supervisory board's actions and the supervisory board wants Lake to correct those statements, according to a press statement issued on behalf of the supervisory board by Attorney Jairo Bloem.

Lynch's suspension and the subsequent investigation are a result of "alarming recent findings" related to the administrative management of the two foundations.

"SMHDF and SMHFF placed three members of its management team(s), whereunder the director Mr. Henry Lynch, on non-active duty, with pay until further notice," Bloem said in the press statement. This decision is, amongst other things, "premised on the severity of the preliminary findings" and the desire of SMHDF and SMHFF to enable a proper, thorough investigation, with all available documentation and without any disruption.

The assignment to SOAB was preceded by meetings between the supervisory board and "various informants," a study by the supervisory board of documents obtained, and meetings in the past between the supervisory board and Lake, a former supervisory board member. In those latter meetings, the "disturbing findings" were discussed with Lake, who is said to have "supported further investigation and decisive actions."

A resolution to commission the investigation and suspend certain members of the management team was taken in "a duly convened meeting with unanimous consent" of the supervisory board members.

The supervisory board and representatives of SOAB met to iron out the investigation's terms of reference and the terms were approved.

The SMHDF and SMHFF articles of incorporation grant the supervisory board the right to represent them in case of conflicting interests between management and SMHDF/SMHFF. There exist such conflicting interests now, according to Bloem.

It was with "great surprise and disappointment" that SMHDF and SMHFF learned on Sunday, December 14, that SOAB had decided to suspend temporarily the investigation it had started, as per request of Lake, in its e-mail dated Friday, December 12, that also was sent directly by Lake to Lynch, according to Bloem.

That e-mail "erroneously represents" that the decisions duly taken by the supervisory board "lacked judicial basis and in short constitutes a sole action of one 'rogue' supervisory board member."

By stating that the decisions taken by the supervisory board and thus SMHDF/SMHFF would be illegal, calling for a cancellation/suspension of the investigation, copying both SOAB and the suspended director, Lake has "incorrectly represented the facts, has without any legal cause, against the articles of incorporation of SMHDF/SMHFF, the corporate law and the – spirit of – good corporate governance, meddled in affairs beyond his – direct – scope of authority and has meddled with matters for which he, contrary to the Supervisory Board members, does not carry any legal responsibility."

The foundations want Lake to correct his "incorrect factual representations."

Bloem said, "It is one thing to want to have been consulted in also these last decisions for suspension and investigation beforehand and something entirely else to incorrectly state that those decisions are judicially flawed and to singlehandedly without previous consultation, endeavour to suspend an independent investigation."

Low cash flow, loan repayment part of Harbour’s ‘big picture’

POINTE BLANCHE--In light of the recently leaked St. Maarten Harbour Holding Company (SHHC) NV Consolidated 2013 Financial Statements and 2014 Budget, The Daily Herald approached a financial expert to make sense of "the big picture," so to speak. Low cash flow, high investments and loan repayment issues take the focus.

The documents in themselves would need to be supported by additional background information to clarify some details, so there is a line between what can be judged objectively and what cannot. There also are points that are left up to personal perspective, such as one's approval of expenditure amounts for salaries and marketing budgets.

Cash flow

The most important conclusion is that the company's cash flow as it appears over 2012 and 2013 is very "slim" in view of the US $150 million bond loan that is due in 20 years. Some $50 million of that bond loan, which SHHC entered into on February 12, 2012, was earmarked for the causeway over Simpson Bay Lagoon.

"There will certainly be no room for other large investments based on the present financial structure," the expert said. At the very least, the cash flow should be $7.5 million, so that SHHC can repay the loan over the years. "There's a possibility to roll it over in the market on due date, but that's not certain, of course."

In his opinion the low cash flow is due primarily to the $50 million investment in the causeway bridge, which brings in no revenue, has to be financed and will have to be depreciated. "I would try very hard to sell it or – maybe – lease it to the Government. Commercially speaking, this investment is not justifiable for the harbour company," the expert said.

