Cash Plus gives its answers
Wignall’s World
Mark Wignall
By Jamaica Observer on Sunday, April 08, 2007
After having written articles on Olint, the boldness and expertise of its founding principal David Smith and the attempts by the FSC in March of last year to morph its version of regulation with ‘gestapo-like raids’ on the Olint offices, not only had I convinced myself and felt proud that David Smith, a Jamaican, was good at what he was doing as an FX trader, there were other well-known experts in the financial community in Jamaica and elsewhere who had signalled publicly that Fx trading was not just a viable financial activity, but as practised by Olint, was sustainable.
Olint operates from the Turks and Caicos Islands and its investment club, so troubling to some of those like letter writer ‘RUTTE GINPEBN’ (who wrote letter to the Business Observer weeks ago and who is, in reality, a well-known Jamaican businessman who has friends in high places), has not only survived after the raid; it has grown by leaps and bounds.
The financial sector in Jamaica had sworn that in the period of the mid-1990s, the slow, mourning music heard was a dirge for what appeared to be its certain death. At that time, the new finance minister, Omar Davies, and the man in whose hand fell responsibility for directing monetary policy and maintaining some semblance of order in how the country’s fiscal affairs were managed, found himself in the unenviable position of deciding between ‘letting the chips fall where they may’ and rescuing the sector from its ailments.
Politically, the PNP could not have approached the 1997 elections without solving the problems which had been brought down on depositors in entities such as Century National Bank. Whatever were the reasons for the meltdown of the financial sector in 1995, one thing was certain – the PNP would have lost the 1997 elections if the over 30,000 local depositors in Century had been allowed to find their own way out of the mess had Finsac not been brought about.
All one had to do was view those 30,000 plus depositors as 30,000 x 3 to get an idea as to how many voters could be brought under the influence of a bad policy governing the recovery of their deposits, after Century and many other financial institutions had allowed themselves to be sucked into the cruel monetary policies of the early to mid-1990s.
Finsac was not by any stretch of the imagination a master stroke. It was not even a last resort. It was simply the only solution.
We have moved somewhat from the uncertain days of the financial sector in the 1990s to now. Many among the important few have credited the ‘expertise’ of Omar Davies for what they see as a steadying of the financial ship. Place that alongside the fact that of each budgeted dollar, on average, close to 70 cents must go toward debt repayment.
Considering that the present government has not identified a policy to govern the end of our long and dangerous love affair with borrowing in order to meet loan repayments, this means that at any time in this country, our financial affairs are as sound as Humpty Dumpty seated on a high wall.
In recent times, much has been heard about Cash Plus, the company which promises 10 per cent per month on deposits. The company accepts ‘deposits’ from a minimum of $100,000.
Cash Plus has rarely been outside of the spotlight of the media, what with its full-page ads on its upscale housing developments featuring units costing close to US$1 million. Quite apart from asking whether anyone ‘normal’ can afford to purchase a house for J$67 million, some persons, while being impressed with Cash Plus and its rapid and aggressive growth in all aspects of business in Jamaica, were asking the key question.
Is the activity at Cash Plus sustainable?
Whatever prejudgments one may harbour about Cash Plus, one important factor seems to be obvious. With close to 2,000 persons on its payroll, 12 major subsidiaries involved in phone card distribution, telecommunications (Megaphone), development and construction, food, security services, import-export, computers, hotels and restaurants, automobile and auto parts, Cash Plus has become a major player in the corporate world after only five years since the concept came to Carlos Hill, chairman and CEO.
In February I posed some questions to Cash Plus and was promised a speedy response. In a subsequent article on Cash Plus I highlighted the exchange of e-mails between myself and Cash Plus, especially where it appeared that there was a deliberate attempt to avoid giving me a response.
While my initial interest was confined to getting answers to questions I had posed to them, the principals requested a meeting which was eventually held after the first ‘meeting’ did not materialise. I am usually not one for meetings. I believe that if an explanation on a complex matter cannot be given in an e-mail transmittal, the only factor which a face-to-face can bring to the explanation is public relations.
