Local real estate and private equity company First Rock, which listed on the Jamaica Stock Exchange in 2020 with great fanfare, now finds itself under intense scrutiny concerning transparency and interconnected issues.

This comes at a time when questions are being asked of some listed companies in the financial sector regarding shareholdings and the raising of capital, echoing the call to abide by greater transparency and a need to provide answers to pertinent and salient questions.

The Airports Authority of Jamaica (AAJ) and  its subsidiary, the Norman Manley International Airport Limited (NMIA) – two state bodies, bought shares in a start-up company in contravention of government regulations.

Inflaming the situation is that the deputy chairperson of the AAJ at the time, Fay Hutchinson, acquired shares in First Rock in a personal capacity and did not disclose to the AAJ that she was a board member of First Rock.

Hutchinson is now chairperson of the AAJ.

This raises corporate governance concerns about the way that public companies go about their business in Jamaica.

Speaking in Parliament earlier this week, the Minister of Finance and the Public Service Dr Nigel Clarke was emphatic.

“Prior approval was neither sought nor received… . This would have been contrary to regulations.”

Hutchinson maintains she did nothing wrong and that she didn’t see a problem. The Government does not share that view.

While a lot of companies in Jamaica are rushing to list on the JSE, they must be cognizant of compliance and transparency rules. It’s all very well raising capital from shareholders, but this entails a greater level of responsibility, efficiency and being prepared for people examining just how you do business and the calibre of your personnel.

Are you truly prepared for that and do you have what it takes? If the answer is ‘no’, then remain a private company.

First Rock and its CEO, Ryan Reid, have become media darlings over the past few years and this imbroglio now threatens to take the shine off the ball. The AAJ is now considering selling its shares in First Rock and this isn’t a good look for the company.

How this awful mess was allowed to happen is worrisome and demonstrates a laxity at some of these public listed companies. It is incumbent on the JSE to hold these companies to account and to cast a more probing eye over how their boards function.

Some people are using this as a political football and pointing the finger at the governing party, citing cronyism. It’s bigger than that.

So what’s this all about?

RECALIBRATED STRATEGY

First Rock, a private equity and real estate company registered in St Lucia in 2017, began operations in 2019 and listed the following year, just before the COVID-19 pandemic took hold.

It did very well establishing its brand and creating excitement in the local equities market. Then, shortly after it listed in February 2020, COVID took hold, decimating economies and impacting the real estate market.

First Rock unfortunately had to place some projects in abeyance and recalibrate its strategy. As it currently stands, 68 per cent of its assets are in Jamaica, 16 per cent in Costa Rica, 10 per cent in Cayman and six per cent in Florida. It is now looking to evenly distribute its assets, hedging any possible downturn in any of its markets.

There is speculation that Jamaica will soon experience a real estate bubble. With the economy contracting, wages stagnant and unemployment and inflation rising, it is not difficult to envisage this taking place.

This poses a daunting prospect for First Rock, more so with companies reassessing their commercial operating space and seeing considerable savings with employees working from home. The question remains who can afford these properties in Jamaica and where is the income coming from?

The AAJ and the NMIA took the decision to invest US$500,000 respectively with what in effect was a fledgling company with no real track record at the time. That’s not such a big deal until you take into account the use of state funds when the entities have been mandated to invest a set limit in blue chip established companies, guaranteeing a certain level of return.

Why would state airport bodies be so adamant about investing in a private equity/real estate company? What was the reasoning and calculus? Why did they brave the opprobrium that has befallen them?

The year 2019 is a pivotal year in all of this. That was the year First Rock began operations. It was also the year Fay Hutchinson was promoted to deputy chairman of the AAJ.

During that year, both the AAJ and NMIA, via a private placement, snapped up US$1 million worth of shares. Fay Hutchinson ,in a private capacity, that very same year bought a million units of First Rock shares.

That is a lot of faith reposed in First Rock by these government bodies and Hutchinson was most bullish on the company.

NO RED FLAGS RAISED

So much so that both entities increased their holdings from First Rock’s IPO the following year, taking their investment to US$3 million. This made them the third and fourth largest shareholders in First Rock.

Still no red flags were raised.

The Ministry of Transport remained unperturbed. Fay Hutchinson was doing a good job, indeed she should be promoted.

In 2020, Hutchinson joined the Board of First Rock, a month after the AAJ increased its holdings in First Rock with the second amount of shares from the IPO.

This is clearly egregious and goes against adequate governance and transparency. Alarm bells did not go off. All was hunky dory. Were the watchdogs sleeping in their kennels?

Making this even more odious, Hutchinson did not inform the board of directors at the AAJ that she was a director of First Rock and therefore a connected party who needed to recuse herself from any deliberations concerning that company.

At this point, should the JSE have interceded? Perhaps they were in the dark about this. The then chairman of the AAJ, William Shagoury, has said: “I didn’t know she (Fay Hutchinson) was on the Board of First Rock. We can’t know who is on a board. We don’t know unless you tell us.”

But First Rock is a listed company and the names of its directors are published for all to see.

Someone should have had a word in Mr Shagoury’s ear.

The Board of First Rock too is culpable. It should have seen the danger and headed it off at the pass. Hutchinson was a clear and present danger. She allowed the finger to be pointed at the company with questions being asked about flagrant regulation breaches and non-adherence to corporate governance rules. It was a failure of disclosure.

Going forward now, it will invite intense scrutiny. First Rock will have to triple check that its ‘I’s are dotted, and its ‘T’s crossed. It’s decision-making and judgment may very well be second guessed as a result of this. That is most unfortunate for its young CEO, Ryan Reid, who is carving out a reputation as one of Jamaica’s most promising business leaders.

SHORT-SIGHTED AND MISGUIDED

First Rock explained its decision to invite Hutchinson onto its board in 2020 declaring  “we invited Fay Hutchinson to join the Board in her private capacity and this was not construed to present a conflict of interest, therefore no declaration was made”.

How short-sighted and misguided. This demonstrates a lack of experience and awareness of corporate governance practices.

According to Canadian online talent solution company SpriggHR, “Strong and effective corporate governance helps to cultivate a company of integrity, leading to positive performance and a sustainable business overall. Essentially it exists to increase the accountability of all individuals and teams within your company, working to avoid mistakes before they can even occur.”

This no doubt means ensuring adequate disclosures. Companies have to be accountable and at all times must be transparent to shareholders, regulators and to the wider society. A lack of corporate governance can lead to a tarnished image.

As to Hutchinson and the AAJ, I’ll leave you with the Minister of Finance Dr Nigel Clarke’s words on the matter:

“It is also a matter of judgment as to whether it was prudent for a single-equity investment to absorb as much of the space allocated to equities in AAJ’s investment policy as it did, especially if that investment is an IPO of a company that was in operation for only two years at the time.”