SHHC has other loans on the books, including the separate agreements it entered into with Carnival Cruise Lines and Royal Caribbean Cruise Lines in 2007 to finance investments in relation to the second cruise pier. The loan agreement with Carnival was made for a maximum of $34.5 million, and RCCL $10 million.

"No big repayment issues should arise there. Considering other loans, such as one from Carnival, the repayment is structured in a way that it is offset by income received from Carnival. The loan with RCCL is a different story, as it needs to be gradually repaid from the company's cash flow after a 10-year grace period. This should be manageable."

Taking all loans and borrowings together, SHHC's total debt stood at almost $204 million at the end of 2013.

Related party?

The Octavio Holdings Inc. loan mentioned in the article "Documents point to conflict of interest in port crane purchase" in the December 12 edition of this newspaper is smaller still, "so from a liquidity perspective it's not really relevant."

The $3,736,206 loan agreement with Octavio Holdings financed the purchase of a new Gottwald crane, which was meant to increase cargo operations. Additional documents made available to this newspaper show the company to be registered in Panama and indicate that one of the three directors at Octavio is Peter Soons, the brother of former chairman of the Supervisory Board Michel Soons, who held the position when the loan agreement was made.

"This loan should almost be considered as a related-party transaction, in view of the fact that one of the Directors of the Panamanian entity is one of the Soons family and it is well known that Panamanian companies are structured in such a way that the outside Director is really the man who decides the company policy," the expert said.

"The question that would come up is 'why use a Panamanian company' for an amount that's not very high for this Company? It could be that they tried locally and banks refused in view of the uncertainty of the future cash flow and repaying this bond loan would be a major financial obligation. If it cannot be rolled over, it has to be paid in cash. Therefore, bankers may be reluctant to grant loans.

"Why go to such an unusual legal construction as to ask a Panamanian company for a loan which in the total framework of the company is insignificant, I would say. Unless, of course, the harbour was in difficult circumstances at the time and they needed to pay for this crane. It's hard to judge, but this 'smells' of a related-party transaction and in that case it should be mentioned in the notes to the financial statements."

It should be noted here that the expert was interviewed before SHHC Chief Executive Officer Mark Mingo issued a press release to explain the Harbour's reasons for entering into the loan. Besides expanding on the strategic reasons of improving and speeding up cargo movements, Mingo also explained why Octavio's terms and conditions were more favourable than those offered by the crane company Gottwald and local banks RBTT and Windward Islands Bank.

Mingo's press release did not address the issue of a perceived conflict of interest. However, the expert pointed out that it did not necessarily mean there was one.

"The related-party transaction does not automatically translate to a conflict of interest ..., but you would be extra careful and want to disclose and clarify the terms, take away any false impression, because that's very quickly involved in a related-party transaction," he said.

"If I had not seen this excerpt from the Panamanian commercial register, I would not have known ... if it were not for the whistle-blower," he added, referring to the "very concerned private citizen" who leaked the financial statements to the local media.

Fiscal loss, profit tax

Another point of interest is the accumulated fiscal loss of more than $54 million. This means that for the foreseeable future the harbour will pay no profit tax.

"In simpler terms, that means that after January 1, 2014, the company can make $54 million in profit without paying a single cent in profit tax and that is reasonable because they sustained fiscal losses in the past – up to 2013 – for this $54 million.

"Normally speaking, the commercial profit and the fiscal profit are the same, but in this case there is an exemption for the head tax and the container tax," the expert explained, referring to the exemptions laid down in law by Parliament.

"Total revenues are about $48 million. Of this, $15 million are exempt from profit tax. That means that you have revenues – including the head tax and the container tax – of $48 million, and you have various expenses. That means that the taxable income before these exemptions (the fiscal profit) is less than $3 million.

"Then, subtract the $15 million of head tax and container tax and you already have a fiscal loss (in 2013) of $12 million. ... This is a structural situation, where if this does not change the harbour will possibly not pay profit tax in the foreseeable future."