That said, however, my meeting with Carlos Hill and selected members of his team was confined to providing me with written answers to my questions, a brief explanation of his business vision and what he describes as ‘an interesting period for Cash Plus’ as his company involves itself in making ‘a major breakthrough’ in acquiring an important business entity.
According to Hill, so delicately poised were the negotiations over his planned acquisition that any factor which could be seen as negative to Cash Plus had the potential to derail the entire plans. In confidence he shared the general picture with me, and I am not at liberty to name the organisation.
Now, for some questions and answers.
Question: Who are the principals of Cash Plus?
Answers as given by Cash Plus: ‘Carlos Hill is the chairman and CEO of the Cash Plus Group of companies. He is not heavily involved in the daily activities of the 12 major subsidiaries but rather chairs the boards on policy regarding the financial and administrative business processes of each. The Cash Plus Group of companies is not a one-man show but is comprised of experienced professionals who have the mandate of managing the 50 companies and over 2,000 exclusively Jamaican employees.’
My impression is that Mr Hill is more of an ideas man who has an immediate second tier of professionals bringing shape to his concepts.
Question: How does Cash Plus earn money to be able to pay interest of 10 per cent monthly?
Answers: ‘Cash Plus Group of Companies is best viewed as a conglomeration of viable companies created through mergers, acquisitions, joint ventures, and partnerships mandated to strict adherence to the best business practices while continually providing gainful employment for Jamaicans.’
‘This has been accomplished with sound investment in viable companies which are mostly involved in day-to-day trading activities. Usually these companies are acquired after sound feasibility analysis to ensure, synergy with the Cash Plus group of companies, safe leverage which allow the Cash Plus Group to take over a company utilising approximately 3:1 leverage, strict management oversight to ensure that acquisition is debt free in three to six months.
This policy has enabled the Cash Plus Group of companies to make over 50 acquisitions that fit within the group, and to operate primarily debt-free while maintaining a 4:1 loan to asset ratio.’
Readers may have problems deciphering the answer to this question. They are not alone.
Question: How can you make these returns when other companies such as phone card sellers, cooking gas retailers, security outfits, etc, cannot?
Answer: ‘No answer ( Will not divulge trade secrets!)’
Question: Is money given to Cash Plus treated as a loan to Cash Plus?
Answer: ‘Our participants (lenders) provide Cash Plus (borrower) with funds in the form of a loan. The relationship between Cash Plus and its participants is purely that of borrower and lender respectively. All monies given to Cash Plus is given strictly as a loan from a lender to a borrower.’
Question: If Cash Plus is unable to pay principal and interest, do investors/people holding promissory notes have a charge or lien over the businesses or assets?
Answer: ‘The lenders of Cash Plus have a lien over the businesses and assets until that amount is repaid.’
Although nothing has come to me to indicate that at this time the Cash Plus Group of companies is suffering from any liquidity problem, the idea of a large group of lenders (depositors) making moves to recover lost principal and interest should there be an unforeseen problem would, it seems to me, open up a whole new reality which would tend to be at some variance with the simplistic answer given.
As I understand it, persons who deposit money with Cash Plus are lenders to Cash Plus. Cash Plus pays them 10 per cent per month of the face amount deposited/loaned but the lender is locked in for 10 months after which he can redeem his principal. By any standard that is a sweet deal just as long as every depositor/lender, that is those who came in two years ago and those who came in last week, is treated equitably.
Question: What percentage of Cash Plus’ assets are fixed, such as real estate?
Answer: ‘Approximately 75 per cent of Cash Plus Group assets are invested mostly in day-to-day trading activities.’
What this tells me is that it is from that trading on the 75 per cent of the assets which Cash Plus views as money spinners along with the influx of new deposits which allows Cash Plus to be able to pay 10 per cent per month on deposits. Not knowing the value of these assets, the monthly returns on them and the aggregate value of the monthly inflows, it makes it difficult to determine if Cash Plus meets its monthly 10 per cent with ease or with hiccups.
