Tuesday, 16 June 2015

Ben Shenton in the JEP

I'm reprinting this excellent piece by Ben Shenton from the JEP, also posted by him on Facebook, because it highlights one of the main problems with the States of Jersey Development Company - they have a unique relationship with the States which enables them either to get property at a peppercorn price - the Waterfront - or at significantly below market value - as in the case of the Jersey College for Girls site.

I predict that sooner or later the Treasury Minister will have his beady eyes on the St Saviour's Hospital site - a vast area, worth a considerable sum of money, and where a sale would be ideal for plugging holes in States finances in the short term. With the dollar notes flashing before his eyes, don't imagine the site would ever be used partly for much needed social housing.

But what can we expect of such a large site? I expect the States of Jersey Development Company will get their grubby little fingers in that pie, and as with the Jersey College for Girls, pull out a prize plum, while the States get left with the crust.

Little Lee Henry
Sat in the corner,
Eating a Jersey Development pie;
He put in his thumb,
And pulled out a plum,
And said 'What a good boy am I

JEP Comment - 9th June 2015
by Ben Shenton

Why were public assets worth £5 million sold for £1.5 million?

I am an investment manager and one of the skills required in my profession is to find where the bodies are buried in Company Accounts. This is because no two businesses are identical and there is some flexibility in accounting standards to compensate for this. To illustrate this I recount the tale of a CEO of a very large US conglomerate. When asked what the next quarter’s profit would be by an influential research analyst his reply was “what do you want it to be?”

It is possible to make a subsidiary or department look worse than it is by loading it with costs. Similarly you can inflate profitability if you are so inclined to do so. It can cross the line to fraud if, for example, you have a bonus related culture and deliberately inflate profitability to your own advantage. And so ends this week’s lesson in accounting.

To change the subject slightly, recent events made me dig out some old papers in respect of the old Jersey College for Girls (JCG) site in Rouge Bullion. Back in 2007 a few politicians , including myself and led by Rob Duhamel, prevented the then Treasury Minister – Senator le Sueur – from selling the old JCG property for £1.8 million plus a profit share that was anticipated to increase the value to £3.1million – albeit not without risk.

Roll the clock forward to September 2014 and the States Treasury and Resources Department, via Jersey Property Holdings, received an offer of over £5 million from another local developer for the site. Cash in hand, no risk. As you and I as Islanders own the property this increase in value probably warranted us all going down to our local Co-op and cracking open a bottle of bubbly. Sadly this no risk cash offer was not pursued by the Government who, under Chief Minister’s personal direction, refused to even enter into negotiations.

It was therefore with some dismay that I noted in recent Royal Court property transactions that “The Public of the Island” (as the wording appears on the Court documents) have sold the site to the States of Jersey Development Company for £1,500,000 (6th March 2015). Even the most incompetent developer should be able to book a profit on an asset sold at such a deep discount. But if the SoJDC are really at arms length and on the same playing field as the private sector then why should I, a member of the Jersey public, sell them assets at a £3,500,000 plus discount? How do I ensure that bonuses are not paid to SoJDC staff on the basis of false profitability? And, finally, why are none of our 49 paid politicians asking these questions?

Note: Response from SoJDC:

1. Jersey Property Holdings valued the development site at £1.5 million independently even though it had been valued much higher in 2007 and it was Jersey Property Holdings that were in receipt of the £5 million bid for the site last year.

2. Profits at SoJDC are not linked 'in their entirety' to profitability. In other words the financial advantage of a low transfer value was confirmed.

3. Once completed the project "would return £4 million to the States." This is £1 million less than the amount offered by another developer for the site. That £5 million that would have gone straight towards narrowing the budget deficit.


One word - Scandalous!

Can someone please try and get a current politician to look into this. The PAC and CAG should also be concerned.

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