Depreciation

Not paying profit tax does not mean the company is awash in cash, he said, returning to the heavy burden of the $150 million bond loan.

"Over the coming years, the company will depreciate its assets. ... Depreciation ends up on the bank account, because you sell your product and you get compensated for the depreciation. In the case you do not invest in new assets, you accumulate the depreciation and that stimulates the cash flow. From this cash flow the loans must be serviced – that is, paying interest and redemptions.

"They're depreciating the various facilities. ... The deprecation is lower than the finance charge they have to pay to the bond holders," he said.

"This means that any profit the company makes on top of the depreciation will not automatically generate enough cash flow to repay the bond loan after 20 years.

"To generate liquidity to the tune of $7-8 million, simply to redeem this bond loan the company's cash flow will have to be tightly managed and probably... any real profit will have to be accumulated to create enough reserves."

Insufficient info

The balance sheet did not appear to be the problem at all. "There are $290 million total assets and a shareholder's equity of $73 million. ... That's actually very solid. Many companies have a less favourable ratio. That is not the problem. ...

"The problem is that the loans need to be redeemed in the future and that is directly dependent on the future profits, because the future depreciations alone will not be enough to generate enough cash to repay these loans.

"The fact that the bridge needs to be depreciated and maintained, but generates practically no revenue, is a burden to the company," he said.

He also questioned why some essential information was lacking from the reports. In addition to showing the financial position, the SHHC financial statements also have another function: to give the shareholder, and stakeholder, insight into the company's performance. It is not sufficient to show the total net profit, as it results from the revenues minus the total expenses, he explained.

"The organisational structure of the Group follows the several activities on the island [i.e. Cruise, Port, Simpson Bay Lagoon Authority – Ed.] These activities are carried out in different locations and probably with separate assets and staff.

"Now, in my opinion, this enables the Holding's management to report not only on the total results, but also on the results of the separate subsidiaries.

"It is to be expected that in the books of the subsidiaries there already exists a 'natural' allocation of expenses, like personnel, depreciation and specific overhead. Interest expense can easily be allocated to the subsidiaries, based on the investments in fixed assets and working capital.

"That leaves the Holding's own overhead as a final expense item. Unfortunately the financial statements as presented to the shareholders do not give this essential info," he pointed out.

"That means that the shareholders cannot judge if certain activities are profitable and maybe need a different approach. In other words: an important instrument for the Board of Supervisors and shareholders is lacking. Management does give in its own report some figures on the results of the separate subsidiaries, but the underlying figures do not remotely tie in to the Profit and Loss Statement over 2013.

"It is possible that this by-subsidiary economic information exists, but in that case one wonders why this was not included in the financial statements. One simple annex in the annual accounts, allocating the cost totals in the profit and loss account 2013 over the separate subsidiaries would have given a wealth of information."

‘Guarantee function no reason for panic’

~ It is a regular instrument, says Plasterk ~

THE HAGUE--One should not get panicky when the Kingdom Government invokes the guarantee function to improve integrity or financial management of the governments in the Dutch Caribbean. Because it is a "regular instrument," but one that should be used cautiously.

Dutch Minister of Home Affairs and Kingdom Relations Ronald Plasterk stated this in his speech at Monday's symposium for the sixtieth anniversary of the Kingdom Charter. The symposium, held in the hall above Ridderzaal, where Queen Juliana signed the Charter on December 15, 1954, was organised by Open University, with the support of Tilburg University and the Ministry of Home Affairs and Kingdom Relations BZK.

Plasterk explained that Curaçao and St. Maarten had a more direct relation with The Hague after the elimination of the extra layer of government, the Country the Netherlands in 2010. "Let's not get panicky about that, because it is just a regular instrument." He said the guarantee function, anchored in the Charter, should not be used randomly, just because one of the countries wants it to be invoked to address a situation based on the request of one country.

Plasterk said the Kingdom Government used the guarantee function three times to intervene after the new constitutional relations went into effect in October 2010: the first time in Curaçao in 2012, when, according to the Kingdom Government, the country's finances were about to derail; the second time for St. Maarten in September 2013 to improve integrity of the local government, and again in July 2014 in an effort to curb Aruba's financial crisis. Intervention was done through an instruction.