Some of the companies it cites as important in this regard are Cash Plus Telecom Limited and subsidiaries Megafone Limited and Freepaid Limited. ‘Cash Plus Foods Limited has recently acquired a major interest in an existing Canadian food distribution company with operations in 21 countries throughout the Caribbean and Central America. With this acquisition, we now offer 10,000 food products consisting of frozen, baked, canned and dry produce.’
Question: If businesses are so profitable, why not get financing from banks/other lending institutions at lower interest rates of 8-20 per cent instead of paying out what amounts to 120 per cent, Wouldn’t that be the prudent thing to do?
Answer: ‘Jamaica does not have a viable secondary market, and as such it is extremely difficult for the company to grow its businesses because the banks are limited in the extent of loan amounts they can approve and, in most instances loans involving significant sums must be approved from the head office which sometimes may be situated overseas. It becomes a very lengthy, frustrating and arduous task for most businesses which, by the time a decision is reached by the bank, the business finds itself granted a smaller amount than the capital required/requested.
‘Owing to the fact that the business has no other alternative, it is then forced to take that capital, even though it does not meet its requirement. This creates its own unique set of problems which can seriously injure the business seeking growth.
‘One would be surprised at the number of businesses that seeks Cash Plus’ intervention in assisting them with additional capital in order to meet their objectives.
Question: If operating in Jamaica, why not provide audited reports showing cash flows substantiating said profits?
Answer: ‘Our financial statements are always available to our lenders. However, publishing this statement may not comply with the regulations that apply to financial promotions directed to the Jamaican public. As such, this material should not be distributed to the public, as pursuant to the statutes and regulations that govern the functions of the Financial Services Commission (FSC), such act will be construed as solicitation.’
Question: If no monthly statements are issued, how do you keep track of your records?
Answer: ‘Without question, each lender/depositor is able to receive a monthly statement and currently Cash Plus is updating its system to allow the lender to utilise a password and user name to go on-line and check the status of their loan with us.’
Question: Have you had any discussions with the FSC or Ministry of Finance about your operations?
Answer: ‘We have had dialogue with the FSC and in furtherance of that dialogue it is our intention to do all things necessary to ensure that we operate in harmony with the FSC and all other regulatory bodies. We are confident that a positive resolution will be arrived at in short order.’
Question: Considering the high number of long-term investments held, if no new funds were to come in and a large number of clients withdrew their funds at the same time, where would the cash come from to satisfy them and in what time frame would it be paid out?
Answer: ‘The lenders to Cash Plus have liens over the businesses and assets until that loan is repaid.’
Question: Does Cash Plus do foreign exchange trading and are you in any way connected to Olint or David Smith?
Answer: ‘Cash Plus does not engage, and has never engaged in foreign exchange trading of any kind, and we have never represented ourselves as being so engaged. We are in no way connected with Olint or David Smith. We only deal in local currency and our lenders only take manager’s cheques to Cash Plus Limited. Furthermore, our funds are deposited in Jamaican commercial banks.’
The sustainability of any financial institution of the kind like Cash Plus will, in large measure, depend heavily on its openness about its business and the confidence the investing public has in its ability to maintain its payment of 10 per cent per month on money from its lenders/depositors.
Cash Plus is into huge business and as such, must bear scrutiny, even the kind which can appear at times to be ‘meddling’. Its sustainability is obviously important to it and especially to its lenders/depositors. Like most investments, whenever options are being examined, it is the duty of the investor to conduct due diligence before he or she commits.
Cash Plus has assured me that it will be open to answer all relevant questions posed by its depositors. I will be holding the company to that.
Some may say that all the questions have been answered sufficiently. Others may think differently. Since there is enough material in this article to open debate on Cash Plus, I am inviting my readers to feel free to make comment and seek additional clarification on matters that may appear hazy at this time.
observemark@gmail.com
