Municipal Bond insider warns Belizeans


By Marisa Alamilla

BEWARE

Since June of 2012 the Mayor of Belize City, Darrel Bradley has been setting a launch date for the prospectus of a BZ$20.0m Municipal Bond. In finance a prospectus is a marketing document that describes the “offering” (Municipal Bonds) and commonly provides the potential investors (lenders) about the operation and viability of the entity making the bond offering which in this case is the Belize City Council (the borrower).

Due to alleged greed on the part of insider traders who were preparing the prospectus, they walked away from the table because they allegedly wanted 5% of the BZ$20.0m and not the 2% the Mayor offered. That initial prospectus attempt had the Prime Minister’s offspring finger prints all over it. But the Mayor allegedly then saw an opportunity for him to cash in, so he and his councilor colleague, reportedly, an attorney and the Mayor decided that they would be the “authors” and be the “legal advisors” on the prospectus and make their fees. So since they missed the June deadline for the initial launch, the next date was set for August 29th, then it was September 15th, then October 17th, then November 15th, and then FINALLY November 22nd, 2012, whew.

Now that the prospectus is finally launched and potential investors who believe they want to lend the Belize City Council money can review the prospectus to confirm if they are making a sound investment.

We were also able to review the Municipal Bond Prospectus 2012 and we became very alarm at what we read. As a standard, the first thing an investor does is to review the Auditor’s opinion on the presentation of the financials and the projections. The financials gives a historic and present time snapshot of the “borrower” (Belize City Council) financial performance. The projections are design primarily to give comfort to the investors by showing how they will be paid their interests and their principals over the life span of the bond.

The Auditor’s (whose name we refrain from exposing because they did their job) opinion was clear in their report on the financial projection and we quote “Our report dated June 22, 2012 expressed adverse opinion, based on our inability to ascertain opening balances for accounts receivable and accounts payable”.

In layman’s terms, this means that the Auditor could not confirm how much is owed to the Council and how much the Council owes. This is a glaring statement because nothing thereafter in the financial statement can be relied upon. Therefore the Auditor went on to say in his opinion “Since the financial projection is based on assumptions regarding future events, actual results may vary from the information presented and the variations may be material. Accordingly, we express no opinion as to whether the financial projection will be achieved”. It means that they, the Auditor, does not believe the numbers they were given by the Council because it is embellished (pretty up) and that their belief is that the gap (difference) will be material (significant to affect payment of the bond), which is to say the projections are unrealistic and will not be achieved. Note whenever an Auditor states that “we express no opinion” that is a call a qualified statement and therefore is saying in a guarded way that the risk is too great to invest in these bonds.

In our cursory review of the financials it is noted that the Government of Belize subvention to the Belize City Council went up by BZ$1.0m in 2012 when compared to 2011, which signifies that Darrell Bradley has more money from Government to work with than Zenaida Moya had as Mayor of Belize City, which is a clear bias towards Bradley by this UDP Government. In addition, the spending (Operating Expense) under Darrell Bradley increased by over 15%, from BZ$16.1m to BZ$19.2m. One of the largest increases in expense occurred under the heading Finance & Administration which increased by 47% under Bradley.

The five-year projection indicates that Government subventions will be consistent at BZ$2.3m which everyone knows is unsustainable because the Government is broke and is living from hand to mouth because all their taxes are underperforming and the Superbond negotiation has gone bonkers. So shortly Government will have to reduce the subvention to all Municipal Governments.

It is important to note that there is no legal obligation for the Central Government to give subventions to Municipal bodies. And what happens when the Government changes in 2017, if that long – and new Government require for all Municipalities to be sustainable and maybe remove the subvention? Where would that guarantee payment that the Belize City Council is depending on and where will it then come from? The issue of the head tax is also very fragile because any force majeure (perils) such as hurricanes, tsunami, etc. or some attack that endangers tourist can force a decline in arrivals, which will directly diminish the amount collected from the head tax. Which means Municipal Bond holders get no payments.

In the event that a default occurs on the Municipal Bond the only recourse the Bond Holders will have is to seek the assistance of the Courts, but the Belize City Council under Darrell Bradley does not respect the Courts in Belize. Belize Maintenance Limited (BML) won a court case month ago and was awarded BZ$2.4m (see page 8 of the prospectus) which the Belize City Council has refuse to pay to date or make a serious arrangement to pay. So in short, the Belize City Council has a track record of not paying their bills and Court judgments, or as Belizeans say they are mal pago. So why would a rational person (investor or managers of funds), feel comforted to lend them money that will not be able to pay back.

In weeks prior, the largest banking institution is Belize was poised and prepare to underwrite the entire BZ$20.0m with the stroke of pen, but while doing their due diligence they discovered all these scary information that is imbedded in the prospectus and in addition they could not get any assurance from the Auditor’s statement, so as rational custodians of depositors money they removed their offer from the Municipal Bond pool.

In short the prospectus is a disaster. There is nothing in that booklet that has the ability to encourage investors to part with their money, however if one is like Lascelle Arnold, who claims on national radio that he has not read the prospectus, but he wants people to invest out of emotions because cement streets are good and do not have them concern themselves if cannot/do not get back the money lent to the Council. In short Lascelle is saying “buy the Municipal Bond even if it is puss in the bag.” However we will not be reckless like Lascelle Arnold and we will be prudent in our advice. In short it is the prospectus that should be the tool that encourages investors to invest, therefore all we can say is that since the prospectus has not encouraged anyone to invest we say if you want to lose your hard earn money then give it to Darrell Bradley. We urge the insurance companies and the Social Security Board directors to read the prospectus very carefully and read the Auditor’s opinion because if you play Russian Roulette with the people’s money there will be hell to pay, maybe even jail time.

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