The minister agreed with the symposium chairman Prof. Dr. Ernst Hirsch Ballin, a former minister of Kingdom Relations, who said in his welcoming remarks that one should not wait to use the guarantee function after the fact, when the damage had already been done. He said the Aruba situation had been "borderline" and that it had proven positive that outsiders, the Committee for Financial Supervision CFT, had gotten involved.

Hirsch Ballin said the sixtieth anniversary of the Charter was a good reason to reflect on the future of the Kingdom. He said the Kingdom was not a still water, but a moving water stream. "It is amazing how we tend to stick to the values of sixty years ago, as if nothing has changed in the world," he said.

At times there have been "strong tension fields" within the Kingdom in which the guarantee function and the absence of a dispute arrangement often played a big role. In Hirsch Ballin's opinion, the guarantee function should be used in a more preventive manner and not after the damage had already been done by imposing harsh intervention in an effort to correct the things that went wrong.

Hirsch Ballin questioned the use of instructions to the governor as was the case in Aruba and St. Maarten. "Tensions run high and it all comes down on the shoulders of the governor. There is a maximum to that," he said.

"The guarantee function is mainly a joint responsibility of the countries in the Kingdom, one that requires a joint formulation of objectives," said Hirsch Ballin. He reminded the audience, consisting of some 250 persons, that the Kingdom was a joint constellation and that it was imperative to stand united in this world. Hirsch Ballin said he hoped the symposium would result in the formulation of a joint objective, so the Kingdom would not be about frictions and negotiations anymore.

Plasterk said the current Kingdom constellation was his point of departure. He said he wasn't convinced that the commonwealth structure proposed by the liberal democratic VVD party and the Socialist Party (SP) was a better construction. He said this decision was up to the overseas countries, and not the Netherlands.

The minister said that in general people were proud of the Kingdom, a constellation consisting of four autonomous countries, sometimes with different opinions, but always on the basis of respect and mutual understanding.

"For me the Kingdom is both about hope and being intransigent. Being unbending, where it comes to good governance, proper financial management and integrity. Hope for a fruitful cooperation. The Kingdom is a product of solidarity," said Plasterk, who expressed the wish that the countries would keep working on a bright future for the next generations. "I hope to celebrate the 100th anniversary of the Charter in forty years."

More on the other speakers at the symposium on 60 years of the Charter, Dr. Irene Broekhuijse of Open University, Aubrich Bakhuis of Erasmus University, Dr. Wytze van der Woude of University Utrecht and Maite de Haseth of the Council of State, in Wednesday's edition of The Daily Herald.

Marine Park now recognized as important to Caribbean

COLOMBIA--The Man of War Shoal Marine Protected Area, St. Maarten's first National Park, was formally listed under the Special Protected Areas and Wildlife (SPAW) Protocol on December 9, at the eighth Conference of Parties for the Specially Protected Areas and Wildlife Protocol of the Cartagena Convention in Cartagena, Colombia. Also listed at the United Nations Environment Programme/Caribbean Environment Program meeting was the Statia National Marine Park and the Saba National Marine Park.

The listing process for an area is "quite a long and involved one" that required close cooperation with our partners at the Regional Activities Centre in Guadeloupe, the Dutch Caribbean Nature Alliance and our numerous partners within the region and abroad.

"It is quite an important step to have the first protected area and one of the youngest marine protected areas of the Caribbean listed under a protocol that falls under the auspices of the United Nations Environment Programme. With this listing, we will be able to better manage the park and ensure that we contribute to the biodiversity management of our marine resources," said Tadzio Bervoets of Nature Foundation. The Man of War Shoal Marine Protected Area is managed by Nature Foundation.

