Finance Ministry mute on KLAS issues

THE MINISTRY of Finance and Planning has declined to respond to a suggestion that former shareholders of KLAS-FM had tried to resolve issues surrounding a $30 million debt, owed to the Government before the radio station was sold, and that two offers were rejected without explanation.

Since Monday, the Ministry has been asked to respond to the statement, made by Neville James, former chairman and major shareholder of Island Broadcasting Services (IBS), which owns KLAS-FM. How-ever, up to yesterday the Ministry had not responded.

Mr. James issued a statement last week saying that attempts were made to resolve the debt owed by the radio station to the Financial Sector Adjustment Company (FINSAC), but two offers were rejected, without explanation.

FINSAC later sold 35 million IBS/KLAS shares for $700,000 or 50 shares for $1.00, and the $30 million debt for $6 million or 20 cents on each dollar, to Wilmington Corporation, a company owned by Alston Stewart.

Mr. Stewart later confirmed that he has applied for a waiver of the penalty portion of the $22 million statutory obligation of the Company.

In Ministry Paper No. 46, tabled by Minister Dr. Omar Davies on April 24, it was suggested that Wilmington Corpor-ation provided the best of three bids for FINSAC's shareholding in IBS/KLAS, and it was accepted by Cabinet.

However, in a statement responding to the Ministry Paper, Mr. James said it did not give a full picture of the circumstances surrounding the divestment.

Mr. James explained that the $30 million debt was, originally, an overdraft facility of $12 million provided by Workers Bank as working capital to KLAS. However, between 1997 and 2000 when FINSAC held the debt, it grew to $30 million.

Over the years, he said, KLAS made several attempts to revolve the issue of the debt and two firm proposals were received, one in March 1999 and another in October that year. "The March offer was rejected out of hand, without explanation as to why it was unacceptable," he said. "There was no response to the October offer."

Mr. James said the question which has not been resolved by the Ministry Paper was whether, "as a first course of action, the ownership of the Company ought not to have remained with those who had the vision for the product, took the risk to launch the radio station, and who invested money, time, creativity and considerable effort to make success of the business."

Demise

According to the former KLAS chairman, "we could argue that the seeds of our demise were sown in June 1995" when IBS/KLAS, in compliance of the terms of its licence, offered 47 per cent of its issued share capital to the public and was listed on the Jamaica Stock Exchange (JSE).

A number of financial institutions, including the Corporate Group, Horizon Group, Eagle Group, Caldon Finance Group and Century National Building Society acquired shareholding in the radio business. However, with the collapse of the financial sector, those shareholding, totalling about 45 per cent, were acquired by FINSAC as part of the assets of the failed banks.

Mr. James said no formal loan agreement has ever been put in place between IBS/KLAS and FINSAC, although a FINSAC representative was sitting on the IBS board and was privy to all financial information. "He tried valiantly, but to no avail, to have FINSAC come to some agreement with the Company," said Mr. James, adding that several letters written by the FINSAC representative "attest to this fact."

Poor accounting
records

The Ministry Paper suggested that KLAS' accounting records were poor, but Mr. James said it was the lack of the formal agreement "that prevented our auditors, PricewaterhouseCoopers, from producing final accounts."

He said the option of issuing qualified accounts were unacceptable to the board and that situation obtained until 2000. The Company, however, supplied audited financial statements to the end of December 1997, draft statements to the end of 1998 and unaudited statements up to December 1999.

"To say that the accounting records were poor is to imply that a firm of international repute was incompetent in the delivery of service to IBS/KLAS," said the former chairman.

Referring to another statement in the Ministry Paper that "a valuation report on the Company, commissioned by FINSAC, revealed the Company had little or no intrinsic value given, inter alia, the level of indebtedness of the company, the age of its broadcasting equipment and the poor state of its accounts," Mr. James said:

"Valuations carried out on a creative, knowledge-based entity, on a strict asset-based approach, in no way address 'intrinsic' quality and true value of the product."

He said KLAS has seven transmitters, two of which were bought at its inception in 1989 and were therefore now 12 years old, two were bought in 1994 from the proceeds of a $5.4 million rights issue, and the remaining three and a spare were bought in 1995 from the proceeds of the public share offer.

According to Mr. James, the useful life of broadcasting equipment is between seven and 10 years and only two transmitters fell outside that timeframe. He said the studio equipment has been constantly upgraded over the years, and while the studios were not fully digital, transmission to fully digital operation continued.

He said the record of the Company's dealings with FINSAC suggested that a "master plan" was in place and that none of the proposals was accepted or seemingly given serious consideration of the plan.

Mr. James said "KLAS' success in the early years was built on its ability to satisfy a very discerning segment of the Jamaican radio audience with a product that was innovative, evocative and which appealed to the thinking listeners. The station remained at the cutting edge of the business and has been able to accomplish the seemingly impossible feat of turning a profit after three years."

He concluded that "our downfall is as much the fault of this Government, which, by its own mismanagement of the nation's economy, forced many enterprises into financial ruin."

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