The Canadian pension fund, which last week paid up the US$10.25 million debt to National Commercial Bank on its 1998 purchase of what is now the Kingston Hilton hotel, is still being probed by Canadian regulators over its real estate holdings in the Caribbean, officials confirmed.

"I cannot provide any comment at this time, but we are continuing to review documents," said Rowena McDougall, senior manager of public affairs at the Financial Services Commission of Ontario (FSCO).

She was referring to a report done in March Canadian Commerical Workers Industry Pension Plan (CCWIPP) and formally submitted to regulators in May.

CCWIPP in 1998 bought from NCB Investments the New Kingston property that was operated by the Wyndham chain.
But recently, the FSCO has been following its suspicion that the pension fund may have been in non-compliance with two regulations set out under the federal law governing pension schemes in Canada.

These are stipulations that no more than 10 per cent of the book value of a pension plan's assets be invested, directly or indirectly, in any two or more associated persons or affiliated corporations and that no more than five per cent of the book value of a plan's assets in any one parcel of real property.

The concern of regulators is that CCWIPP might have breached these rules in a series of complex arrangements it used to acquire real estate in Jamaica and the Bahamas.

As at December 31, 2003, the plan had approved loans totalling CAN$167 million to a number of wholly-owned corporations of CCWIPP, which on-lent the funds to RHK Capital Inc, a real estate firm that in turn purchased hotels and land in Jamaica and the Bahamas.
This, regulators say, made up 15.68 per cent of the book value of the CAN$1.07 billion in total assets of CCWIP at the end of 2003.

The FSCO also pointed out that the breach appeared to be an "ongoing contravention", as the Caribbean development expressed as a percentage of total pension plan assets for the years 1998 to 2003 remained well above 10 per cent - moving from 13.57 per cent at the end of 1998 to 15.68 per cent at the end of 2003.

"Given the size of the plan's investment in the Caribbean development, FSCO is concerned that the quantitative limits set out in sections 9 and 10 of the Federal Regulation have been violated," the FSCO report stated. "In addition, FSCO understands that the Caribbean development has not been profitable but that the Trustees continue to invest additional amounts in the venture."

The Observer was unable to contact Clifford Evans, CCWIPP chairman of the investment committee, and it still remains unclear as to whether the restructuring of the plan to meet federal requirements might lead to the sale of the Hilton.

It is believed, however, that these concerns by regulators, and the possiblity of a complex interest rate mechanism on the Hilton property pushing its Jamaican obligation, caused an early pay-out to NCB.

However, the FSCO's investigation into the matter is still underway. Although the FSCO declined to comment at this time, they confirmed that the revision of documents was ongoing and that no new position had been taken by the Canadian regulator.

In February, an external auditor, BDO Dunwoody, provided a recalculation of the percentages, which showed lower percentages of the plans' assets.

It revealed that the percentage of book value ranged from 11.72 per cent to 13.37 per cent over the period, due to the exemption of previously added accrued interest.
However, the FSCO remained convinced that the breach had been made.

"Although there may be a discussion about the percentage of the pension fund invested in these properties, it is clear that the maximum limit as set out in the Federal Regulation has been exceeded," the FSCO asserted in its report.

"The examination revealed that, historically, there was no clearly assigned responsibility to ensure that the investments of the plan complied with the legislative requirements of
the Act and Regulation."

Going forward, the FSCO advised the board of trustees of the pension plan to meet specific requirements, among which included the undertaking of a complete independent due diligence review of the properties in Jamaica and the Bahamas.

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