~ SMMC to retain right to work directly with critical subcontractors ~
PHILIPSBURG–The establishment of a dedicated bank account in St. Maarten where all payments to INSO will be channelled, having all contractual securities in place including the necessary insurance, and giving St. Maarten Medical Center (SMMC) the right to enter into direct agreements with “critical” subcontractors if INSO is structurally unable to pay are amongst the “strict” conditions under which SMMC is willing to continue working with Italy-based contractor INSO for the construction of the new St. Maarten General Hospital.
SMMC General Director Kees Klarenbeek told Members of Parliament (MPs) on Monday, during a public plenary session of Parliament on the financial situation, feasibility and sustainability of the new hospital project, that SMMC is willing to continue working with INSO for the construction of the new hospital under very “strict, strict,” conditions.
Klarenbeek said INSO’s Extraordinary Commissioners have indicated that the company is able to provide all the agreed securities for the project, in addition to a five per cent retention, as per its contract.
The securities for the project include a new, on-demand performance bond from an A3 rated (Moody’s) bank for 10 per cent of the contractual value for the term of the contract, which is 48 months, as well as an advance payment bond from an A3 rated (Moody’s) bank for 10 per cent of the contractual value, and having the required insurance, including for hurricane protection.
In addition to these contractual securities, INSO’s Extraordinary Commissioners are willing to provide security to the lenders of the SMMC project, such as having a dedicated project bank account with a local bank in St. Maarten for all payments from SMMC to INSO and to pay SMMC-project-related expenses. The amount of the cumulative contractual profit of eight per cent will also remain at all times on this bank account.
SMMC will also obtain the right to enter into a direct agreement with “critical” subcontractors in case INSO is structurally unable to pay outstanding subcontractors. This additional security will be detailed as an addendum to the contract.
Continuing with INSO as the general contractor is subject to several factors, including the approval of lenders. Klarenbeek said lenders are not yet convinced that INSO meets the criteria for the project in terms of being financially strong enough to perform under the contract. He said SMMC is working with all parties – lenders, lawyers and INSO – “to arrive at a timely and well-motivated decision to either continue with INSO or to terminate that contract and do a new tender based upon the progress made to date.”
Lenders of the hospital project include Social and Health Insurances SZV; Algemeen Pensioenfonds St. Maarten APS; Stichting Pensioenfonds Fatum; Vidanova Pension Fund; Vidanova Bank NV; Guardian Group – Fatum Live NV; Windward Islands Bank (WIB); Algemeen Pensioenfonds van Curaçao; Foundation Pension Fund Isla Curaçao; and the St. Maarten Recovery, Reconstruction and Resilience Trust Fund.
The total loan amount for the hospital is NAf. 135 million for a term of 20 years and an interest rate of six per cent.
In giving an overview of INSO’s current status, Klarenbeek said INSO has been admitted into Condotte’s Extraordinary Administrative Procedure (EAP) as of December 5, 2018, at the request of its parent company Condotte. Three Extraordinary Commissioners have been appointed by the Italian Government (same as Condotte) and have the executive powers to run INSO. INSO is now a government-controlled company.
The main reasons for INSO to seek protection under the EAP procedure were financial problems at the parent company level. He said the parent company had sustained a considerable loss for one large project in Italy – a railroad station in Florence. This project has since been cancelled by the Italian Government.
The EAP was created by the Italian Government in 2003 as a new special regime for very large enterprises with the goal of preserving companies, despite their state of insolvency, through restructuring or reconversion of the group’s economic activity, typically via a sale. Companies in EAP have access to financial support from the Italian Government if needed. Condotte received financial support, approved by its Extraordinary Commissioners.
According to Klarenbeek, the EAP provides protection against creditors/banks for the debts till the date of EAP (December 2018). Those debts will be paid from the proceeds from the sale of the company.
INSO’s project portfolio is 1.3 billion euros. INSO wants to expand in the Caribbean region. The Extraordinary Commissioners have appointed a new General Manager. Klarenbeek said INSO most likely will be sold by the Extraordinary Commissioners. As per its contract with SMMC, a transfer of shares does not require SMMC’s approval. However, the buyer is bound to all stipulations of SMMC’s contract, he explained.
Klarenbeek said the completion of the sales process of INSO will take at least six months. “In the meantime, INSO, under leadership of the Commissioners and the new General Manager, is financially able to continue its business operations, as the old debts are frozen and, if needed, they will receive further financial support from the Italian Government,” he told MPs during the meeting.
Based on the stipulations of the EAP, the sales process will be based on a public and non-discriminating tender. It is likely that this will lead to a serious buyer, as market price is high as there are no debts. The buyer will have to provide a performance bond for a period of two years to the Italian Government equal to two years gross salaries of INSO staff to safeguard the continuation of the company and employment for the next two years. The sale and buyer need to be approved by the Italian Government
According to Klarenbeek, all conditions “precedent” to the contract have been met, including building permit, tariffs, mortgage, pledge and acceptance of the new articles of SMMC. SMMC has to evaluate whether to continue the project with INSO or terminate the contract and start up a new tender process.
Klarenbeek, who made his remarks while delivering a PowerPoint presentation, also spoke about SMMC’s tariff increase, which he stressed was far below the global medical trend increase and below Curaçao hospital SEHOS’ tariffs. He also outlined the business case for a new hospital, which he called solid and said is already partly proven, and spoke about medical tourism and how this is beneficial for the country.
Health Minister Emil Lee also delivered a PowerPoint presentation at the start of the meeting in which he outlined the mission of the Health Ministry VSA, the tripartite cooperation, National Health Reform, the new hospital and the ministry’s 2019 activities, amongst other things.
MPs asked a number of questions following both presentations and the meeting was adjourned for the minister and his team to compile the answers.