FNPF: a bail-out fund for failed projects?

  • 17th November 2011
  • FNPF
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Is the FNPF being simply reduced to functioning as a cash cow for the State and a bail-out fund for failed projects?

Members are extremely worried that the FNPF continues to invest in questionable hotel projects despite having lost hundreds of millions of dollars on such bad investments;

On the other hand, it insists, ironically, on pushing ahead with “reforms” to reduce pension rates to ensure the long term sustainability of the Fund.

The latest concern is the Fund’s decision to proceed with the completion of the Momi Bay Resort “with or without a strategic partner”; and to expend a further $12 million to purchase land at Momi for sale as residential lots.

The Fund’s 2011 Annual Report states its Board’s decision to continue with the project but there is no mention of how much more of members’ money will be outlayed to complete the partially-built resort work on which was abandoned in September 2006. Moreover, the decision comes at a time when investment in hotel development remains subdued, with several developers struggling to sell their residential lots.

Close to $100m (+$99.7m) has already been lost on the Momi Bay deal. Naturally, members are concerned that millions more are going to be wasted on this jinxed venture.

Completing the Momi Bay Resort will undoubtedly entail substantial reconstruction costs considering that the existing incomplete structures have deteriorated significantly in the last five years and the golf course is now virtually a horse paddock. Before FNPF embarks on spending more mega-bucks, it needs to find out exactly how much will be involved and whether there is any wisdom in throwing good money after bad.

The Fund needs to be a lot more transparent and accountable, particularly when at least $400 million of asset write-downs have taken place in just two short years under its incumbent Board.

The Land Purchase

FLP wrote to the Fund on 27 October 2011 seeking answers to questions relating to its Momi Bay project, in particular, the investment of a further $12 million in July 2011 to purchase additional land at Momi Bay. We sought information on:

• the total area of land acquired

• the previous owners/lessees of the subject land

• the land area and price paid for each allotment if more than one property was acquired

• on whose advice/recommendation was the land acquired

• whether a due diligence report was prepared and

• the agents, if any, through whom the deal was negotiated and the commission/fees paid to them

FNPF chief executive Aisake Taito replied on 2nd November but failed to provide specific answers to any of the questions asked. Mr Taito’s letter stated that:

• After considering various options, it was decided that the best alternative for the Fund was to complete the hotel “with or without a strategic partner” and to immediately sell the residential lots to recover investment. “Work has commenced in this regard including the appointment of the Hotel Operator soon,” he said.

• the additional land acquired was part of the original Integrated Momi Bay Hotel Development project; following direct negotiation with the vendor it was acquired at “discount to valuation”.

“The freehold land will complement the above strategy and also eliminates any speculator who may also unnecessarily hinder the overall development,” he said.

Mr Taito added that further work had been undertaken by the vendor to complete the registration of all residential lots which increased the value of the land. However, the vendor’s or the agent’s name was not disclosed, nor that of the hotel operator.

“For your comfort, the Fund will undertake a new valuation of all its investments in the Momi project in the current financial year to ensure that proper value of the project is reflected in the accounts,” Mr Taito said.

Background

The Fund had advanced loans totaling $99.7 million towards the Momi Bay Resort Development to Matapo Ltd, a locally registered company with links to Bridgecorp of New Zealand (the developers). Bridgecorp collapsed in 2009 amid charges against its principals of lying to its investors, and was placed under receivership by the authorities in New Zealand.

Initially, the Fiji Development Bank (FDB) and FNPF provided a syndicated loan to the company but later FNPF took over the entire loan by paying off the FDB.

In its 2010 account the Fund made an impairment provision of $55m against the loan, thus reducing the value of its $99.7m investment to $44.7m. It then tried to sell the property by auction but said “offers received were not acceptable” to it.

And now the Fund says that it intends to complete the development “with or without a strategic partner” and pumps in another $12 million to buy additional land to complete this abandoned project.

The question is: Would anyone in his right senses invest further moneys in a project on which he has already lost over half his initial investment?

Where Trust moneys are concerned, such callous conduct would be seen as a gross abuse and a serious breach of fiduciary duty.

Why is the FNPF unwilling to disclose the information sought on the purchase of the additional land? Why is it skirting around issues which are of legitimate concern to the members of the Fund?

How many more millions are going to be sunk into the Momi Bay venture is anyone’s guess. The Fund’s losses on its misadventures with resort development projects run into hundreds of millions, yet it persists in throwing away more money in the pursuit of this failed project.

The table below shows the huge write down of FNPF’s investments in the entities mentioned (FNPF Annual Report 2011). The Fund is now embarking on more of such Resort projects (GPH, Momi Bay) which will most likely result in further losses and write downs of substantial amounts in the future. We had thought that Natadola would have served as a sordid lesson – obviously NOT, judging from what is going on!

                                     WRITE DOWNS

PROJECTS

    LOANS

IMPAIRMENT PROVISIONS

WRITTEN DOWN VALUES

 Momi Bay

 $100m

    $ 55m

  $45m

Natadola

 $306m

     $201m

 $105m

 FNPF               Investments       Ltd

$141m

     $ 88m

$ 53m

 ATH

 

 $296m

      $83m

 $213m

 

 $843m

    $427m

 

 $416m

Impairment equals 56% of the initial Investment outlay

It is astounding that to this date none of the external auditors of FNPF has seen it fit to report on the disastrous effect these scandalous investments have had on the viability of the Fund and on the retirement benefits of its members.

It seems the price for all these have to be paid by the members of the Fund losing out on their pension and other benefits while those in authority continue with their hoodwinking exercise!

MP CHAUDHRY