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UWI credit union counts a loss

SHAWN CUMBERBATCH, [email protected]

UWI credit union counts a loss

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A local credit union is counting a financial loss associated with its investment in Arawak Cement Limited (ACL).

UWI (Cave Hill) Co-operative Credit Union Limited, which recently held its annual general meeting, reported the $137 107 impairment in its 2015 annual report.

President Jennifer Hinkson, speaking on behalf of the board of directors, said the loss was related to investments made through the then Barbados National Bank (now Republic Bank) Finance And Trust in ACL bonds”.

“In June 2006, the credit union invested in an ACL bond through BNB Finance Trust. The amount of the investment was $225 000 at an interest rate of 10.25 per cent. In January 2007, a further $468 750 was made in a second tranche of the bond at an interest rate of 11.20 per cent,” she explained.

“Things went very well for ACL and its parent Trinidad Cement Limited (TCL) until the recession hit in 2008. The difficult economic situation had a devastating effect on the construction industry, which in turn significantly affected TCL and ACL.”

Hinkson said faced with significant deteriorating financial conditions, TCL decided to refinance its debt. And in doing so, it “exercised a clause hidden deep in the ‘fine print’ of the investment document  which allowed the company to pay out some loans early while taking a discount for doing so”.

The discount percentage in the document was 20 per cent of the outstanding balance. At the time of the early payout the balance due to UWI credit union was $685 534, including some capitalised interest, and this resulted in the $137 107 incurred by the credit union.

However, Hinkson pointed out that “up to the point of the ‘early payout’, the credit union had earned $501 862, for a return of 8.51 per cent on the original investment”.

“When the impairment loss is taken into account, the net return would be 6.19 per cent. Therefore, while the return on investment was lower than planned, there was no loss on the principal of the original investment. Unfortunately, the impairment has to be taken in one year while the returns were over a number of years,” she said.

Reporting on the organisation’s performance, she said, “Notwithstanding the continued challenges here in Barbados, we are pleased to advise that our credit union was able to ‘hold its own’ in most areas of operation.” (SC)