The SPAW Protocol is part of the Cartagena Convention. Eligible sites for listing under the SPAW Protocol are those coastal and marine areas that are ecologically important to the Wider Caribbean region. The listing of marine protected areas is done to sustain the natural resources of the Wider Caribbean region and to encourage ecologically sound and appropriate use, understanding and enjoyment of the areas. Ultimately, sites listed will contribute to a comprehensive and representative system network of protected areas in the Wider Caribbean region, across all bioregions and across the range of ecosystems within each bioregion.

On December 30, 2010, then Minister of Tourism and Economic Affairs Franklin Meyers signed a major step towards marine environmental protection and conservation for St Maarten, when he approved the establishment of the Man of War Shoal Marine Protected Area. The area includes the country's most ecologically and economically important marine habitat, including extensive coral reef areas and sea grass beds and was chosen to be a priority for official conservation, because of its intrinsic ecological, economic and cultural value.

The Man of War Shoal Marine Park is a home and migratory stop-over or breeding site for three IUCN Red List Species, 10 CITES Appendix I species and 89 Appendix II species. It is an area with a relatively healthy population of marine mammals, including migratory whales and dolphins, numerous species of shark, sea turtles and numerous fish species.

Studies have shown that biodiversity in this area, particularly coral reef density, is high and the economic goods and services, which the ecosystem provides, are in excess of fifty million dollars annually.

Studies conducted by Nature Foundation have shown that biodiversity in this area, particularly coral reef density, is high and the economic goods and services, which the ecosystem provides, are in excess of fifty million dollars annually. Also, compared to the period prior to the establishment of the Marine Park, fish abundance has increased some 10 per cent in fish species and, since fish travel from the Marine Park into other areas, this spill-over will increase fishing in local waters outside the Marine Park.

Maragnes family clings to hope missing son is alive

MARIGOT--The family of the missing young man Manoël Maragnes has spoken of the anguish they are still going through on the first anniversary of their son's disappearance last year but still retain hope that he will turn up.

"This will be a year since Manoël disappeared during the night of December 13 to 14, 2013, after a car accident. Since then we have heard nothing more, as if he vanished into thin air," the family said in a statement. "There are so many questions still unanswered; what really happened? Did he want to disappear? Was he a victim of a bad encounter with someone?

"We are still shocked by his disappearance. He finished his studies and came to St. Martin from Paris for a university project. There was no indication anything was wrong; he was on very good terms with us and his sister. He was going to be with us for Christmas and New Year in Guadeloupe. Why would he come to St. Martin to run away? It does not make any sense."

The family said it is difficult to determine how the investigation into his disappearance is going or if there is any progress. The case was passed from the Prosecutor to the Judge of Instruction in January. The Prosecutor and Gendarmerie have been investigating all possibilities and scenarios.

"The investigation continues but too slowly we feel," the family added. "There have been vague posts on his Facebook page that the investigation can't clarify and doubt on how seriously to take what has been written. We continue to think he is alive somewhere. We can only depend on the work of the investigators, but also on the public. Someone may recognize Manoel even if his physical appearance has changed a little (hair, beard.). If so, do not hesitate to report any sighting to the Gendarmerie (emergency number 17) or to the family directly on (0690) 84. 25. 45 or (0690) 28. 33. 88.

To recap, Manoël Maragnes (then 24) and originally from Guadeloupe arrived in St. Maarten on December 11, 2013, on a flight from New York. He was in the process of completing a Business Administration degree in Paris, for which he had done a project in St. Martin. He was due to graduate in January and was on his way to spend Christmas and New Year's Eve with relatives in Guadeloupe.

En route from Paris to Guadeloupe, he first stopped off for a few days in New York, where he saw friends. He then continued to St. Maarten on December 10 where he planned to do some field studies as part of his project, and on Saturday, December 14, was due to fly from Grand Case to Guadeloupe. His family was present at the airport to meet him, but he never made it onto the flight.

Manoël had been staying in Beach Plaza Hotel in Marigot. He never checked out. On Saturday, all his belongings, including his passport, were found inside the hotel room. A rental car driven by Maragnes was found abandoned in the Lowlands area, with slight damage to one side of the vehicle.

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